Iraq Economic News and Points To Ponder Sunday Afternoon 8-10-25

Sudanese Advisor: White Noise Supports Exchange Rate Stability In The Iraqi Market

2025/08/10 Reading: 315 times   {Economic: Al Furat News} The Prime Minister's financial and economic advisor, Mazhar Mohammed Salih, confirmed that the success of the three fiscal, monetary, and trade policies in working together is what has led to the continued convergence of the exchange rates in the parallel and official markets.

Saleh said in a statement to {Euphrates News}: “The continuation of these general policies constitutes positive information for the market, known as ‘white noise’, which is a condition that makes the market maintain stable rates and prevents the parallel market from taking any negative directions.”

He added, "The parallel exchange market is now moving toward convergence with the official fixed rate, which is considered one of the strongest stages of stability in the monetary market, as a result of the success of the three pillars of economic policy."  LINK

Al-Sudani Directs A Review Of The Provisions Of The Banking Reform Document After Receiving Comments From The Iraqi Private Banks Association

Banks   Economy News – Baghdad  Prime Minister Mohammed Shia al-Sudani reviewed the latest developments related to the banking reform paper, particularly the provisions affecting private banks, in light of the comments and responses he received from various stakeholders.

Al-Sudani commended the efforts made by the Central Bank of Iraq in preparing the banking reform document, which aims to enhance financial stability, achieve transparency, and raise the efficiency of the banking sector. He affirmed the government's full support for all reform initiatives aimed at developing the country's financial and monetary infrastructure, in line with international best practices.

In the same context, the Prime Minister paid close attention to the comments of the Iraqi Private Banks Association, contained in its letter dated August 3, 2025, which addressed the objective challenges facing local banks in implementing some reform provisions, particularly those related to capital increase requirements, the adoption of strategic partners, the costs of contracting with foreign companies, and the timelines required for implementing reforms.

Driven by his commitment to achieving a realistic balance between reform requirements and the capabilities of local banks, the Prime Minister directed the adoption of a participatory and consultative approach between the Central Bank and Iraqi banks, through the formation of joint technical committees to review reform requirements and ensure their compatibility with the national financial and economic reality, while protecting the interests of local and international investors and those working in the sector.

In this context, Al-Sudani emphasized that the goal of reform is not exclusion but empowerment, calling for an expanded dialogue to clarify the technical aspects of the document and discuss implementation mechanisms in a gradual and thoughtful manner.

He also stressed the importance of taking into account the specificities of Iraq's reality when applying international standards, while emphasizing the need to formulate procedures in a way that enhances confidence in the banking sector and contributes to its development.

The Prime Minister concluded his remarks by emphasizing that the doors to discussion are open, and that the government continues to support all sincere efforts, both national and international, aimed at reforming the financial and banking system to serve the public good and the national economy. https://economy-news.net/content.php?id=58597

Borrowing From The Central Bank Will Put The Economy At Risk

Samir Al-Nusairi  The financial policy in Iraq has been accustomed to adopting special foundations and items for preparing general budgets. All of these budgets suffered from a planning deficit after 2003 until 2019, which turned into an actual deficit after 2020, especially after the decline in oil prices, because the Iraqi economy is a rentier economy that depends mainly on oil, and oil revenues constitute approximately 93% of total revenues and (58%-60%) of the gross domestic product.

Given the failure to diversify national income sources and develop the real sector, the deficit in the 2023-2025 three-year budget continued, forcing the government to borrow domestically from Iraqi banks to cover the real deficit in the operating and investment budgets due to increased spending compared to revenues from oil, whose prices fell at rates lower than planned in the budget.

Therefore, it is expected that borrowing from the Central Bank will be done through rediscounting treasury transfers, noting that the Central Bank had previously lent the government approximately 46 trillion dinars in previous years, and that the total domestic debt exceeded 85 trillion dinars, which has not been repaid despite the abundance of oil revenues in the past.

Moreover, the total oil revenues projected in the 2025 budget, amounting to approximately 117 trillion dinars, equivalent to $90.9 billion at a planned oil price of $70 per barrel, will not be achieved, creating a real deficit.

Therefore, the Central Bank will be under pressure and its plans will be disrupted in using monetary policy tools to achieve its objectives of maintaining the current rates of annual inflation, which currently range between (1%-1.5%), controlling the money supply, maintaining a foreign reserve balance that covers imports and exported local currency, which currently amounts to approximately $104 billion and 167 tons of gold, and ensuring the stability of the exchange rate of the US dollar against the Iraqi dinar, which the Central Bank’s measures have led to a narrowing of the price gap between the official price and the price in the parallel market.

Therefore, borrowing will lead to an increase in the local currency issued, which, according to data, currently exceeds 99 trillion dinars, of which more than 80% is outside the banking system. This increase will inevitably lead to a rise in inflation and will impact the adequacy ratio of foreign exchange reserves.

The budget’s reliance on covering the deficit, which will exceed 63 trillion dinars, or 30% of the GDP, while the percentage specified in Financial Management Law No. 6 of 2019 is 3%, will place severe pressure on the Central Bank and its foreign exchange reserves.

This embarrasses the central bank, placing it in a cycle of government interference in its independence, and placing the economy at risk. This will hinder the achievement of economic stability and the stability of the monetary and financial systems, because central banks are banks of stability, not lending banks. https://economy-news.net/content.php?id=58589

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