Shafaq News/ The Iraqi government has enacted several measures aimed at reducing external public debt, leveraging financial surpluses from increasing oil prices to achieve success in this endeavor. However, domestic debt has surged to over 70 trillion dinars to bridge liquidity gaps and meet operational expenses.
Following the 2003 US invasion, Iraq has continued to rely on external borrowing, particularly during the oil price collapse in 2014, which coincided with military operations against ISIS. Internal borrowing has also been employed to address the country’s budget deficit.
The International Monetary Fund (IMF) highlighted that internal imbalances in Iraq have intensified due to substantial fiscal expansion and declining oil prices, underscoring “the need to gradually correct the fiscal situation to stabilize the debt in the medium term and rebuild the financial reserves.”
Dead Debts
Jamal Coujar, a member of the Parliamentary Finance Committee, characterized the external debt as “dead debt.”
In an interview with Shafaq News, he explained that it relates to the Gulf War and dates back over 30 years. “Countries are not demanding it. Therefore, it is not real debt, and if Iraq were to request its cancellation, it would be canceled,” he stated.
Cojar noted that the internal debt, which exceeds 70 trillion Iraqi dinars, is gradually increasing due to state revenues being lower than expenses. However, he reassured that “it is not alarming debt.
According to official data, Iraq’s internal debt amounts to approximately $50 billion, settled within the official financial and governmental apparatus. Additionally, Iraq has outstanding debts to eight countries, including Iran, Saudi Arabia, Qatar, the UAE, and Kuwait, totaling $40 billion. These debts are questioned in terms of validity from Iraq’s perspective and have not been canceled despite being subject to the Paris Club’s oversight.
Low External Debt
Mudher Mohammad Saleh, the financial advisor to the Iraqi Prime Minister, stated in an interview with Shafaq News that “Iraq is among the countries with very low external debt, with total payable debts not exceeding 10 billion dollars.” He highlighted that these debts have annual allocations in the federal budget for repayment, which must be settled by 2028.
Saleh noted that “the external debt consists of remnants from settlements before 1990,” emphasizing that “Iraq is considered to have strong financial credibility, with a high credit rating according to global agencies such as S&P and Fitch.” He added that the external debt constitutes less than 5% of Iraq’s GDP, in contrast to the global standard, which permits debt levels up to 60% of GDP.
Moreover, Saleh pointed out that “there is internal debt amounting to 76 trillion dinars,” primarily caused by two financial crises: the first occurring between 2014 and 2017 due to the war against ISIS and declining oil prices, and the second being the COVID-19 pandemic, which led to the closure of global markets and a significant drop in oil prices, resulting in extensive borrowings.
He emphasized that "the general internal debt does not exceed 30% of GDP and is a debt within the government, not between the government and individuals or the market.” Saleh assured that there are mechanisms for its repayment within the government banking financial system, thus indicating that there are no associated risks.
Debt Is Not the Ideal Solution
Economic expert Durgham Muhammad Ali holds a contrasting view to the financial advisor regarding Iraq’s internal debt situation. In an interview with Shafaq News, he warned that “internal debts pose a risk, as they are due for repayment and should not exceed 50% of the country's annual gross output.”
He stated, “Expanding internal borrowing is not the ideal solution to cover the budget deficit; it is an easy way to address the deficit through primitive but effective means, as long as it does not exceed the required limit, especially given the decline in financial inclusion and the low rates of banking deposits among Iraqi citizens compared to neighboring countries.”
Ali further noted the urgency of combating corruption, “the fight against corruption and the recovery of Iraq’s funds that have been lost over the years are slow and ineffective, facing obstacles and challenges. Recovering these funds could cover a significant portion of the internal debts.”
Hard Currency
Economic expert Hilal Al-Taan told Shafaq News that “internal debts do not have a significant impact on the Iraqi economy, as most of them are owed to the Ministry of Finance, the Central Bank, and other ministries.” He confirmed that “the significant impact on the economy comes from external debts because their repayment requires hard currency, whereas internal debts are repaid in the national currency.”
Al-Taan further highlighted that the bulk of the internal debt is owed to the Central Bank of Iraq, along with the Al-Rafidain and Rashid banks, and the Trade Bank of Iraq. These institutions have lent substantial amounts to the government to cover the federal budget deficit, underscoring the need for the state to prioritize reducing external debts first.
• 1 Iraqi Dinar equals about 0.0008 USD
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