BTI 2018 | Iraq Country Report

8 | Currency and Price Stability

The government’s monetary policy since 2003 has focused on maintaining price stability and exchange rate predictability. The inflation has remained in the low since 2010. According to the CBI, the inflation rate is 1.4% (2015 estimates), while the World Bank estimates 2015 at -1.2%, and the country’s international reserve volume also has decreased due to the sharp decline in oil prices. The independence of the CBI suffered a setback in January 2011 when former Prime Minister al-Maliki won a court ruling that placed independent institutions, including the CBI, under the control of the cabinet. In January 2012, the CBI raised the exchange rate of the Iraqi dinar to $1.19, causing a huge crisis that led the Supreme Judicial Council to issue an arrest warrant for CBI governor Sinan al-Shabibi in October 2012 on charges of corruption. Al-Shabibi received a seven-year prison sentence in absentia 2014, shortly before being acquitted of all charges. The difference between the official and parallel exchange increased from three percent in 2015 to nine percent in May 2016. The CBI introduced a number of policies to keep inflation low. The dinar remained widely stable and was worth $1.71 in early 2017.


The reduction of Iraq’s debt to a sustainable level, along with debt relief negotiations, has been a CBI priority since 2003. This led to an 80% reduction of the Paris Club debt (approximately $800 million annually), while negotiations with non-Paris Club creditors are still ongoing. In an attempt to ease the financial burden on Iraq, members of the Paris Club agreed to postpone debt from Iraq until the end of 2019. Iraq’s external debt was reduced to $58.13 billion at the end of 2014. Meanwhile, Iraqi’s public debt continues to increase, reaching 61.4% of GDP in 2015, leaving total reserves of $50,990.8 million (World Bank 2016 data).

The proximate causes of Iraq’s current economic problem are a rise in military expenses in order to fight IS and recapture territories under its control ($13.1 billion in 2015; total government expenditures reached 22.4% of GDP in the same year), and a sharp decline in world oil prices. However, its roots lie in longer-term financial mismanagement.

On 7 December 2016, Iraq’s parliament approved the 2017 budget, which predicts a deficit of $19 billion, after a revision of the expected oil price from $56/barrel to $42/barrel, with an expenditure of 100.7 trillion dinars, about 6% lower than the 2016 projected spending. The government intends to finance its budgetary deficit through treasury bills, government bonds, austerity measures, loans from local banks and the IMF.


https://www.bti-project.org/en/reports/country-reports/detail/itc/irq/