For several years now Iraq’s finances have been on shaky ground. It continuously expands its public workforce while oil which it is completely dependent upon goes up in down in price. This is growing to a crisis point as Iraq has passed the largest budgets in history recently but hasn’t been able to cover them leading to a growing debt that the state may not be able to cover for much longer.
In August 2025 Iraq brought in 82 trillion dinars. 73 trillion was from oil and 9 trillion from non-oil sources. At the same time it spent 87.5 trillion dinars. 72 trillion was for operational costs mostly public salaries and pensions and 5 trillion was for government advances.
Next year will be no better. One researcher expected Iraq to earn around 99 trillion dinars in 2026 but spend 150-160 trillion.
Not only that but the government is bleeding dollars which it relies upon to pay its bills. From January to September the Central Bank of Iraq bought $49 billion from the Finance Ministry while selling $60 billion on its dollar auctions. That meant the Bank had to take out $11 billion from its reserves to meet demand.
Baghdad has been relying upon domestic borrowing to cover its deficits. This has led to a growing debt. The Central Bank of Iraq has it at 87.7 trillion dinars a 5% increase over 2024. Others have it at 90-91 trillion dinars the highest in history.
Researchers say that the government is at the point where it can’t borrow domestically anymore because it owes so much. It might have to devalue the dinar to reduce that amount but that would lead to inflation. More realistically it could spend its money better but that’s impossible. It relies upon the government to employ the growing population because it doesn’t have a strong private sector to create jobs. The ruling parties also need positions to hand out to its followers for patronage. It’s the major reason why the budget increases every year.
For now the government is trying to boost oil production and exports as much as it can. The problem is the petroleum market is saturated and prices are either stagnant or declining. That means it will not be able to significantly increase its revenue following this strategy.
The Iraq Future Foundation for Economic Studies and Consultants reported that Iraq’s oil revenues were down 10.5% in the 1st quarter of 2025 compared to the same period in 2024. This can only be reversed by an increase in petroleum prices which is not coming anytime soon.
The root cause of this dilemma is that Iraq’s ruling elite do not understand economics. Every time the country has been faced with major deficits it has largely rejected austerity measures and continued as normal believing that oil prices will go up in time. That has made the situation worse and the state could be reaching the breaking point.
SOURCES
Al Mada, “The budget deficit is ballooning … a difficult test awaits the next government,” 11/10/25
- “Iraq is on the brink of a complex financial crisis: no budget, mounting domestic debt, and pending final accounts,” 11/27/25
- “Iraq’s deficit will not be reduced, but rather will increase pressure. An expert explains the implications of the OPEC+ decision,” 9/9/25
- “Iraq’s public revenues declined by 12.7% during the first quarter of 2025,” 6/18/25
- “Observers: Financial pressures prompt Baghdad to increase its share of oil exports,” 9/9/25
Al-Samarraie, Jawad, “Financial expert warns of escalating fiscal crisis as Iraq faces real deficit approaching 15 trillion dinars,” Iraqi News, 11/15/25
-, “Iraq’s budget deficit exceeds 7 trillion Dinars in H1 2025,” Iraqi News, 9/6/25
No comments:
Post a Comment