The End of the Rentier State

1. Executive Summary

This chapter opens Volume Two of Iraq Vision 2045 with a question no less existential than the preceding questions of statehood and security: how do we finance the state we want? Part Three concluded with a state needing a professional army, internal security, cybersecurity and institutions able to continue through shocks. Yet that capacity itself becomes fragile if financed by one volatile resource. The chapter therefore discusses not “the oil problem”, but the problem of a strategic asset becoming a permanent spending base without sufficient conversion into assets, capabilities and production. In this sense, the end of the rentier state is not the end of oil, but the end of oil as a condition for fiscal and economic survival.

The data show that Iraqi dependence has multiple layers. The World Bank estimated in 2025 that oil represents approximately 53% of real output, 88% of government revenues and 91% of merchandise exports. In the IMF's 2025 table, oil revenue is 33.3% of GDP against total government revenue of 36.9%, meaning approximately 90.2% of revenue in that framework comes from oil. The Central Bank of Iraq places mineral fuels at 98.13% of merchandise exports in 2024. These percentages are not combined into one figure because they concern different years and concepts, but agree that Iraq remains highly dependent on oil for production, public finances, exports and foreign-exchange generation.¹

The budget reveals the greatest danger: volatile oil revenue finances more rigid commitments. In the IMF's 2025 framework, wages equal 18.6% of GDP and pensions 5.4%, together 24%, equivalent to roughly 65% of total government revenue as calculated from the same table. The conclusion, however, is not to cut salaries. It is to prevent expansion of permanent commitments without structural financing, and build a gradual public-workforce transition linking recruitment to actual service needs and financing capacity, protecting household incomes and avoiding a social shock from fiscal reform.²

The chapter also corrects the “salaries versus investment” dichotomy. Current spending on maintaining an asset, operating a school or hospital, or training an employee may be more productive than a stalled capital project that never enters service. Its rule is therefore: allocation does not equal expenditure; expenditure does not equal an asset in service; and an asset does not equal an outcome. Policy aims to turn each oil dinar into a continuing service, productive asset, or human and institutional capability, not merely an accounting entry.³

The path to 2045 begins in 2027–2030 by preventing deeper rent dependence: a unified baseline, annual fiscal-risk statement, at least three oil paths with a separate volume shock, a structural-financing gate for permanent commitments, accelerated final accounts, a public-investment quality gate, review of existing funds' functions, and administrative increases in non-oil revenues to at least 7.5% of non-oil GDP by 2030. This is restoration of a previously achieved Iraqi level, not an imported benchmark. The production chapters in Part Four then develop the genuine alternative in value, employment, exports and revenues.⁴

2. From Protecting the State to Financing It Sustainably

Part Three closed the protection question: what security does national renewal require, which army carries defence, how is everyday life protected, and how is the digitally connected state safeguarded? Each function needs sustained budgets, wages, maintenance, investment and updating that do not stop when oil prices fall or exports are disrupted. This part therefore moves from “How do we protect public capability?” to “What finances it and makes it sustainable?” Large oil reserves are insufficient; Iraq's state in 2045 must function under multiple global oil paths rather than remain hostage to one comfortable scenario.

This transition also prevents a common misunderstanding: the economy is not a separate later chapter about the state, but the material basis of its continuity. A legally strong, security-capable state can become fiscally weak when commitments accumulate that can be financed only in high-price years. Conversely, oil can be an exceptional source of strength if periods of abundance build human, physical, financial and institutional assets that reduce future dependence on rent rather than multiply it.

3. What Does “The End of the Rentier State” Mean?

The chapter adopts an operational definition of a rentier state as one whose financing and economic behaviour depend decisively on natural-resource or external rents not generated primarily by a broad domestic production and tax base. Fiscal rent dependence is especially pronounced in Iraq: oil is not merely a large sector of output, but the dominant source of government finance, exports and foreign-exchange inflows. Rent dependence therefore cannot be reduced to “What is oil's share of GDP?” Oil's output share may fall because its price falls, while budget financing and exports remain heavily dependent on it.⁵

“The end of the rentier state” means a condition in which oil is important but not decisive for the continuity of essential state functions. The budget can withstand a lower-oil scenario without widespread arrears or abrupt investment and maintenance cuts; the non-oil economy generates a greater share of value, employment, exports and public revenue; and a substantial share of rent becomes productive assets rather than immediate consumption. This is more demanding than the slogan “economic diversification” because it tests outcomes under shock, not the sector list in normal times.

