Iraq Economic News and Points To Ponder Monday Morning 8-3-26
Shafaq News Investigates: The Government Is Moving Towards Borrowing 3 Trillion And The Internal Debt Is "Exploding"
2026-08-02 03:26 Shafaq News - Baghdad The Iraqi government is entering a financial phase that is considered one of the most sensitive in years, after the salaries of millions of employees and retirees turned into the biggest challenge facing the public treasury.
With shrinking liquidity and declining oil revenues, pressure on public finances has increased, and the government is increasingly resorting to exceptional financing tools to provide the necessary liquidity to cover its monthly obligations, primarily salaries, which account for the largest share of public spending.
These indicators come at a time when financial pressures are expected to increase in the coming months, with the expansion of government obligations and a decline in the margin of financial maneuvering, due to the disruption of oil exports through the Strait of Hormuz to global markets, which in turn is witnessing military tensions that may extend for months to come.
Crisis Figures
Shafaq News Agency learned from three high-ranking sources in the Ministry of Finance, and a source close to Iraqi Prime Minister Ali al-Zaidi, that the Iraqi government is facing increasing financial pressures that may prevent it from securing the salaries of state employees for the month of August from the currently available liquidity.
According to the sources, the government is moving towards resorting to internal borrowing during this month from a number of private banks, confirming that it will borrow more than three trillion dinars, with the aim of providing the necessary funds to pay the salaries of employees during this month.
She pointed out that the annual interest rate on government borrowing instruments is 5.25%, indicating that the size of the internal debt owed by the government currently ranges between 106 trillion and 125 trillion dinars.
The sources added that Iraq lost $30 billion during the past five months as a result of the disruption of oil exports through the Strait of Hormuz, which directly affected public revenue flows and the liquidity available to finance operating expenses.
This comes at a time when Iraqi economic researcher Ziad al-Hashemi has warned that Iraq has entered a phase of "financial hardship," with the government acknowledging a shortage of liquidity after months of denying the existence of a crisis.
Al-Hashemi said in a post on the “X” platform that the current crisis is not only related to the decline in oil revenues, but reflects years of mismanagement of resources and uncontrolled spending, noting that revenues are depleted before they reach the state treasury due to corruption, waste and accumulated financial obligations.
He also explained that overcoming the crisis requires radical financial reforms that include reducing waste, combating corruption, controlling the payroll, and developing non-oil revenues, warning that financial reserves will not be able to protect the state from recurring crises if current policies continue.
Government Vision
Regarding how Iraq reached this stage, and the urgent measures required to reduce the effects of the liquidity crisis on citizens and the economy, the Iraqi Prime Minister’s economic advisor, Mazhar Muhammad Salih, said that what Iraq is going through does not represent a sudden financial crisis, but rather is the result of accumulated structural imbalances in public finances that became clearly apparent with any disruption to the oil market or export activity.
Speaking to Shafaq News Agency, Saleh said that the Iraqi budget’s reliance on oil revenues by more than 90% has made public finances extremely sensitive to any decrease in prices or exports, at a time when current spending has expanded over the past years, especially in the area of salaries, wages and social assistance, compared to the limited contribution of non-oil sectors to financing the state.
According to the government advisor, weak economic diversification, low efficiency in tax and customs collection, delays in financial and administrative reforms, as well as high fixed budget obligations, have all reduced the government's ability to maneuver when revenues decline.
He added that the solution should not be limited to overcoming the current crisis, but should turn into an opportunity to restructure the economy by rationalizing public spending, postponing unnecessary projects, and improving the efficiency of the use of funds, while maintaining salaries, basic services, and social safety nets.
Saleh also warned that borrowing, although a tool available when needed, must remain within carefully considered limits and not become a permanent means of financing operating expenses, as this could increase debt burdens and affect the private sector’s ability to obtain financing.
These statements coincide with the admission by the Iraqi Minister of Health, Abdul Hussein Al-Moussawi, last Thursday, that the government is facing a liquidity crisis that has made securing salaries its priority, while he confirmed that the General Company for Marketing Drugs and Medical Supplies (Kimadia) has received only 15% of its budget, which has led to its bankruptcy, the disruption of new contracts, and the threat to drug supplies.
Following the statements of the Minister of Health, the Minister of Finance, Faleh Al-Sari, made another statement confirming the existence of a real financial deficit that hinders the completion of the disbursement of salaries for employees, retirees and social welfare beneficiaries, noting that the total monthly obligations for salaries amount to about 7 trillion and 800 billion dinars.
Loan To Guarantee Salaries
In contrast, Samir Al-Nassiri, an advisor to the Association of Iraqi Private Banks, believes that the government has managed to provide liquidity through internal borrowing over the past months, stressing that employee salaries are still secured and will not be interrupted.
Al-Nassiri explained to Shafaq News Agency that the borrowing mechanism involves the Ministry of Finance issuing treasury bills, which the Central Bank then rediscounts, thereby bolstering bank reserves and providing the government with necessary liquidity. He emphasized that this process does not entail using citizens' deposits or withdrawing depositors' funds, but rather represents a financial tool used by the state to cover its temporary needs.
He added that the decline in oil revenues has led to a widening fiscal deficit, prompting the government to rely on domestic borrowing tools to ensure continued funding of spending, primarily salaries. He explained that the ability to borrow domestically may continue until the end of the year if the current conditions remain unchanged.
Al-Nassiri concluded by saying that the government may have to take additional measures, including rationalizing spending, resorting to other financing options, passing legislation related to loans and grants, as well as working to increase oil exports through alternative outlets to the Strait of Hormuz.
