For months there have been warnings of an impending financial crisis for the Iraqi government. That finally started to hit in February 2006 as Baghdad wasn’t able to pay all of its workers their full wages.
At the start of February the government was not able to make its social welfare payments. That was because Baghdad didn’t have the money to pay them.
A week later there were protests in three provinces over part or all of their salaries being withheld. In Diwaniya justice department workers announced a strike because they were not paid and there was no word on when they would be. Municipal workers in Diyala and employees at the Hilla Textile Factory in Babil protested because their pay was cut 14-15%.
This has been a huge worry amongst the elite as well as public workers. The government is the largest employer in the country and the ruling parties use jobs in their patronage networks to maintain their followers. To not be able to pay civil servants would cause a crisis in the economic and political system.
The root problem is a bloated budget. In 2023 Iraq passed a three year budget for 198.7 trillion dinars/$152.8 billion a year with a 64.1 trillion dinars/$49.3 billion deficit. This was the largest spending bill in the country’s history. The government traditionally increases its spending each year largely driven by expanding the public workforce.
Baghdad immediately ran into problems as the budget was mostly funded by oil revenues that began to drop after its passage. In 2023 Iraq averaged $8.124 billion per month from oil sales. That then dropped to $8 billion month in 2024 and $6.917 billion in 2025.
By the start of 2026 the Central Bank of Iraq reported that spending was far outpacing earnings. From January to October 2025 Iraq earned 104.43 trillion dinars/$79.65 billion and spent 115.53 trillion/$88.11 billion. That led Prime Minister Mohammed Sudani to order a review of government spending. As usual nothing substantive came from this.
The result is a growing public debt. The Central Bank said that it stood at 87.7 trillion dinars in November 2025. That was a 5% increase from 2024.
Not only that but Baghdad’s is notorious for keeping bad books and hiding its outlays. The Finance Ministry for instance said that it spent 6 trillion dinars a month on public salaries. Documents from the ministry however showed that it was actually spending 7.5 trillion dinars. It also doesn’t know how many government workers there actually are. Contractors and temporary workers are not included in the figures. This means the government could be in a bigger hole then officially announced.
The government is unlikely to do anything about this until it turns into a full blown crisis. That’s because the politicians know nothing about economics. Whenever there is a large deficit they are unwilling to act because they believe that oil prices will eventually increase and the problem will be solved. This time there could be social unrest if more public employees aren’t paid or face cuts in their salaries. The last thing the authorities want is a wave of protests across the country. That could couple with the youth’s high unemployment and dissatisfaction with the status quo that led to years of demonstrations. The last series of protests were put down by the large use of force, assassinations, kidnappings and arrests.
SOURCES
Alaaldin, Farhad, “A State in Collapse: Mapping Iraq’s Economic Woes,” Washington Institute for Near East Policy, 6/2/21
Iraq Oil Report, “Cabinet passes draft budget with record spending and new KRG framework,” 3/14/23
Al Mada, “The Eco-Iraq Observatory records a financial deficit exceeding 17 trillion dinars during 9 months,” 12/7/25
- “Employee protests and strikes erupt in three provinces as the salary crises escalates,” 2/10/26
- “Iraq is on the brink of a complex financial crisis: no budget, mounting domestic debt, and pending final accounts,” 11/27/25
- “Liquidity shortage freezes welfare payments, while pensioners’ salaries are delayed,” 2/4/26
- “The salary crisis is worsening; conflicting figures reveal a serious financial gap and a worrying dependence on oil,” 12/14/25
Rudaw, “Iraqi premier orders ‘urgent review’ of public spending, entitlements of top officials,” 12/15/25
Salem, Amr, “Iraq’s state spending grows compared to income in 2025,” Iraqi News, 1/18/26
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