3.1 Oil Is a Strategic Asset, Not the Problem Itself

The chapter does not adopt the “oil curse” as an inevitable verdict. Oil gave Iraq financing capacity that could—and still can—be used for education, health, infrastructure, industry, energy and financial capital. The problem is the relationship between volatile flows and permanent commitments: when higher prices become recruitment, transfers or projects the state cannot maintain during a downturn, abundance itself creates future fragility. Oil is therefore not a burden to discard, but an exhaustible asset needing a better conversion system.⁶

4. The Four Dimensions of Oil Dependence

The chapter's most important methodological safeguard is rejecting a single number. “Iraq depends on oil by such-and-such a percentage” is incomplete unless the dimension, year and method are stated. Output dependence differs from budget-financing dependence; export dependence differs from dependence in foreign-exchange generation. The dependence dashboard therefore has four parallel dimensions, with every value used for the question it was designed to answer.

Sources: World Bank; International Monetary Fund; Central Bank of Iraq; Statistics and Geographic Information Systems Authority.

5. The Economic and Fiscal Baseline: The Budget as a Mirror of Rent

The chapter uses 2024 as a relatively complete official Iraqi year for national accounts and trade, 2025 as an integrated estimation year in World Bank and IMF reports, and 2026 as an exceptional shock year not automatically made a structural baseline. This prevents mixing national execution with international scenarios and makes numerical comparisons conditional on definitions and denominators.⁷

Source: IMF, Iraq 2025 Article IV Consultation — Staff Report. The figures form a consistent international framework, not final Iraqi execution accounts.

The picture reveals a fundamental gap: oil revenue moves with price and volume, while wages, pensions, transfers and current services are more rigid. In 2025, wages and pensions together equal 24% of GDP, or approximately 65% of total government revenue in the same IMF table. Adding transfers brings the three items to 32.3% of GDP, against 3.6% in non-oil revenue. This does not make those items “waste”; it means the state has built large commitments relative to its domestic financing base.⁸

5.1 Balancing Salaries and Investment: Reframing the Problem

The formal theme “balancing salaries and investment” should not become a conflict between employees and projects. Public employees may produce security, education, health, administration and justice, while capital projects may remain stalled for years. The correct criteria are productivity, benefit and sustainability. Reform begins with a unified workforce baseline, control of unfunded hiring, redeployment, training, natural attrition and private-employment opportunities. It does not begin with mass dismissal or abrupt income cuts.⁹

Methodological source: IMF Public Investment Management Assessment (PIMA).

5.2 Final Accounts: Close the Fiscal Cycle

The Ministry of Finance publishes monthly execution accounts through the end of 2025 and for months of 2026. This is a strength because it allows comparison between legislation and actual implementation. The Accounting Department, however, refers to final accounts issued for 2020 and 2021, with audit and consolidation continuing for later years. It is therefore incorrect to say “there are no execution data”, or to treat a monthly account as a final audited account. The real gap is the time taken to close the fiscal cycle itself.¹⁰

The chapter proposes a simple sequence: regular monthly accounts; a preliminary annual execution report on a fixed date; then audited final accounts with a declining delay. This is not a marginal accounting matter. Without timely closure, the state cannot measure its real commitments, estimate savings, arrears or risks, or distinguish “what was planned” from “what was paid” and “what entered service”.

5.3 A Multiyear Budget Is Not a Medium-Term Fiscal Framework

Iraq approved a federal budget covering three years, 2023–2025, an important step in giving expenditure a horizon beyond a single year. A multiyear law does not automatically resolve rent dependence, however: oil prices, volumes, exports, non-oil revenues and commitments can quickly diverge from first-year assumptions. The chapter therefore distinguishes a Multi-Year Budget Law from a Medium-Term Fiscal Framework. The former allocates resources for specified years; the latter is an annually renewed process re-estimating resources, risks and commitments and linking new decisions to an updated fiscal path.¹¹

The practical value is that fiscal planning does not freeze when the law is passed. Each year, the state must retest Iraq's actual export price, exported volume, collected revenue, growth in wages and pensions, projects entering service and emerging risks. A multiyear budget then becomes part of continuous management, not a promise that initial figures will remain realistic until the end. This flexibility is especially necessary for an economy exposed simultaneously to price, volume and export-route shocks.

