Iraq and internal debt
Iraq and internal debt
5-26-2025
We often hear people say, “The domestic debt is not dangerous, because it’s denominated in dinars, not dollars, and it won’t affect foreign currency reserves.” But those who say this either don’t follow the Iraqi economy closely, or are trying to reassure people with statements that are far removed from reality.
When the state borrows from local banks to cover its deficit, it is effectively withdrawing liquidity from the market. This means that money that should be going to private projects, factories, companies, and jobs is all withdrawn and converted into “salaries and allowances.” This effectively renders the banks mere funds used to pay the state’s salaries and expenses, rather than an economic engine.
Not every domestic loan is based on real money from people’s savings. No! Many of them are issued with new dinars printed by the central bank. This is called “deficit financing,” meaning printing new money. The result? Inflation, soaring prices, and the dinar loses its value, with citizens being the first to suffer.
Those who say, “There’s no risk because the debt is in dinars” are forgetting an important point: A financial crisis can occur even if there isn’t a single dollar in the debt. If the government is unable to repay its debts to the banks, or if people lose confidence in the banks and withdraw their money, we’ll be in a worse situation than any currency crisis.
The problem is that most countries borrow to build factories, projects, develop education, and stimulate the market. But us? We borrow to pay salaries and fund ministries. This isn’t productive debt; it’s debt that kills the economy and increases the burden on all future generations.
The biggest problem with all this internal debt, which has reached numbers exceeding 85 trillion dinars, is that we have not been able to use it to reduce our imports, nor have we used it to activate the private sector and increase job opportunities, nor have we been able to create productivity from internal projects. All this internal debt has done is pay government salaries and expenses. Where will this trend continue, and until when will we be able to borrow from banks to cover the state’s expenses?
But in just one year, the domestic debt increased by 13 trillion dinars! This is the same number that increased over the previous four years, and no one asked: Where did this amount go and where was it spent? And how will we get it back to this amount?!
Ultimately, Iraq’s internal debt isn’t as secure as some portray it. It’s a symptom of weak public finance management and a perpetuation of a chronic deficit we don’t want to acknowledge. Those who downplay its seriousness either don’t know the numbers well or are trying to distract people with false and useless rhetoric.
What’s happening is not normal. The internal debt is becoming like a fire under the ashes. If we don’t change the way we spend and manage our money, there will come a moment when everything will explode, while we watch.
Engineer Manar Al-Abidi
rawabetcenter.com
