ERBIL, Kurdistan Region - Iraq’s monthly revenues have dropped to nearly half of its expenditures due to declining oil exports following the US-Iran war, an advisor to outgoing Prime Minister Mohammed Shia’ al-Sudani said on Monday, warning that Baghdad may need to resort to domestic or foreign borrowing to sustain public spending.
Monthly revenue has dropped to nearly four trillion dinars (over $3 billion), compared to the country’s financial obligations, which exceed eight trillion dinars per month (over $6.1 billion), Mudher Mohammed Salih, the premier’s financial adviser, told Rudaw, adding Iraq’s public finances are facing a “sensitive phase” as oil revenues continue to decline.
He noted that the spending mainly covers salaries and essential operational expenditures.
The decline in Iraqi oil revenues follows disruptions linked to the US-Israel war with Iran, which led to the closure of the Strait of Hormuz on February 28 - a key route for Iraqi crude exports. Although a ceasefire is currently in place, issues surrounding the movement of oil tankers through the strategic waterway persist.
Salih stressed that the situation currently represents "a temporary liquidity crisis rather than a deficit that threatens the state’s continued functionality,” but warned that prolonged pressure could affect Iraq’s economic stability.
For Iraq, before the six-week war, production stood at around 4.5 million barrels per day, with roughly 3.5 million barrels exported daily. Nearly 90 percent of those exports passed through the Strait of Hormuz.
However, exports fell to 18.6 million barrels in March, generating about $1.96 billion in revenue, compared with more than 99 million barrels and $6.81 billion in February, according to official figures from the oil ministry.
Oil income, which finances more than 84 percent of Iraq’s expenditures, has fallen to around 2.5 trillion dinars, Salih added, noting that the amount is enough to cover only 34 percent of the funds required for public sector salaries.
To manage the crisis, he said, the Iraqi government is considering two financing options, either separately or simultaneously, to sustain public spending.
The first option involves increasing domestic financing through short-term local borrowing coordinated with the Central Bank of Iraq. Salih said this approach could quickly provide liquidity needed for state obligations, but warned it could also increase inflationary pressures and weaken the Iraqi dinar against the US dollar if not managed carefully.
The second option would involve external financing through international financial institutions, foreign borrowing, and the issuance of financial bonds. Salih said such measures could strengthen Iraq’s foreign reserves and “instill confidence in Iraq’s financial stability,” while helping stabilize the dinar’s exchange rate.
However, he noted that foreign borrowing would also come with financial conditions and obligations.
Salih also said Iraq’s foreign currency reserves currently stand at less than $100 billion, enough to cover approximately 12 months of imports.
Hastyar Qadir contributed to this report from Erbil, Kurdistan Region.
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