6. Volatile Oil and Rigid Commitments

Volatility is not only about price. Iraqi oil revenue is affected by prices, produced and exported volumes, export routes, and policy and production decisions in the international environment. The chapter therefore adopts a four-channel risk equation: Price Risk + Volume Risk + Export Route Risk + Policy/OPEC Risk. Global prices may rise while Iraq's export capacity falls or production is restricted; higher prices do not automatically become higher revenue.

Source: analytical synthesis of Ministry of Finance/SOMO/CBI data and IMF and World Bank reports.

6.1 Stress Test: Test the Structure Before the Shock

The World Bank estimate that oil accounts for 88% of government revenues in 2025 can support a preliminary sensitivity test, not a forecast. Assuming—purely mechanically—unchanged non-oil revenue, spending, exchange rates and production, a 15% decline in oil revenue reduces total revenue by approximately 13.2%; a 25% decline reduces it by approximately 22%; and a 40% decline reduces it by approximately 35.2%. These figures do not predict the next crisis; they expose the narrowness of the alternative base.¹²

Source: calculation derived from the World Bank's estimate of oil's share of government revenues in 2025. It excludes taxes, debt, reserves, exchange rates and changes in volumes.

This example should become an annual institutional budget function: a fiscal-risk statement testing at least three oil paths and a separate volume shock, then explaining effects on essential commitments, investment, maintenance and financing. Risks thereby enter budget decisions before a crisis, instead of the shock itself becoming the correction mechanism.

6.2 The Breakeven Price and Global Uncertainty

The IMF's 2025 update estimates Iraq's fiscal breakeven oil price at approximately $84 per barrel in 2024, against approximately $54 in 2020. This is not “the price the economy needs”, but a value changing with expenditure, production, non-oil revenues and exchange rates, signalling rigidity in the spending base. An earlier IMF version estimated 2024 at nearly $94; the chapter therefore uses $84 as the more recent working figure and records the revision rather than combines the two.¹³

Over the long term, there is no need to choose one oil forecast. The IEA's World Energy Outlook 2025 presents divergent paths: in STEPS, demand approaches 102 million barrels per day around 2030 before gradually declining; in CPS, it continues to approximately 113 million in 2050. OPEC's WOO 2025 presents a higher path of approximately 123 million in 2050. This divergence itself justifies diversification: Iraq needs a plan that works in more than one world, not a bet that one model will win.¹⁴

6.3 What Have Previous Shocks Taught Us?

Recent decades reveal an institutional pattern without turning this chapter into an oil history. In 2014–2016, falling global prices coincided with heavy security burdens, quickly showing that investment and flexible financing are the first pressured when current commitments are large. In 2020, the pandemic delivered an exceptional demand and price shock, demonstrating that permanent commitments cannot safely be assumed financeable through uninterrupted oil flows. The lesson is not that every crisis resembles its predecessor, but that the fiscal system must have shock-absorption space before a crisis rather than search for it afterwards.¹⁵

The years 2022–2023 show the other side of the cycle: higher prices create a broad fiscal window, but may be the most dangerous time to establish new permanent expenditure because abundance appears normal. The fiscal rule and Structural Financing Gate prevent exceptional income becoming a spending base that cannot later be reduced. A successful abundant year is not one in which the state spends everything received; it is one ending with more assets, stronger reserves, ready projects and commitments less dependent on sustained high prices.

The disruptions of 2026 add a different lesson: even where regional tensions may raise prices, Iraq can face volume or export-route risks. A rule based only on a reference price is therefore insufficient. The official model must separate price shocks from volume shocks, test partial export disruption, and measure the state's capacity to protect essential expenditure, maintenance and priority investment. Historical memory then becomes a planning standard instead of a sequence of surprises.

7. From Rent to Assets: Oil as a Window for Transformation

Oil is a non-renewable natural asset. Selling a barrel does not merely generate “income”; it converts part of an underground asset into cash. The crucial economic question is what that cash becomes. If it all ends in consumption creating no future capacity, the wealth portfolio shrinks. If it becomes human capital, productive infrastructure, financial assets, institutional capacity or productive private investment, wealth has changed form.¹⁶

Conceptual source: World Bank, The Changing Wealth of Nations 2024.¹⁷

This makes the “wealth portfolio” a complement to the budget. A good school may constitute intergenerational saving as much as a financial asset, if it produces actual human capital. Water, transport or energy infrastructure may be a future asset if it enters service, is maintained and raises productivity. The chapter therefore equates intergenerational equity neither with transferring all rent into an overseas fund nor with assuming domestic spending is good investment.

