Military expenditures before 1980 fluctuated between 15 and 21 percent of the gross national product (GNP--see Glossary). In 1975, for example, Iraq allocated to its defense budget an estimated US$3 billion, representing 17.4 percent of GNP, whereas in 1979, military expenditures were estimated at US$6.4 billion, or 14.9 percent of GNP. After 1980, however, defense expenditures skyrocketed, exceeding 50 percent of GNP by 1982. The 1986 military budget was estimated at US$11.58 billion.
The war's staggering financial and economic costs have proved to be more severe than anticipated, and, because of them, most large-scale infrastructure development projects have been halted. In 1980 Iraqi revenues from oil exports amounted to US$20 billion, which, when added to Iraq's estimated US$35 billion in foreign exchange reserves, permitted the country to sustain rapid increases in military expenditures. By 1984, however, oil revenues were so low that Iraq sought loans from the Gulf Cooperation Council (GCC) states and from its foreign creditors. In 1986 annual oil revenues were estimated at US$5 to US$8 billion, whereas the war cost between US$600 million and US$1 billion per month. Military and financial experts estimated that by the end of 1987, Iraq had exhausted its US$35 billion reserves, and had incurred an additional US$40 to US$85 billion debt. Most of the money (US$30 to US$60 billion) came from GCC members, particularly Saudi Arabia and Kuwait, which, some experts believed, may not demand repayment. The Baathist regime adopted a strategy of "guns and butter," trying to absorb the economic shock of the war without imposing undue hardships on the population. Through a subsidy program, the government continued to provide ample food and basic necessities to the population. The policy succeeded, but it also mortgaged the state's future. In early 1988, as the war dragged on and as military expenditures rose, it was difficult to ascertain whether this strategy could be sustained (see Introduction.
Data as of May 1988