Arab News | Iraq approves $2.7bn financing package to stimulate economy

RIYADH: Iraqi Prime Minister Ali Faleh Al-Zaidi has directed a financing package and measures totaling 3.5 trillion Iraqi dinars ($2.7 billion), aimed at stimulating the economy, financing projects, supporting the real estate, industrial and agricultural sectors, as well as settling dues owed to contractors and farmers.

The directives came during a meeting chaired by Al-Zaidi on Oct. 4, which discussed measures aimed at stimulating the industrial, agricultural, and housing, as well as construction, tourism, and services sectors, and providing financing for projects in a way that supports economic activity, the private sector and job opportunities, according to the Iraqi News Agency as reported by Asharq Bloomberg.

Under the package, 1 trillion dinars from existing Central Bank of Iraq initiatives will be directed toward the real estate and housing sector, alongside increasing liquidity available to the Trade Bank of Iraq and the Industrial Bank by at least an additional 1 trillion dinars, to be directed toward financing industrial projects and supporting productive activity.

The government also directed the Ministry of Finance to fund contractors’ dues worth 500 billion dinars and settle farmers’ dues by a similar amount, in addition to increasing the Generations Fund initiative by an additional 500 billion dinars, bringing its current balance to 1.5 trillion dinars.

The official exchange rate is set at 1,320 dinars per dollar, according to the CBI.

Economic pressures after oil export disruptions

The package comes as Iraq faces mounting financial and economic pressures, with oil exports through the Strait of Hormuz affected and government revenues declining due to the war with Iran.

The European Bank for Reconstruction and Development forecast on September 24 that the Iraqi economy would contract by 12 percent in 2026 before recording 14 percent growth in next year, assuming oil exports return to normal levels.

The bank attributed the expected contraction to disruptions to oil exports through the Strait of Hormuz, after alternative export routes carried less than a quarter of Iraq’s usual export volumes.

The International Monetary Fund forecast in April that the Iraqi economy would contract by 6.8 percent this year under pressure from the repercussions of the war with Iran and geopolitical tensions in the region, while Standard Chartered forecast a 15 percent contraction in 2026 and an increase in the budget deficit to 12.5 percent of gross domestic product.

Iraq seeks to address domestic debt

The new financing measures coincide with the government considering ways to address domestic debt amounting to 114 trillion dinars, of which the CBI holds about 70 percent.

Mazhar Mohammed Saleh, the prime minister’s financial adviser, told Asharq Bloomberg in September that Iraq was considering transferring ownership of government assets to the central bank as part of a mechanism to swap part of the domestic debt.

Saleh explained that the government had already used surpluses from state-owned companies and non-oil revenues to repay the debt, but had not been able to repay the principal, with its payments up to that point limited to interest.

The financial adviser said one of the proposals under consideration was to swap the debt for government assets, allowing the central bank to exchange the debt for assets and operate them through a special-purpose vehicle.