7.1 The Investment Quality Gate and Absorptive Capacity

A sharp rise in oil revenue does not necessarily let the state turn the entire increase into good domestic investment within the same year. Planning, design, land, contracting, contractors, materials, supervision and operation all have limits. Exceeding capacity may raise prices, time and cost overruns, and stalled-project numbers. Deferring some windfall expenditure can therefore protect development rather than obstruct it.¹⁸

The vision proposes a public-investment gate for major projects: no full funding before land, design, economic appraisal, operating and maintenance plans and a benefit owner are ready. After completion, success is measured not only by expenditure, but by the share of assets entering service, time and cost deviations, and subsequent benefit evaluation. Where no national baseline exists, establish one in 2027–2028 instead of inventing a percentage now.

7.2 Intergenerational Equity: What Do We Leave After Selling the Asset?

Intergenerational equity in an oil-producing country is not measured only by money remaining in a financial account. When a non-renewable resource is extracted, later generations have a right to inherit capacity equivalent to a reasonable share of the natural asset consumed. This may be a financial asset, but also better health, quality education, sustainable water, a productivity-enhancing transport network or capable public administration. The assets must be real, measurable and maintainable—not nominal projects or expenditure whose effects end with the year.

An Oil-to-Assets Dashboard is therefore proposed instead of an ideological debate between “spend domestically” and “save abroad”. An optimal portfolio may combine both according to absorptive capacity, returns and risks. Where the state cannot convert a large inflow into good projects in one year, temporary saving or financial investment is preferable to poor spending. Where high-return projects and human-capital investment needs exist, allocating rent to them is also real saving. This is operational intergenerational equity: preserving comprehensive national wealth per person, not one asset form alone.¹⁹

8. Rent as an Obstacle to Production: Mechanisms, Not Slogans

The chapter does not describe rent as corruption or social laziness. It is a set of economic and institutional incentives that can weaken production if unmanaged. When the state finances large demand and extensive employment through oil, part of the economy becomes tied to its fiscal cycle. When oil exports generate most foreign exchange, imports can meet demand more easily than domestic tradable sectors can develop. When domestic revenues are narrow, the direct link between productive economic activity and state financing weakens.

8.1 Public Employment as a Rent-Distribution Channel, Not an Accusation Against Employees

IMF analysis based on labour-market data indicates that the public sector accounts for nearly 40% of employment in the dataset used, with wage advantages and job security making it attractive relative to a private sector with limited absorption. This does not mean 40% are “surplus” or employees cause the crisis. It means public employment partly distributes oil income and supports social stability. Any transition therefore needs genuine private-job growth, not merely a fiscal decision to cut staffing.²⁰

The strategy is to prevent this channel deepening: no mass hiring without structural funding; a unified Workforce Baseline; natural attrition; redeployment; training and mobility; and voluntary exit where appropriate. In parallel, the chapters on a productive economy and investment develop so new employment results from production and added value rather than an implicit rent share.

8.2 Non-Oil GDP Does Not Equal Productive Diversification

Non-oil output may grow through trade, property or services tied to budget spending while non-oil exports remain weak and productivity low. The chapter therefore adopts a composite diversification test: real non-oil growth, private investment, tradable sectors, non-oil exports, productivity and non-oil revenues. Sector details are left to Chapters C02–C06, but this chapter establishes that a “lower oil share” is not the governing indicator.²¹

8.3 Non-Oil Revenues: Broader Financing Without Stifling Production

The IMF places non-oil revenues in 2025 at approximately 5.5% of non-oil GDP. The adopted near-term target is at least 7.5% by 2030, a level appearing in Iraq's 2021 series. It therefore restores previous Iraqi capacity rather than copies a foreign benchmark. Higher non-oil revenues, however, do not automatically equal productive diversification, nor simply mean higher taxes and fees.²²

The early path focuses on administration: simplified procedures, digitisation, compliance, customs, reduced leakage and a broader formal base as the economy grows. Rate design, taxes, debt and monetary policy are left to V2-D04-C07. The rule here is More Non-Oil Revenue ≠ More Production, but the state cannot escape rent dependence while domestic revenues remain extremely narrow.

