Iraq’s public debt remains at manageable levels and does not currently pose a major threat to the country’s economy, according to Prime Minister’s financial advisor Mazhar Mohammed Salih.
Speaking on Friday, Salih said that concerns about public debt should not be judged by a single indicator. While some analysts consider debt levels risky when they exceed 40% of government revenues, international financial institutions use a broader set of measures. These include the debt-to-GDP ratio, debt servicing costs, and a country’s ability to generate stable revenues over time.
Salih explained that most of Iraq’s debt is domestic debt, while external debt has declined in recent years. Because of this, he said the bigger challenge is not the debt itself but Iraq’s heavy dependence on oil revenues. Since oil provides the majority of government income, fluctuations in global oil prices can quickly affect public finances.
He noted that when oil prices fall, the ratio of debt to government revenues rises, placing greater pressure on the state budget even if the total amount of debt does not increase significantly.
According to Salih, Iraq’s external debt obligations due through 2028 amount to less than $9 billion. When combined with domestic debt, total public debt represents about 36% of the country’s gross domestic product (GDP).
He said this level remains well below the 60% threshold that is commonly viewed by international standards as a warning level for debt sustainability.
Salih also pointed to the possibility of reducing debt even further through the settlement of remaining obligations linked to the 2004 Paris Club agreement. These debts are owed to around eight countries, including several Gulf nations. He said that once negotiations are completed, at least 80% of those outstanding amounts could be written off under the agreement’s terms.
Domestic debt, however, remains substantial. Salih stated that internal debt has exceeded 100 trillion Iraqi dinars, equivalent to roughly $80 billion. This makes it the largest component of Iraq’s total public debt.
Despite the size of domestic debt, he said its impact on Iraq’s financial independence remains limited as long as external debt stays under control and repayment obligations remain manageable.
Salih warned that continued budget deficits and increased borrowing could create future challenges, especially if oil prices decline. Such conditions could reduce the government’s financial flexibility and increase the need for economic reforms and additional financing measures.
He added that the International Monetary Fund views Iraq’s main challenge not as the size of its debt, but rather its ongoing fiscal deficits and heavy reliance on oil income.
To address this issue, the government is pursuing a long-term strategy aimed at increasing non-oil revenues. Salih said the goal is to raise non-oil revenues from the current level of less than 10% of total government income to about 45% over the next decade.
The plan includes improving tax and customs collection, digitizing financial systems, expanding the tax base, encouraging private-sector growth, attracting investment, and reforming the banking sector.
According to Salih, these reforms will take time to produce results, but they offer the most sustainable solution for reducing dependence on oil, improving liquidity, strengthening public finances, and making the economy more resilient to external shocks.
He also highlighted the existence of significant government arrears owed to contractors, farmers, and private-sector entities. These unpaid obligations are roughly equal in size to domestic debt. If they cannot be settled through normal payments, they may eventually be classified as internal debt and handled through formal debt-management mechanisms.
Overall, Salih emphasized that Iraq’s debt remains under control by international standards, but long-term financial stability will depend on reducing budget deficits, diversifying revenue sources, and continuing economic reforms.
