Iraq salary delays test Central Bank’s limits
Shafaq News- Baghdad
Delays in public-sector salary payments have renewed debate over whether the Central Bank of Iraq (CBI) can ease mounting fiscal pressure as declining oil revenues squeeze state finances.
With last month’s salaries still unpaid and regional tensions continuing to disrupt oil exports, economists told Shafaq News the Central Bank has only limited tools to support public finances, warning that prolonged reliance on monetary measures could carry economic costs.
Economist and Iraqi University professor Abdul Rahman Al-Mashhadani explained that the CBI’s foreign reserves are designed to safeguard the economy by financing imports, supporting the exchange rate, and containing inflation —not covering budget deficits. Although the reserves remain sufficient to finance roughly one year of imports, he argued Baghdad could temporarily borrow dinars from the Central Bank to cover salaries and other monthly obligations through September. If export disruptions continue, however, sustained borrowing could increase inflationary pressures.
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“If those steps fail to ease the strain, authorities may have to raise public service fees and taxes, introduce compulsory savings, or reduce salary allowances,” Al-Mashhadani cautioned. He also pointed to the CBI’s dollar auction as a major source of dinar liquidity, noting that lower oil revenues have reduced state cash inflows. “External borrowing would be a better option than drawing down reserves, allowing the Central Bank to maintain its focus on price and exchange-rate stability.”
Former CBI director Mahmoud Dagher stressed that the institution cannot directly resolve fiscal imbalances because its mandate is defined by law. He identified treasury-bill discounting as a mechanism to inject funds into the banking system while helping cover state spending, adding that changing the dinar's exchange rate should remain a last resort because of its effect on prices and household purchasing power.
Economic expert Mohammed Al-Hassani argued that the current pressure reflects shortcomings in cash-flow management rather than a shortage of resources, urging Baghdad to prioritize salaries and pensions, defer non-essential spending, and accelerate reforms to reduce dependence on oil income. Domestic bond issuance, he noted, could provide short-term financing while long-term resilience depends on stronger coordination between fiscal and monetary policy.
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