8.4 The Resource Curse and Dutch Disease: Hypotheses to Test, Not Slogans to Proclaim

Comparative literature shows that natural resources do not inevitably lead to failure. Countries differ in institutions, savings, investment, decision quality, openness and capital accumulation. The chapter therefore does not use “the oil curse” as a complete explanation of Iraq's experience. Iraqi evidence more strongly establishes fiscal volatility, narrow non-oil revenues, heavy public employment and a weak non-oil export base. Other political and social channels need their own evidence, not attribution to oil alone.²³

The same applies to Dutch Disease. Indicators are consistent with some channels: large oil-based foreign-exchange inflows, extensive imports, an attractive public sector and relatively weak tradable sectors. Establishing the condition, however, requires a more rigorous series on the real effective exchange rate, wages by skill, sector productivity, and labour and capital movements across the oil cycle. The chapter proposes building this series in the first phase. If data establish the channel, policy is designed accordingly; if not, the diagnosis changes rather than forcing a ready-made theory onto Iraq.

8.5 Demand, Imports and the Fiscal Contract: How Does Rent Change Economic Structure?

Higher imports do not make every import “bad”. A productive economy itself needs machinery, inputs and technology. The problem arises when rent finances large domestic demand without comparable expansion in competitive sectors, so higher income quickly becomes consumer imports or local services linked to public expenditure. Markets then appear active while capacity to generate foreign exchange outside oil changes little. Diversification indicators must therefore distinguish capital imports supporting production from consumption dependence expanding with the budget cycle.

Rent also changes the fiscal relationship between citizen and state. When most public revenue comes from an external resource rather than a broad domestic economic and tax base, state financing is less directly connected to productive-sector performance and everyday interaction between taxpayer and service provider. Higher taxation does not automatically create accountability or production. It does, however, explain why a non-oil revenue base is also part of institutional transformation: a state financing more functions through a productive domestic economy becomes more interested in measuring, protecting and expanding its growth.

Fiscal reform must therefore accompany growth of the base, not precede it with arbitrary penalties and fees. Better collection, simpler procedures, more consistent customs administration and reduced leakage can raise non-oil revenues without stifling formal enterprises. When the state raises compliance costs for a still-small, informal economy, it may gain temporary revenue while weakening the base supposed to finance it later. This is one reason revenue administration here is separated from detailed tax-policy design in C07.

9. Breaking the Oil Cycle: A Fiscal Rule and Financing Gates

The cycle to break is clear: higher oil → expanded spending and commitments → lower oil → deficit, debt or pressure on investment and maintenance. The fiscal rule aims not to prevent spending, but to separate part of spending decisions from annual price volatility. The chapter therefore specifies neither a final reference price nor a ready-made deficit ceiling now. The rule must be designed after historical simulation of Iraqi prices, volumes, revenues and commitments, with defined crisis escape clauses and public explanations for deviations.

9.1 The Structural-Financing Gate for Permanent Commitments

One of the chapter's most distinctive instruments is the Structural Financing Gate: no major new permanent current commitment is approved unless it has structural funding sustainable under a reasonable low-oil scenario, or is offset by another permanent reduction. This is neither a “salary rule” nor a recruitment ban. It tests capacity before a windfall-year decision becomes an obligation for future generations of budgets. The register must cover major new commitments so the share tested can be audited.

9.2 Stabilisation, Saving and Development: Three Functions, Not One Fund

A sovereign fund is not an automatic solution. Before creating one, the state must understand existing assets, accounts and funds, their liabilities, and the function genuinely missing from the system. Iraq already has the Iraq Development Fund as a development, investment and partnership instrument. It cannot simply be renamed a stabilisation or future-generations fund without legal and functional change.²⁴

Source: Iraq Development Fund, official website and institutional materials.

The first phase therefore begins with a Fund Function Review and Asset/Liability Map. It may lead to reform of existing institutions, accounting separation and internal rules, or—if need is demonstrated—a new instrument. Institutional reform precedes institutional proliferation. Nor does a fund equal fiscal discipline: Sovereign Fund ≠ Fiscal Discipline.

9.3 The Fiscal-Risk Statement: Make the Shock Visible Before It Happens

The chapter proposes an annual Fiscal Risk Statement accompanying the budget, not a theoretical appendix. It begins with published assumptions for Iraq's export price and volume, presents strong, reference and low paths, and adds a separate volume shock and partial export-disruption path. It then shows each case's effects on revenues, deficit, financing, capital expenditure, maintenance and permanent commitments. The purpose is not to predict oil prices, but to show what the budget does if the forecast is wrong.²⁵

Its value lies in connecting risks to decisions. If the low scenario shows a new commitment forcing cuts to vital maintenance or high-priority investment, the commitment's cost becomes visible before approval. If current buffers are insufficient, saving needs become function-specific rather than an arbitrary ratio. Policy shifts from “How much can we spend at today's price?” to “What can we commit to even if prices or volumes change?”

