Iraq's IMF loan request raises concerns over reform costs

Shafaq News- Baghdad

Iraq's request for a program with the International Monetary Fund (IMF) has renewed debate over the potential cost of economic reforms, with financial experts warning that new borrowing could bring changes to public spending, taxes, subsidies, and government employment.

The discussions come as Iraq faces mounting fiscal pressure and remains heavily dependent on oil revenues to finance its budget, raising questions about how any IMF-backed program would affect public finances and household expenses.

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Potential Conditions

Financial expert Ali Dadoush told Shafaq News that IMF lending typically comes with conditions that could include reducing government spending and increasing non-oil revenues through higher taxes and fees for public services, such as property registration and vehicle-related charges.

Read more: Iraqi traders count losses after dinar devaluation

He said reforms could also involve reducing subsidies for energy and certain items provided through Iraq's food ration system.

Dadoush questioned whether Iraq had major investment projects that justified seeking external loans, arguing that borrowed funds should be directed toward projects capable of generating sufficient economic returns to cover interest payments and repay the principal.

He warned that borrowing without productive investment could place additional pressure on public finances rather than strengthen the economy.

Economic Reforms

Former Central Bank (CBI) official and financial expert Mahmoud Dagher offered a different perspective, arguing that IMF lending has evolved beyond traditional conditionality toward economic reform programs negotiated with borrowing countries.

Dagher told Shafaq News that such arrangements are designed around agreed macroeconomic policy objectives, with the IMF seeking to safeguard repayment while the borrowing country benefits from technical expertise and support for economic development.

The effectiveness of any Iraqi program would therefore depend on the reforms agreed upon, particularly measures to control spending, expand non-oil revenues, and protect vulnerable groups from the effects of fiscal adjustments.

Subsidies and Public-Sector Wages

Economist Nabil al-Marsoumi pointed to IMF Managing Director Kristalina Georgieva's announcement that Iraq had requested a program to help address its budget difficulties.

Al-Marsoumi said Iraq's domestic debt had exceeded 109 trillion dinars (about $71.7B), while CBI's foreign reserves had fallen to $75.6 billion.

He estimated Iraq's external debt requiring repayment at approximately $13 billion, excluding unresolved debts from the former regime, while placing the broader recorded external debt stock, including historical obligations, at about $54 billion.

According to al-Marsoumi, borrowing from the IMF could be less expensive than raising funds through financial markets, but any agreement might require reforms to public-sector wages, food subsidies, electricity bill collection, and non-oil revenue generation.

He also suggested that a financing arrangement could involve a formal government commitment to reforms covering budget preparation, debt management, exchange-rate policy, public spending, and employment.

Dinar Devaluation Debate

Economist Ziad al-Hashimi raised separate concerns over the government's decision to devalue the Iraqi dinar, arguing that seeking IMF financing could undermine an earlier justification for the exchange-rate adjustment.

Al-Hashimi said discussions with the IMF had begun and suggested that the Fund was likely to support Iraq's request.

He argued that the government had previously presented devaluation as a way to avoid more painful measures, including external borrowing.

Al-Hashimi warned that the financial and social costs of an IMF agreement might emerge gradually after financing begins, particularly if earlier IMF recommendations become binding commitments under a negotiated program.

The concerns follow Georgieva's announcement on Saturday that Iraq had requested an IMF program and that the Fund intended to provide financial and policy support.

No financing amount, lending terms, or final reform conditions have been announced.