Public Debt in Iraq: Growing Challenges and Possible Solutions - Dr. Abdul Rahman Al Mahshadani
Public Debt in Iraq: Growing Challenges and Possible Solutions - Dr. Abdul Rahman Al Mahshadani
Iraq's public debt is one of the most significant economic and financial challenges facing the country, amid a complex political and economic environment characterized by intertwined internal and external factors. Over the past two decades, the Iraqi economy has been subjected to repeated shocks due to wars, sanctions, fluctuating oil prices, and administrative and financial corruption, making addressing the debt issue an urgent task to ensure financial stability and sustainable development.
First: The Challenges Behind the Growing Public Debt
1- Inflated Operating Expenditures
One of the major reasons for the rising public debt is the significant increase in operating expenditures, particularly salaries and wages. With the appointment of more than one million new employees in the public sector in recent years, the number of workers in this sector has exceeded 4.1 million. This reality means that the wage bill alone consumes more than 58% of public spending (both operational and investment), and constitutes approximately 72% of public revenues. As a result, most of the state's resources are directed towards covering wages rather than being invested in development projects or infrastructure capable of stimulating the economy.
2- Over-reliance on oil
Oil is the almost sole source of funding for Iraq's general budget, contributing approximately 90% of its revenues. Despite its abundant natural and human resources, Iraq remains unable to diversify its sources of income by increasing non-oil revenues, such as those in the agricultural and industrial sectors, or by imposing an effective tax system. This excessive dependence makes the economy vulnerable to fluctuations in global oil prices and places public finances at the mercy of oil crises.
3- Expansion of domestic borrowing
The Iraqi government has resorted to extensive borrowing from state-owned banks to cover salaries and wages. The volume of these loans has exceeded 90 trillion Iraqi dinars (approximately $69 billion), doubling the burden of domestic debt, increasing pressure on the local banking system, and creating a vicious cycle of unproductive debt.
4- Lack of financial sustainability
The major dilemma lies not only in the size of the debt, but also in how it is used. The borrowed funds have not been directed to investment projects capable of creating added value, but rather have been used to finance current and consumer expenditures. This prevents debt from becoming a lever for development, and makes debt servicing (interest and installments) an accumulating burden on the budget.
Second: Possible Solutions
Addressing the public debt crisis in Iraq requires a comprehensive vision that combines internal reforms with external support measures.
1- Redirecting Debt Towards Investment
Loans and external financing instruments should be used to finance investment expenditures, not operational expenditures. This means directing them to productive projects in infrastructure, renewable energy, agriculture, and industry, achieving sustainable economic returns that contribute to debt repayment and alleviating its burden on future generations.
2- Combating Rampant Corruption
Administrative and financial corruption has consumed the largest portion of allocations for development and service projects. Therefore, any economic reform will remain futile unless genuine measures are taken to combat corruption by activating oversight bodies, strengthening judicial independence, and ensuring transparency in the management of public funds.
3- Reforming the Economy and Reducing Dependence on Oil
Restructuring the Iraqi economy is an absolute necessity. This requires stimulating non-oil sectors and increasing tax and customs revenues. The legislative and institutional structure must also be developed to encourage local and foreign investment, contributing to reducing over-reliance on oil as the sole source of public revenue.
4- Empowering the Private Sector
Giving the private sector a greater role in leading the economic process is imperative. The Iraqi private sector continues to suffer from marginalization, bureaucratic restrictions, and sometimes extortion. Freeing it from these obstacles and enabling it to participate effectively in project implementation will create new job opportunities and ease the burden on the bloated public sector.
5- Reforming the Employment and Salary System
It is not possible to continue employing large numbers of people in the public sector at the expense of financial sustainability. What is required is a review of the employment structure and the establishment of a unified and fair system of salaries and benefits, subject to tax, that limits unjustified disparities and encourages efficiency and productivity.
Third: The International Dimension in Addressing the Crisis
At the international level, Iraq needs technical and financial support from international institutions, but under conditions that ensure the rational use of loans. Cooperation with the International Monetary Fund and the World Bank can help formulate financial and economic reform programs, provided they are managed locally and take into account Iraqi specificities. Furthermore, it is possible to benefit from the experiences of other countries in debt restructuring, or resort to debt cancellation or rescheduling initiatives in exchange for clear reform commitments.
Conclusion
The public debt crisis in Iraq is not merely a financial issue; it is a reflection of a distorted economic structure based on oil dependence, mismanagement, and widespread corruption. This crisis can only be resolved with a comprehensive vision that restores sound economic planning and utilizes debt as a tool for development, rather than a burden on generations. What is required today is not only debt management, but also the rebuilding of the Iraqi economy on more solid, just, and sustainable foundations.
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