Trillions hoarded in homes… Iraqi banks “starving” in the face of liquidity shortages!

Trillions hoarded in homes… Iraqi banks “starving” in the face of liquidity shortages!

8-27-2026

Information / Baghdad
Several factors are intertwined in Iraq that are behind the liquidity crisis, the repercussions of which have begun to appear in the delay in the disbursement of salaries and financial obligations, at a time when data from the Central Bank of Iraq indicates that there are more than 101 trillion dinars circulating outside banks until the end of June 2026.

While experts believe that keeping these funds outside the banking system limits the banks’ ability to circulate liquidity and finance economic activity, politicians and specialists also link the crisis to the decline in oil revenues as a result of export disruptions, which opens up a broader discussion about the real reasons for the lack of liquidity and the solutions required to address it.

Liquidity crisis: more than one reason

Adnan al-Danbous, a leader in the Reconstruction and Development Coalition, attributes the liquidity crisis to two main factors: first, the decline in mutual trust between citizens and the state, which has led citizens to hoard their money at home instead of depositing it in banks.

Al-Danbous told Al-Maalouma that the delay in paying employee salaries and contractors’ and farmers’ dues is related to a shortage of local currency in the state treasury, noting that the problem, in his view, is not related to the availability of dollars, but rather to the scarcity of dinars as a result of hoarding.

He believes that the decline in confidence in government procedures and the failure to adhere to some previous promises has led a segment of citizens to keep their money in cash, which has resulted in a large portion of liquidity leaving the banking system.

He emphasizes that addressing this aspect requires government measures to revitalize the local market, particularly through supporting the agriculture and industry sectors, in addition to releasing loans to citizens, factory owners, and farmers.

It also calls for supporting the marketing of local products, activating the law protecting national products, and imposing high customs duties on imported goods that have local alternatives.

Money outside the banks… and a missing strategy

For his part, former MP Abbas Sarout places the issue of funds hoarded outside banks at the heart of the liquidity crisis, pointing out that a large percentage of Iraqi funds are located outside the banking system.

Sarout told Al-Maalouma that Iraq is suffering from a liquidity crisis whose repercussions have begun to appear in the salaries file, calling for a review of the strategy to attract funds to banks, by finding factors that encourage citizens to deposit their money and adopt electronic exchange and payment mechanisms.

He believes that returning these funds to the banking system would enhance the government’s ability to manage salaries, loans, advances and financial obligations, as well as improve the movement of money within the economy.

He points out that the continued reliance of the majority of financial transactions on traditional mechanisms has multiple drawbacks, stressing that building trust between citizens and banks is the essential step to convert hoarded funds into circulating liquidity within the financial system.

Oil revenues: The other side of the crisis

But the explanation for the liquidity crisis does not stop at money outside banks, as crisis management expert Ali Al-Fariji links the current crisis to the decline in oil revenues, especially after the repercussions of the disruptions to navigation in the Strait of Hormuz.

Al-Fariji told Al-Maalouma that the delay in paying salaries should not be seen as merely an administrative delay, because the problem, in his estimation, is deeper and is related to the decline in oil revenues and the decrease in the quantities of oil that Iraq can export and convert into cash revenues.

He explains that Iraq has lost a significant portion of its oil cash flows in recent months, noting that oil revenues have declined in some months to levels approaching $2-2.5 billion per month, compared to more than $6 billion under normal circumstances, according to his estimates.

According to Al-Fariji, the continued decline in exports means accumulating losses in revenue, which directly affects the state’s ability to meet its financial obligations.

Salaries are a consequence, not the root cause of the problem.

Al-Fariji emphasizes that the salary crisis is a result of pressure on liquidity, not the root of the problem, believing that the government is capable of taking quick measures to overcome the immediate pressures.

Among the measures he proposes are managing available liquidity, reprioritizing spending, postponing some unnecessary expenditures, and resorting to limited and considered domestic borrowing when needed.

But these measures, in his view, remain emergency solutions that cannot address the root causes of the crisis if the decline in oil revenues continues.

He emphasizes that what is required is to move within a short period from managing the liquidity crisis to addressing its sources, by increasing the quantities of oil exported through outlets and routes that do not depend on the Strait of Hormuz, and accelerating export alternatives, in parallel with increasing non-oil revenues.

Between hoarding money and falling oil prices

The speakers’ positions reveal two interconnected tracks in Iraq’s liquidity crisis.
The first is internal, characterized by the outflow of large amounts of money from the banking system and citizens’ tendency to hold cash, whether due to a lack of confidence or the nature of the cash economy. This reduces the banks’ ability to circulate funds and finance economic activity.
The second track is related to the source of government revenue. Iraq relies heavily on oil to finance its public expenditures, so any significant disruption to exports quickly impacts the cash flow available to the government.
Addressing the crisis, therefore, requires addressing both tracks simultaneously. Simply returning funds to the banks will not be sufficient if oil revenues continue to decline, and increasing government revenues will not fully resolve the cash economy problem if a significant portion of citizens’ money remains outside the banking system.

The solution: restoring confidence and diversifying revenue streams.

These facts present the government with two simultaneous challenges: securing the necessary liquidity for salaries and urgent obligations, and addressing the root causes that could reproduce the crisis in the future.
In the short term, liquidity management and spending restructuring appear to be available tools to overcome current pressures, but continued reliance on stopgap measures could perpetuate the problem.
In the longer term, addressing the issue requires strengthening confidence in the banking sector, expanding the use of electronic payments, encouraging deposits, and revitalizing productive sectors, in parallel with seeking more stable oil export routes and increasing non-oil revenues.
Thus, the liquidity crisis in Iraq does not appear to be linked to a single factor, but rather arises from the convergence of declining oil revenues, the state’s heavy dependence on oil, the outflow of a significant portion of funds from the banking system, and weak confidence in the financial sector.
The real challenge for the government remains transforming the urgent measures from mere temporary solutions to secure salaries into a sound fiscal and banking policy capable of preventing the liquidity crisis from becoming a chronic problem that affects the economy, public spending, and citizens’ confidence in the financial system.

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