But economic researcher Ahmed Eid believes that private banks cannot be the main solution to the liquidity crisis, pointing out that they already suffer from a weak deposit base due to low public confidence in the banking sector and the reliance of a large segment on keeping money outside the banking system.
Eid told Shafaq News Agency that the banks' ability to finance the economy or expand lending remains limited unless deposits increase and financial inclusion and electronic payment tools expand.
He warned that increasing the government’s reliance on borrowing from banks could deplete the liquidity available to the banking system and reduce its ability to finance the private sector and productive projects, which would raise the cost of financing and weaken economic activity. He indicated that the priority should be to build a banking sector that is more capable of mobilizing savings, enhancing confidence in banks, and diverting their resources from financing the government deficit to supporting development and investment.
Iraqi government spokesman Haider al-Aboudi had previously confirmed that Iraq is facing "severe" financial challenges, noting that the government needs about 10.8 trillion dinars per month to cover employee salaries and public expenditures, while the country's oil revenues do not exceed 2.5 trillion dinars.
Al-Aboudi acknowledged in a televised statement that this financial crisis directly affected the salary distribution schedule, leading to delays and irregularities in their disbursement as was the practice.
The Fragility Of The Oil Model
Professor of International Economics, Nawar Al-Saadi, believes that the current crisis has revealed the fragility of the Iraqi economic model in an unprecedented way.
Al-Saadi confirmed in his interview with Shafaq News Agency that Iraq relies on oil to secure the largest part of its budget revenues, while a large percentage of its oil exports pass through the Strait of Hormuz, which means that any disruption in this route directly affects the state’s ability to finance its obligations.
He pointed out that the monthly operating expenses exceeding ten trillion dinars, most of which goes to salaries, pensions and social welfare, created a financial gap that quickly appeared in the form of delays in salary payments, adding that the current crisis is not just an oil price crisis, but a cash flow and revenue crisis.
Al-Saadi pointed out the need to move along three parallel tracks:
First, ensure the continued payment of salaries by reprioritizing spending and postponing unnecessary expenses.
Secondly, to expedite the activation of alternative export outlets through Türkiye, Syria and others to reduce dependence on a single outlet.
Third, providing temporary liquidity through domestic debt instruments and managing reserves prudently, while avoiding any financing that could lead to increased inflation and harm the purchasing power of citizens.
The Economic Affairs Observatory “Eco Iraq” announced on July 19 that Iraq extracted about 440.3 million barrels of oil during the first half of 2026, while the loss in production amounted to about 302.8 million barrels compared to the normal rate, as a result of the repercussions of security and military tensions in the region.
It is worth noting that analysts in the energy and geopolitics sectors have warned that Iraq will be among the countries most affected if the disruption to navigation in the Strait of Hormuz continues, given that oil flows from the Gulf remain at about 50% of pre-war levels, equivalent to a decrease of at least 10 million barrels per day from regional supplies.
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An Economist Reveals The Real Reasons Behind The Financial Deficit And The Shortage Of Cash Liquidity.
Information / Baghdad On Sunday, economist Faleh al-Zubaidi revealed the real reasons behind the financial deficit and cash shortage facing the Iraqi government, while issuing a strong warning against resorting to external borrowing.
Al-Zubaidi told Al-Maalomah News Agency that “the government is currently suffering from a clear shortage of financial liquidity as a result of the sharp decline in oil revenues, which came as a direct consequence of the closure of the Strategic Strait of Hormuz.”
He added that “85% of Iraq’s oil exports depend entirely on passing through the Strait of Hormuz, while the remaining percentage flows through the Turkish port of Ceyhan,” explaining that “this stoppage has temporarily paralyzed the government’s ability to provide the necessary cash liquidity,” noting that “this shortage will not last long in light of the indicators of political and security calm in the region, especially after Iran’s agreement to a ceasefire, which means that financial revenues will return to normal as soon as the strait is reopened.”
Al-Zubaidi explained that “the government has effective local solutions, which are the issuance of bonds and discounting of remittances through the Central Bank, through the Ministry of Finance issuing short-term bonds and selling them to the Central Bank of Iraq.”
He warned of the "dangers of Baghdad resorting to external borrowing from international entities," stressing that "these entities will impose unfair and harsh conditions, including a strict repayment schedule, exorbitant interest rates, and a dangerous clause allowing them to seize and confiscate some Iraqi state assets in case of default." End/25m
Al-Mashhadani: The Increase In Employee Salaries To 100 Trillion Dinars Annually Puts The Government In A Predicament.
Information/Special... Financial expert Abdul Rahman Al-Mashhadani ruled out on Sunday the government resorting to austerity measures and salary cuts for employees and retirees, stressing that the only solution to confront this crisis is external borrowing.
Al-Mashhadani explained to the Information Agency that "the size of employee salaries has worsened in recent years, with social welfare and retiree payments reaching approximately 28 trillion dinars annually, while employee salaries amount to around $67 billion annually,
equivalent to 96 trillion dinars annually." He emphasized that "the Ministry of Finance is obligated to provide 8 trillion dinars monthly to pay salaries to the beneficiaries."
He continued, “The government has no option to confront this crisis other than external borrowing, which necessitates Parliament enacting a law on external borrowing and grants as quickly as possible to provide the government with the necessary liquidity.”
He clarified that Iraq needs 10.5 trillion dinars monthly, distributed between salaries, payments to oil companies, and support for the food ration program.
He pointed out that "austerity measures such as cutting employee salaries or even abolishing or merging some ministries and government institutions are no longer effective in the current circumstances, as they are merely stopgap measures that offer nothing." End 25