An auditable summary should be published, with potentially sensitive commercial or negotiating details retained in institutional channels. Its methodology should be reviewable by the Federal Board of Supreme Audit, Parliament and competent authorities, not monopolised by one body without scrutiny. Verification independence here is functional: assumptions and methods must be testable even though final fiscal decisions remain with government and the legislature.²⁶

Over time, the statement can expand to risks outside this chapter, such as public-enterprise liabilities, partnerships and guarantees. The starting point in V2-D04-C01 remains the diagnosis of rent dependence: oil prices, volumes and routes against commitments that do not fall as quickly. What matters is an annual practice operating through an entire oil cycle, not a document written once and forgotten.

10. What Do We Learn from Other Countries?

Comparisons do not seek a country entirely “like Iraq”, but transferable mechanisms. Norway separates petroleum flows from annual spending decisions through a fund, rule and oversight, but differs in institutions, population and history. Chile offers a mechanism separating commodity-price cycles from spending through structural balance and independent experts. Malaysia highlights conversion of resources into a production base, not only a fund. Saudi Arabia shows that non-oil growth can advance while fiscal sensitivity to oil persists; output diversification must therefore not be equated with fiscal escape from rent dependence.²⁷

Sources: Government of Norway; DIPRES Chile; World Bank Malaysia Economic Monitor; IMF Saudi Arabia 2025.

11. The 2045 Vision: Oil Is Important, but Not a Condition of Survival

Success in 2045 is neither an Iraq without oil nor one whose oil share has mechanically fallen. It is a state able to operate essential functions and necessary investment under a lower-oil path without acute financing crisis; a non-oil economy generating value, exports and private employment; a budget with broader domestic revenues and a fiscal rule controlling volatility; and a system measuring what oil wealth became after sale: education, skills, assets in service, reserves, institutional capacity and productive investment.

The chapter therefore adopts a Composite Dependence Index rather than a single oil-share target. One indicator may rise or fall for cyclical reasons; the package must be read together: oil revenue as a share of total revenue, oil in exports, its real output weight, non-oil revenue relative to non-oil GDP, the non-oil deficit, commitment rigidity, investment quality, buffer size and Oil-to-Assets conversion. When these improve because alternatives grow rather than oil collapses, Iraq has genuinely begun ending the rentier state.

11.1 Transformation Phases and Transition Conditions

11.2 The 2045 Test: Five Questions Instead of One Number

The final test can be reduced to five questions. First, if oil revenue falls substantially for several years, can the state meet essential commitments, operate services and maintain assets without widespread arrears or damaging emergency finance? Second, does public investment actually become assets entering service, or does the budget still measure success by expenditure? Third, do non-oil revenues grow with the formal base and production, or through higher transaction costs imposed on a narrow base?

Fourth, does the non-oil economy generate exports, productivity and private investment, or does its growth depend heavily on oil-funded government spending? Fifth, do abundant years raise buffers and the asset portfolio and reduce future dependence, or merely enlarge commitments? If answers improve through a complete oil cycle, the state has begun escaping rent dependence even if oil remains a huge sector. If answers remain negative, no accounting decline in oil's share suffices to declare success.

These questions make the strategy resistant to statistical beautification. Non-oil output may rise because oil prices fell; non-oil revenues may rise through an exceptional fee; capital expenditure may rise because of a huge project not yet in service. None is sufficient alone. The measure is the economy's and public finances' capacity to endure and produce alternatives after adjusting for the oil cycle.

12. Indicators and Targets: Measuring Sensitivity, Not Beautifying Ratios

The chapter rejects an 80→60→40→20 ladder for oil's share. Such a target could be achieved because oil collapsed, not because alternatives succeeded. Targets are therefore divided into high-confidence institutional commitments, near-term figures derived from Iraq's history, and long-term indicators established after baseline creation.

Source: IMF, Iraq: Selected Issues, 2024.

Methodological note: the 7.5% target matches an Iraqi level appearing in the IMF's 2021 series.

