Citi Research considered that the better outlook for global oil prices would provide Iraqi authorities with time to implement their reforms plan, but it did not expect higher oil prices to put Iraq's fiscal and external finances on a sustainable path. It forecast oil prices to rise from an average of $41.7 per barrel (p/b) in 2020 to $59 p/b in 2021 and $58 p/b in 2022, before gradually declining to $51 p/b by 2025.

It projected Iraq's fiscal deficit to narrow from 16.4% of GDP in 2020 to 6.2% of GDP in 2021, and to remain at 5% of GDP to 6% of GDP between 2022 and 2025, supported by higher oil prices, a gradual increase in oil production, and the devaluation of the Iraqi dinar. It also expected the government's debt level to drop from 91.3% of GDP at the end of 2020 to 62.6% of GDP at end-2021. But it noted that the anticipated decline in the debt level is mostly due to the normalization of hydrocarbon revenues and nominal GDP, following their substantial drop in 2020 that led the debt level to nearly double last year. It pointed out that the currency devaluation will have a limited impact on the debt trajectory, and projected the government's debt level to rise to 65% of GDP by the end of 2022 and to reach 76.7% of GDP by end-2025. It cautioned that the fiscal deficit would remain around 8% of GDP during the 2021-25 period in case oil prices average about $40 p/b, while the debt level would reach 100% of GDP by the end of 2025. 

Further, it forecast the current account deficit to narrow from 13% of GDP in 2020 to 1.5% of GDP in 2021, but it expected the deficit to gradually widen afterwards to 4.4% of GDP by 2025. It noted that the Central Bank of Iraq's (CBI) foreign currency reserves will comfortably finance the current account deficit and external debt servicing of $500m in 2021. It added that disbursements from the International Monetary Fund, estimated at $6bn this year, would support the CBI's reserves. As such, it projected the latter to reach $55bn at the end of 2021 but to gradually decline to $31bn by end-2025 as the current account deficit widens. It cautioned that the CBI's reserves could drop to below $20bn by 2023 in case oil prices average $40 p/b. Under these conditions, it said that support to the non-oil economy is key to achieving sustainable fiscal and external balances. 
Source: Citi Research