Between external borrowing and removing zeros… the government faces difficult choices to address the financial crisis.
Between external borrowing and removing zeros… the government faces difficult choices to address the financial crisis.
8-31-2026
Information/Report…
As pressure mounts on Iraq’s public finances, a range of options for addressing the liquidity crisis are resurfacing. These include resorting to external borrowing and restructuring the local currency. Parliamentary sources confirm that the project to remove zeros from the currency has not yet entered the implementation phase, while economists discuss the possibility of securing a substantial external loan to provide liquidity and bolster reserves.
This comes amidst ongoing challenges related to public spending and the heavy reliance on oil revenues, meaning any decline in oil prices or revenues quickly impacts the state’s ability to finance its expenditures and obligations.
External borrowing: The fastest solution?
Economic expert Abdul Rahman Al-Mashhadani believes that the government’s move towards external borrowing from international banks represents one of the quickest available solutions to address the liquidity shortage and overcome current financial pressures.
Al-Mashhadani told Al-Maalouma that external loans offer Iraq grace periods of several years before repayments of installments and interest begin. This provides the government with time to secure repayment resources without creating immediate pressure on public spending.
He also believes that resorting to borrowing can contribute to replenishing the central bank’s reserves, especially given the depletion of some of them due to market financing requirements and government spending.
Al-Mashhadani suggests that Iraq could request a loan of up to $20 billion, arguing that the current debt level, compared to the size of the economy and oil revenues, gives the country room to maneuver in international borrowing markets.
But does borrowing address the root of the problem?
While borrowing may provide a quick fix for the liquidity problem, resorting to it does not represent a final solution to the structural imbalances in the Iraqi economy, as loans remain financial obligations that the state will need to repay in the future.
This means that the success of borrowing in alleviating the crisis depends on how the funds are used and whether they are directed towards supporting financial stability, financing productive projects, and reducing imbalances, rather than being used to cover recurring expenses without addressing the sources of the deficit.
Furthermore, continued reliance on oil as the primary source of revenue leaves Iraqi finances vulnerable to the fluctuations of global markets, making fiscal reform and diversification of income sources essential alongside any temporary financing solutions.
Removing Zeros: An Old Project Resurfaces
. The project to remove zeros from the Iraqi dinar has resurfaced following reports of a possible new currency issuance in early 2027.
However, MP Murtadha Afween confirmed to Al-Maalomah that the project has not yet moved to the implementation phase, emphasizing that removing zeros does not, in itself, solve Iraq’s economic crises.
This stance highlights the need to distinguish between restructuring currency denominations and increasing the currency’s real value. Removing zeros, if implemented, primarily aims to simplify monetary transactions and reduce the volume of circulating currency, but it does not automatically increase the dinar’s purchasing power or address inflation and the budget deficit.
The project to remove zeros from the currency has been under discussion in Iraq for years, and the Central Bank has previously addressed it as part of plans to restructure the currency and facilitate cash transactions.
Official positions vary
, highlighting an important point: discussing the removal of zeros or external borrowing does not necessarily imply a final government decision. The Iraqi government recently confirmed that there are no official plans to change the currency or remove three zeros, and denied any intention to borrow externally. It described the financial situation as a temporary liquidity crisis, not a structural one.
Meanwhile, political and economic statements continue to raise the issues of borrowing and removing zeros within the public debate on how to address financial pressures, reflecting the extent of the debate surrounding the options the state might adopt in the coming period.
The liquidity crisis requires broader solutions,
and between the option of external borrowing and the project to remove zeros, the true solution to the financial crisis appears to be linked to broader reforms than monetary measures alone. These reforms include controlling public spending, boosting non-oil revenues, revitalizing the private sector, reviewing government expenditures, and addressing areas of waste and corruption.
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