DUBAI, UAE - The issue of domestic and external debt remains one of the most pressing economic challenges facing the Iraqi government, an issue demanding careful management and strategic planning to ensure the long-term stability of the national economy.

While the government asserts that Iraq’s external debt is not excessively high, domestic debt exceeding $45 billion poses a burden, as it is primarily tied to local government institutions such as banks and the Central Bank of Iraq.

The government is committed to repaying a significant portion of these debts during the current year. However, questions remain about the impact of this repayment on economic growth, investments, and Iraq’s ability to balance its financial obligations with advancing development initiatives.

A previous statement by the International Monetary Fund highlighted that Iraq’s internal imbalances have been worsened by significant fiscal expansion and declining oil prices. The IMF urged Iraq to gradually address its fiscal situation to stabilize debt levels in the medium term and rebuild financial reserves.

The IMF also recommended increasing capital expenditure and non-oil revenues through reforms such as improving the electricity sector, enhancing tax collection, and introducing new taxes.

Domestic debt outweighs external obligations

A high-ranking government source close to the prime minister told The New Region that Iraq’s external debt represents less than 30 percent of its gross domestic product, a favorable figure compared to the 60 percent safety threshold set by the European Union.

Iraq plans to repay about one-third of its external debt in 2024. The source emphasized that 98 percent of Iraq’s domestic debt involves transactions between government entities, including state-owned and private banks, the Central Bank of Iraq, and the Ministry of Finance.

The government has implemented a comprehensive plan to address both internal and external debt without straining the national economy, according to the government source. These measures reflect Iraq’s commitment to efficient debt management, supporting financial stability and sustainable development.

The Iraqi government recently approved recommendations to manage external debts, including canceling delayed loans worth $1.05 billion and eliminating loan requests worth $5.8 billion for projects such as the Basra desalination plant and the suspended railway. These projects will now rely on government funding or investment. Consequently, external debt has been reduced from $19.729 billion at the end of 2022 to approximately $8.9 billion this year.

Expert opinions and insights

Parliamentary Finance Committee member Jamal Kochar previously revealed that much of Iraq’s external debt, tied to the Gulf War and exceeding 30 years, is considered “dead debt.” He suggested that Iraq could negotiate to have this debt written off.

Economic expert Abdul Rahman al-Sheikhly stated that Iraq’s financial situation is “currently stable”, with external debt under $20 billion and domestic debt around $50 billion, accounting for 30–35 percent of GDP. Sheikhly emphasized that Iraq has “no significant debt accumulation and manages its obligations through pre-planned expenditures.”

He further assured that Iraq’s financial reserves are sufficient to cover its debts, with no political or economic constraints from creditors.

Economic researcher Amer al-Jawaheri expressed concerns about the lack of transparency regarding Iraq’s debt figures. He warned that Iraq’s heavy reliance on oil revenues, 95 percent of its hard currency income, exposes the economy to oil price volatility, potentially leading to more borrowing.

Jawaheri estimates domestic debt now exceeds 80 trillion Iraqi dinars, posing a significant challenge to Iraq’s economy.

Summary of Iraq’s debt

Nabil al-Tamimi, an expert on economic affairs, told The New Region that Iraq’s total debts amount to “approximately 96 trillion Iraqi dinars, divided into 19.5 trillion dinars ($15 billion) in external debt and 77 trillion dinars in domestic debt.”

Tamimi highlighted that Iraq’s external debts are primarily “low-interest loans from international and foreign financial institutions, while domestic debts include substantial obligations to the Central Bank of Iraq, commercial banks, and national bonds.”

With Iraq’s GDP estimated at $250 billion, external debt accounts for only 6 percent of GDP, and total debts excluding Central Bank loans represent about 22 percent of GDP, both within globally accepted standards.

Unrecorded debts include approximately $45 billion owed to Gulf states from the Iraq-Iran war and undefined debts under the Iraq-China agreement.

Approximately 70 percent of Iraq’s operational budget, 60 trillion dinars, is allocated to salaries for more than three million employees, highlighting the significant financial pressures on the state budget.