13. Implementation Programmes: Turning Diagnosis into a Working Cycle

The following programmes are neither an “austerity plan” nor substitutes for the production chapters. They change decision rules so rent dependence does not deepen before the productive economy reaches the necessary scale. Many have low or moderate institutional costs but substantial fiscal effects because they change how commitments are created, investments selected, and abundant and downturn years managed.

Source: effective Iraqi laws and frameworks according to jurisdiction.

13.1 Implementation Matrix: From Gaps to Responsibility

Source: Federal Financial Management Law No. 6 of 2019 and its amendment.

13.2 From Programme to Budget Decision

To prevent programmes becoming disconnected reform lists, they must converge in the budget-preparation cycle. The Ministry of Finance begins with oil and risk scenarios; new commitments undergo structural-financing tests; major projects pass readiness gates; allocations are compared with actual execution and final accounts; then the map of funds, buffers and assets is updated. “Ending rent dependence” becomes mandatory questions within fiscal decision-making itself, not an initiative outside the budget.

The required 2030 outcome is not many new agencies, but changed decision behaviour: ministers requesting permanent programmes know how they will be financed under weaker oil conditions; institutions requesting projects know how they will enter service and be maintained; and budget-makers see the effects of different prices, volumes and exports before approving expenditure. This is the transition from reaction to preventive governance of rent.

14. Costs, Financing and Fiscal Impact

Most programmes in this chapter are not massive infrastructure projects; they involve models, data, rules, assessments, financial-system updating, training, and asset and fund reviews. Inventing a “national budget to end rent dependence” is therefore meaningless. The greatest cost lies in the choices themselves: the appropriate buffer size, workforce-transition cost, investment stopped by the quality gate, and commitments never created because they failed the financing test.

Three things must be distinguished: Avoided Cost ≠ Cash Saving ≠ Reallocation. An avoided future cost does not become cash available today. Cash savings do not finance another programme until actually realised and legally authorised. Reallocation is a separate fiscal decision. This prevents inflated paper “reform savings” and bases financing on real rather than hypothetical money.

15. Risks and Social and Political Safeguards

Escaping rent dependence is as political and social as it is fiscal. The first risk is using the phrase to justify rapid austerity pressuring low-income groups, or allowing strong oil prices to postpone reform because crisis is invisible. The second is creating rules or funds unable to withstand the first political pressure. The third is cutting investment and maintenance first whenever shocks occur, eroding the very assets meant to end rent dependence.

15.1 Transition Safeguards

The first safeguard is gradual transition. The chapter does not use “the end of the rentier state” to justify abrupt household-income cuts or mass dismissal. Every public-employment adjustment is paired with training, mobility and growth in private-job alternatives. Maintenance, education, health and productive expenditure are protected from the notion that “current spending is bad”. Distributional effects of fees, subsidies or tax reform are measured in the relevant fiscal-policy chapter, not here.

The second is transparency: rules for using oil revenues, stabilisation, saving and asset conversion must be publicly auditable without harming legitimate commercial investment confidentiality. The third is spatial equity: producing and non-producing governorates are treated within the constitutional framework, population needs, and environmental and service impacts, without turning this chapter into a detailed revenue-sharing dispute.²⁸

15.2 What Must Be Protected During Reform?

Social stability is not an obstacle to reform, but a condition for success. When revenues fall, budgets tend to cut what can be postponed quickly—often investment and maintenance—while current commitments remain rigid. Yet cutting maintenance may destroy an asset worth more than the year's saving, and stopping good investment may delay the alternative needed to escape rent dependence. The crisis framework must therefore distinguish spending that preserves an asset or essential service from spending that can be deferred with less harm.

Public-employment transition must also not create an income gap before other job opportunities expand. The vision therefore links control of new hiring to training, mobility, redeployment and natural attrition, deferring larger changes until private sectors can absorb workers. The aim is for households' sensitivity to rent to decline as income sources grow—not to withdraw rent first and ask the market to compensate later.

