Baghdad weighs borrowing options to address liquidity crisis

Shafaq News- Baghdad

Iraq’s public finances are facing a liquidity crisis due to declining oil revenues linked to the Strait of Hormuz crisis, a financial advisor of the Iraqi PM told Shafaq News on Monday.

According to the advisor Mudher Saleh, monthly public revenues may not exceed four trillion Iraqi dinars (about $2.61B), compared to operational expenditures estimated at around eight trillion dinars, including salaries, pensions, and social welfare payments. The current situation reflects a short-term liquidity issue caused by a mismatch between incoming cash flows and fixed financial obligations, rather than a structural weakness in the state’s financial capacity.

He said the first option involves resorting to domestic financing by issuing short-term government debt instruments and activating open market operations in coordination with the Central Bank to provide immediate liquidity, noting that “such measures could generate inflationary pressures and risks to the exchange rate if not carefully managed.” The second option is external borrowing through international financial institutions or global capital markets by issuing sovereign bonds or securing loans, “which could support foreign reserves and strengthen the Iraqi dinar, though it may come with reform conditions.”

“Iraq is likely to adopt a combination of rapid domestic financing to cover immediate needs, followed by external borrowing to reinforce financial stability over the medium term,” he stated, pointing out that the success of this approach depends on controlling public spending, improving non-oil revenues, maintaining exchange rate stability, and restoring optimal oil export capacity.

Saleh indicated the Strait of Hormuz crisis “has underscored Iraq’s vulnerability due to its reliance on oil revenues and highlighted the need to build more flexible and sustainable financial tools.”

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