Iraq’s trillions deficit threatens the continuation of salary payments in 2027
Iraq’s trillions deficit threatens the continuation of salary payments in 2027
2026-10-11
Shafaq News – Baghdad
Iraq’s public finances face mounting challenges, with estimates indicating a deficit of up to 50 trillion dinars in the 2027 budget, given the heavy reliance on oil revenues and growing operational obligations. This raises concerns about the government’s ability to secure salaries and financial entitlements, limit borrowing, and maintain investment spending amid regional turmoil and oil market volatility.
These challenges come as the total value of the draft budget is approximately 217 trillion dinars, according to what Abbas Ahyal, a member of the parliamentary finance committee, told Shafaq News Agency, noting that it was calculated based on an oil price of $58 per barrel, an export capacity of up to four million barrels per day, and an exchange rate of 1,500 dinars to the dollar.
financial gap
Budget implementation data for the first seven months of 2026 showed revenues of about 39.096 trillion dinars, compared to expenditures of about 65.424 trillion, with an actual deficit of 26.329 trillion dinars until the end of July, according to data published by the Iraqi Ministry of Finance last Sunday, and reviewed by Shafaq News Agency.
This difference reveals the widening pressure on the treasury, especially since oil revenues amounted to 30.356 trillion dinars, or about 78% of total recorded revenues, compared to 8.740 trillion dinars from non-oil revenues.
The gap between revenues and expenditures coincides with the expansion of the base of beneficiaries of government spending, as the data also indicates that about 15.05 million people receive direct income from the treasury, including 4.55 million public sector employees, about 2.9 million retirees, and 7.6 million beneficiaries of social protection programs.
During the first seven months of this year, employee compensation and salaries amounted to approximately 35.875 trillion dinars, while social welfare allocations reached 15.989 trillion dinars, bringing the total of the two items to over 51.8 trillion dinars, in conjunction with spending of 6.239 trillion dinars on debt service.
Incapacity without reform
In this context, economic researcher Ziad Al-Hashemi warns that the planned deficit, which he estimates to be between 43 and 50 trillion dinars, represents a significant burden on the economy, noting that the government should have focused on controlling spending, reducing unnecessary expenditures, and addressing waste, bureaucratic inefficiency, and corruption, instead of expanding public spending.
Al-Hashemi told Shafaq News Agency that preparing an austerity budget would have been more appropriate for the current financial circumstances, criticizing the move towards a budget of 217 trillion dinars at a time when the country is facing fluctuations in oil revenues and geopolitical pressures.
He adds that relying on changing the exchange rate does not provide a sustainable solution to the deficit, because its financial impact may be limited and temporary, while its cost is reflected on citizens through higher commodity prices and a decline in the purchasing power of salaries and fixed incomes.
Oil bet
In contrast, Rabie Al-Moussawi, a member of the parliamentary oil and gas committee, believes that the rise in oil exports and the maintenance of good selling prices can help to compensate for part of the deficit, especially if the regional turmoil continues, which may push prices up.
Al-Moussawi told Shafaq News Agency that the government is moving towards maximizing revenues, including increasing taxes and other resources, considering that improved exports and prices may alleviate pressure on the budget.
But relying on these possibilities leaves public finances vulnerable to market fluctuations. The Strait of Hormuz crisis caused Iraq’s crude exports to decline by about 75% at the peak of the crisis, while monthly oil revenues fell from about $6.8 billion in February to about $2.3 billion in May and June, according to data from the Ministry of Finance.
This means that any improvement in prices does not necessarily guarantee a sufficient increase in revenues if export volumes decline, and continued disruption to shipping or production routes could put budget estimates at additional risk.
The deficit issue is becoming increasingly complex with changes related to the dollar exchange rate, as a parliamentary source told Shafaq News Agency that the Central Bank Governor informed members of the parliamentary finance committee that the rate of 1,500 dinars to the dollar is the rate adopted in the budget calculations, and that changing it will require a review of its schedules and items.
The Central Bank had announced the adoption of new prices starting from last Wednesday, October 7, according to which the price of buying the dollar from the Ministry of Finance was set at 1500 dinars, and selling it to banks at 1510 dinars, and to the public at 1520 dinars.
Exchange rate cost
In this regard, economic researcher Ahmed Eid believes that resorting to raising the price of the dollar in order to increase the value of oil revenues converted into dinars reflects the extent of the pressures facing the treasury, but it does not represent a radical solution to the deficit.
Eid tells Shafaq News Agency that the potential accounting gains are offset by costs borne by the citizen through higher prices for imported goods and a decline in purchasing power, as well as increased production and service costs.
He adds that the repercussions of the regional war and the disruption of some oil exports revealed the fragility of public finances in the face of external shocks, noting that the problem is not limited to the widening gap between revenues and expenditures, but also includes a decline in economic activity and an increase in operational obligations.
Eid warns that continued financial pressures may push the government to increase domestic borrowing, postpone payments to contractors, or reduce investment spending, thus transferring part of the crisis to the private sector and economic activity.
These options would increase pressure on companies implementing projects, delay payments to them, and limit job opportunities related to investment spending, even if the government continues to meet its basic obligations to employees, retirees, and social welfare beneficiaries.
payroll
Returning to Ziad al-Hashemi, he believes that the priority should be controlling spending and combating waste and corruption, instead of burdening citizens with additional burdens through taxes or changing the exchange rate, warning that continuing to rely on domestic borrowing in the event of deteriorating oil revenues may increase pressure on liquidity and foreign reserves.
As for Eid, he calls for a review of new operational commitments, an assessment of unproductive expenditures, the recovery of lost revenues at border crossings and taxes, and combating tax evasion and unregulated economic activities, in parallel with directing spending towards productive projects capable of creating resources and job opportunities.
These options gain additional importance as the Ministry of Finance moves towards implementing a program and performance budget, which is supposed to link allocations to the results achieved, instead of simply measuring the amount of money that each ministry or government institution receives.
Ministry of Finance data indicates that the payroll and pension bill rose from about 57.6 trillion dinars in 2022 to 68.2 trillion in 2023, then to 78.7 trillion in 2024, while estimates for 2025 and 2026 are around 83 to 86 trillion dinars.
According to estimates by the International Monetary Fund, oil revenues may remain above 90% of government revenues until 2030, while the share of salaries and pensions may rise to 54% of total spending by the same year if current trends continue.
These indicators present the government with the challenge of balancing the protection of basic incomes and the financing of services on the one hand, and preventing current spending from draining the resources needed for investment and economic diversification on the other.
shafaq.com