16. The Legal and Fiscal Framework: Existing Instruments Need a Better Operating Cycle

The Constitution provides a general basis for economic development, investment promotion and protection of public funds, and regulates federal fiscal powers and oil and gas ownership and management for the people's benefit. Federal Financial Management Law No. 6 of 2019 and its amendment No. 4 of 2020 frame budget preparation and execution, reporting, accounts and oversight. Budget Law No. 13 of 2023 covered 2023–2025 and was amended in 2025. The chapter need not enumerate provisions; it needs to activate these instruments' functions in a medium-term framework, risk management and timely final accounts.²⁹

A multiyear budget law does not automatically equal a Medium-Term Fiscal Framework. The law allocates for specific years; the framework continuously updates prices, volumes, risks, commitments and structural expenditure. Continued execution in 2026 after the published three-year budget horizon ended highlighted the importance of a fiscal framework operating during legislative delay or gaps without losing oversight or execution transparency.³⁰

17. Why Does Oil Alone Not Create a Great State?

Oil buys possibilities, not outcomes. It can fund a school without guaranteeing learning, a road without guaranteeing economic return, a factory without guaranteeing competitiveness, and a state apparatus without guaranteeing efficiency, law or integrity. This is why the economy follows chapters on the state, sovereignty, law, government, integrity and security: money magnifies institutional quality or weakness. Resources become national renewal only when capable institutions turn them into working assets, then productivity, renewable income and stable financing capacity.

A great state, in this logic, does not merely spend more because it sells more oil. It converts a time-limited resource into capability that survives its depletion or volatility. Even if Iraq still produces large oil volumes in 2045, it can be said to have escaped rent dependence if falling oil revenues no longer paralyse essential functions, the non-oil base carries a growing share of value, employment, exports and revenue, and rent's conversion into assets and outcomes can be traced.

18. Conclusion: Oil Finances the Transition Rather Than Postpones It

Ending the rentier state is neither an anti-oil slogan nor a call to reduce the state's social role. It redesigns the relationship between a volatile resource and permanent commitments. Oil remains a source of strength and a sovereign resource, but every abundant year should increase Iraq's ability to withstand a weaker year rather than its need for a higher price. Every oil-funded project must be tested by what entered service and what it produced; every permanent commitment by its structural financing; every fund by its function; and every diversification indicator by the productivity, exports and revenue it creates, not merely an arithmetical reduction in oil's share.

Iraq leaves the rentier state not when it produces less oil, but when oil declines become less able to paralyse the state and economy. Oil remains a source of strength; real strength begins when an exhaustible asset becomes lasting assets, capabilities, production and renewable income. The part therefore moves to its next question: if oil finances this transition, what will the non-oil economy actually produce? What combination of industry, agriculture, productive services, tourism and the digital economy can create value, jobs and foreign exchange outside the oil-budget cycle?

References

1. World Bank, Iraq country economic updates 2025–2026; Iraq — Macro Poverty Outlook, April 2026; The Changing Wealth of Nations 2024; Breaking Out of Fragility: Country Economic Memorandum for Diversification and Growth in Iraq, 2020.
2. International Monetary Fund (IMF), Iraq: 2025 Article IV Consultation — Staff Report, Country Report No. 25/183, 2025; and Concluding Statement of the 2025 Article IV Mission.
3. International Monetary Fund (IMF), Iraq: Selected Issues, Country Report No. 24/129, 2024 — Non-oil revenues and fiscal structure; public employment and labour-market channels.
4. International Monetary Fund (IMF), Iraq: Selected Issues — Unlocking Iraq’s Economic Potential, Country Report No. 25/184, 2025; PIMA Handbook, 2022; What is PIMA, 2026.
5. Statistics and Geographic Information Systems Authority, preliminary annual GDP estimates for 2024; and national accounts and annual reports page, 2025–2026.
6. Central Bank of Iraq, Annual Economic Report for 2024, external sector, export composition and trade, 2025.
7. Iraqi Ministry of Finance, budget-execution archive and monthly accounts, 2025–2026; Accounting Department, final accounts and reconciliation with SOMO and the Central Bank, 2026.
8. Iraqi Council of Representatives/Iraqi Official Gazette, Constitution of the Republic of Iraq, 2005; Federal Financial Management Law No. 6 of 2019; First Amendment No. 4 of 2020; Budget Law No. 13 of 2023; First Amendment No. 4 of 2025.
9. Iraq Development Fund, About Us, 2026; and official statements on its investment, partnership and financing model, 2024.
10. International Energy Agency (IEA), World Energy Outlook 2025 — STEPS, CPS and scenario methodology; OPEC, World Oil Outlook 2025 — global oil-demand projections.
11. World Bank Research Observer / Oxford Academic, Natural Resources and Economic Diversification: A Survey, 2021.
12. International comparisons: Government of Norway — fiscal rule and GPFG; DIPRES Chile — structural balance framework; World Bank — Malaysia Economic Monitor: Harnessing Natural Resources; IMF — Saudi Arabia 2025 Article IV and fiscal buffers.