“Money, Oil, and Mismanagement”… Baghdad Receives International Warnings

“Money, Oil, and Mismanagement”… Baghdad Receives International Warnings

2025-07-22 03:30

Shafaq News – Baghdad
The decline in global oil prices has negatively impacted rentier states, including Iraq, which relies primarily on oil imports to support the country’s general budget. This has prompted international organizations, economic agencies, and experts to warn Baghdad of major problems and propose solutions that must be implemented before it’s too late.

According to the International Monetary Fund, which revealed last April the oil price OPEC countries need to balance their national budgets for 2025, “Iraq needs an average price of $92.43 per barrel to balance its national budget, while it is currently selling for less than $65.”

Reserve as a means of defense

In this regard, the Prime Minister’s advisor, Mazhar Mohammed Saleh, said, “Foreign reserves are a means of defending the stability of the external value of money through the policy of monetary policy intervention and the monetary system in general with its tools, or what is called achieving operational objectives. At the forefront of these operational objectives is controlling liquidity levels and stabilizing them by using sterilization mechanisms for them, what is called stabilization intervention in the foreign exchange market and exchanging the issued dinar for foreign currency and indicating a fixed official exchange rate.”

Saleh added, in an interview with Shafaq News Agency, that “the degree of foreign currency intervention to maintain exchange rate stability, sacrificing a portion of reserves to meet market demand for them, or intervening with domestic debt instruments to absorb excess liquidity through interest rates… is left to the Central Bank of Iraq’s policy of maneuvering with its policy tools.”

He pointed out that “foreign financial and economic agencies’ expectations regarding the status of reserves stem from monitoring the asset cycle of important commodities, especially oil, which is at the forefront of these, and the extent to which this cycle continues with its price fluctuations, particularly in oil prices.”

Saleh stressed that “monetary policy in Iraq monitors the efficiency of foreign reserves, both in terms of the money supply coverage ratio to foreign currency as an indicator of the stability of the dinar’s external value, and the trade efficiency indicator represented by the months of imports that Iraq can import in comparison to those foreign currency reserves.”

He continued: “The foreign currency coverage of the dinar should not fall below 75% of the money supply, and commercial efficiency should not be less than six months of imports, while the accepted international standard is three months.”

One year’s storage

For his part, financial expert and former director general of the Central Bank, Mahmoud Dagher, believed that the size of foreign reserves is not as important as the adequacy rate, especially the ability of reserves to provide import coverage for more than three months as a standard without the need for export revenues. He pointed out that “in this regard, Iraq has what is called foreign reserves adequacy for more than a year, which is a sufficient rate.”

Speaking to the agency, Dagher warned that “reserves are not only affected by the decline in oil prices, even though that is one of the major reasons for the decline in reserves, but they are also affected by the increase in spending,” stressing that “in reality, from 2023 until this year, Iraq’s spending rates are large and are greater than oil and non-oil revenues, and there is an actual deficit.”

He pointed out that “there is a decline in reserves, but it does not reach $70 billion, and it is expected that, in light of high spending and low oil prices, it will reach $90 billion by the end of 2025.”

The International Monetary Fund revealed that Iraq’s non-oil sector growth declined from 18.7% in 2023 to 2.5% in 2024, impacted by a decline in public investment.

Cancel undue salaries

In contrast, economic expert Hilal Al-Taan pointed out, during an interview with Shafaq News Agency, that “Iraq’s currency reserves at the Central Bank of Iraq consist of foreign currencies, including the dollar and other currencies, but gold cannot be withdrawn because the Central Bank’s law only allows this in cases of extreme necessity.”

Al-Taan explained that “there are other measures the government must take, including eliminating ghost employees in government departments, reducing the privileges of senior employees from the Director General and above, and reducing the privileges of members of the House of Representatives.”

He stressed the need for the government to repeal many incorrect laws that gave privileges to undeserving groups, such as the Rafha salaries and the National Assembly salaries from 2005 until now. He also stressed the need to implement austerity measures in purchasing office furniture and luxury cars for officials, while reducing consulates abroad and members of the diplomatic corps, and focusing on operating local industries and encouraging agricultural production in Iraq.

old glitch

For his part, economic expert Dhurgham Muhammad Ali stated that “what international organizations are reporting about the reality in Iraq is nothing new,” noting that the government has identified this flaw and the danger of relying on oil as the sole development factor and has begun working on development alternatives such as the development path and support for agriculture, industry, investment, and clean energy.

Ali concluded his remarks to the agency by saying, “These factors need to be supported over time, a suitable environment created, and international expertise drawn from them to develop the banking sector, as it is the leading economic sector for all other sectors. We also need to work on stabilizing the exchange rate to enhance confidence in the national currency.”

Iraq’s continued reliance on oil as the sole source of its public budget places the country at risk from recurring global crises, which are often influenced by oil prices. This forces the country to each time resort to covering its deficit through external or domestic borrowing. This indicates an inability to manage state finances effectively and an inability to find alternative financing solutions.

shafaq.com