Does the increased money supply threaten the stability of the Iraqi economy? Al-Zaydi’s advisor explains the risks.
Does the increased money supply threaten the stability of the Iraqi economy? Al-Zaydi’s advisor explains the risks.
2026-08-05
Shafaq News – Baghdad
The Prime Minister’s financial and economic advisor, Mazhar Muhammad Salih, revealed on Wednesday the impact of increased currency issuance in Iraq on economic and financial stability.
Saleh told Shafaq News Agency that “the issuance of currency in Iraq recorded a remarkable increase during the first five months of 2026, reaching about 113.560 trillion dinars by the end of May, an increase of 13.761 trillion dinars, or 13.8%, compared to the end of 2025.”
He added that “this development came in light of an exceptional financial crisis that accompanied the decline in oil exports as a result of the repercussions of the Strait of Hormuz crisis and war, as Iraqi exports fell to approximately 15% of their normal levels, before gradually improving to reach about 30% of those levels.”
Saleh explained that “the increase in the issuance of currency should not be viewed in isolation from the circumstances that produced it, as it was not the result of monetary expansion aimed at stimulating demand or financing regular spending, but rather came in response to the government’s need to provide the necessary liquidity to cover salaries and basic expenses in light of the sharp decline in oil revenues.”
He pointed out that “the majority of these needs were financed through the expansion of domestic public debt by issuing treasury bills, which were subscribed to by government banks, before being rediscounted at the central bank, thus providing the necessary liquidity to finance public spending. As a result, the central bank now holds more than 60% of government debt instruments within its investment portfolio.”
Saleh continued, saying that “this development, although it reflects an expansion in the issuance of currency, should be assessed based on indicators of monetary stability, and not on the size of the issuance of currency alone. In the literature of monetary policy, the standard of covering the money supply with foreign reserves is one of the most important indicators of the strength of the monetary position, as international practices indicate that coverage of no less than 75% is an indicator of the efficiency of foreign reserves in supporting price and exchange rate stability, and enhancing confidence in the national currency.”
The government advisor also pointed out that “this percentage, according to the available data, is still being achieved, and the annual inflation rate has remained stable at about 4.5%, which indicates that the increase in monetary issuance has not, so far, turned into broad inflationary pressures, which reflects the continued ability of monetary policy to absorb the effects of monetary expansion and maintain monetary stability.”
He added: “However, continuing this course for a long period may entail increasing risks, as repeated reliance on monetizing public debt through the central bank may lead in the future to inflationary pressures, or to a decline in the level of foreign reserve coverage if oil revenues do not recover sufficiently.”
According to Saleh, the success of monetary policy in the next phase will depend, in coordination with fiscal policy, on its ability to maintain adequate foreign reserves, limit the continued expansion of monetary financing of the deficit, and rebuild the balance between public revenues and government spending as oil conditions improve.
Saleh concluded by saying that “the current increase in monetary issuance does not, in itself, represent an indication of a serious monetary or financial imbalance, but rather reflects an exceptional response to a temporary external financial shock. The final judgment on the soundness of this course remains linked to the sustainability of foreign reserves, continued control over inflation, and the government’s success in reducing reliance on monetary financing of the deficit as oil revenues recover. Therefore, the main challenge facing monetary policy does not lie in the size of monetary issuance itself, but rather in maintaining the efficiency of covering the money supply with foreign reserves and sustaining monetary stability in close coordination with fiscal policy.”
A special survey conducted by Shafaq News Agency showed that the volume of Iraqi currency issuance rose to 113.560 trillion dinars in May 2026, an increase of about 13.761 trillion dinars, or 13.8%, compared to the end of December 2025, amid escalating financial pressures that prompted the government to seek liquidity to ensure the payment of salaries and basic expenses.
According to data monitored by the agency, the issuance of cash rose from 99.799 trillion dinars in December 2025 to 101.431 trillion in January 2026, then to 104.614 trillion in February, and 108.985 trillion in March, before climbing to 112.896 trillion in April and 113.560 trillion in May.
The monthly increase reached its highest level in March, when issuance rose by about 4.371 trillion dinars, followed by an increase of 3.911 trillion in April, while the increase slowed during May to about 664 billion dinars.
shafaq.com
