Navigating debt: Iraq tackles external borrowing amid soaring domestic financial pressure
Shafaq News/ The Iraqi governmenthas enacted several measures aimed at reducing external public debt, leveragingfinancial surpluses from increasing oil prices to achieve success in thisendeavor. However, domestic debt has surged to over 70 trillion dinars tobridge liquidity gaps and meet operational expenses.
Following the 2003 US invasion, Iraqhas continued to rely on external borrowing, particularly during the oil pricecollapse in 2014, which coincided with military operations against ISIS.Internal borrowing has also been employed to address the country’s budgetdeficit.
The International Monetary Fund(IMF) highlighted that internal imbalances in Iraq have intensified due tosubstantial fiscal expansion and declining oil prices, underscoring “the needto gradually correct the fiscal situation to stabilize the debt in the mediumterm and rebuild the financial reserves.”
Dead Debts
Jamal Coujar, a member of theParliamentary Finance Committee, characterized the external debt as “deaddebt.”
In an interview with Shafaq News, heexplained 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 Iraqwere 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 staterevenues being lower than expenses. However, he reassured that “it is notalarming debt.”
According to official data, Iraq’sinternal debt amounts to approximately $50 billion, settled within the officialfinancial and governmental apparatus. Additionally, Iraq has outstanding debtsto eight countries, including Iran, Saudi Arabia, Qatar, the UAE, and Kuwait,totaling $40 billion. These debts are questioned in terms of validity fromIraq’s perspective and have not been canceled despite being subject to theParis Club’s oversight.
Low External Debt
Mudher Mohammad Saleh, the financialadvisor to the Iraqi Prime Minister, stated in an interview with Shafaq Newsthat “Iraq is among the countries with very low external debt, with totalpayable debts not exceeding 10 billion dollars.” He highlighted that thesedebts have annual allocations in the federal budget for repayment, which mustbe settled by 2028.
Saleh noted that “the external debtconsists of remnants from settlements before 1990,” emphasizing that “Iraq isconsidered to have strong financial credibility, with a high credit ratingaccording to global agencies such as S&P and Fitch.” He added that theexternal debt constitutes less than 5% of Iraq’s GDP, in contrast to the globalstandard, 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 bytwo financial crises: the first occurring between 2014 and 2017 due to the waragainst ISIS and declining oil prices, and the second being the COVID-19pandemic, which led to the closure of global markets and a significant drop inoil prices, resulting in extensive borrowings.
He emphasized that "the generalinternal 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 thatthere are mechanisms for its repayment within the government banking financialsystem, thus indicating that there are no associated risks.
Debt Is Not the Ideal Solution
Economic expert Durgham Muhammad Aliholds a contrasting view to the financial advisor regarding Iraq’s internaldebt situation. In an interview with Shafaq News, he warned that “internaldebts pose a risk, as they are due for repayment and should not exceed 50% ofthe country's annual gross output.”
He stated, “Expanding internalborrowing is not the ideal solution to cover the budget deficit; it is an easyway to address the deficit through primitive but effective means, as long as itdoes not exceed the required limit, especially given the decline in financialinclusion and the low rates of banking deposits among Iraqi citizens comparedto neighboring countries.”
Ali further noted the urgency ofcombating corruption, “the fight against corruption and the recovery of Iraq’sfunds that have been lost over the years are slow and ineffective, facingobstacles and challenges. Recovering these funds could cover a significantportion of the internal debts.”
Hard Currency
Economic expert Hilal Al-Taan toldShafaq News that “internal debts do not have a significant impact on the Iraqieconomy, 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 economycomes from external debts because their repayment requires hard currency,whereas internal debts are repaid in the national currency.”
Al-Taan further highlighted that thebulk of the internal debt is owed to the Central Bank of Iraq, along with theAl-Rafidain and Rashid banks, and the Trade Bank of Iraq. These institutionshave lent substantial amounts to the government to cover the federal budgetdeficit, underscoring the need for the state to prioritize reducing externaldebts first.
• 1Iraqi Dinar equals about 0.0008 USD
