Ali Zuweid's Political Programme · Proposed legislation · Economy, Finance, Investment and Employment
Fiscal Responsibility, Fiscal Sustainability and Stabilisation and Generations Fund Law
A permanent legislative framework separating public expenditure from immediate oil price fluctuations, linking the budget to debt, non-oil balance and expenditure growth rules, and transferring part of exceptional oil revenues to a dual-purpose stabilisation and generations fund, with independent oversight and full disclosure of fiscal risks.
Executive Summary
Iraq has a legal system for budget management, borrowing and public accounting under Federal Financial Management Law No. (6) of 2019, as amended. It also adopted a medium-term federal budget for 2023–2025, and the Ministry of Finance continues in 2026 to publish in-year state accounts and public debt reports. A budget framework, however, does not automatically provide a rule countering oil cycles or a permanent legal mechanism requiring the state to save part of exceptional revenue increases and use it during shocks.
In the International Monetary Fund's 2025 assessment, the oil price required to balance the budget rose, according to the Fund's estimate, to around 84 dollars per barrel in 2024 from around 54 dollars in 2020. The report estimated fiscal deficits of 4.2% of GDP in 2024, 7.5% in 2025 and 9.2% in 2026, with government debt at 47.2%, 54.3% and 62.3% of GDP respectively. These are projected figures from the 2025 report, not substitutes for the Ministry of Finance's actual accounts. They nevertheless reveal the risk: permanent expenditure has become more sensitive to the price of a volatile, exhaustible resource.
The proposed law does not replace the Financial Management Law; it adds a fiscal responsibility layer. It sets a debt anchor of 60% of GDP and an upper limit of 70%, exceeded only in exceptional circumstances; uses the non-oil primary balance as an operational indicator; constrains current expenditure growth; and prohibits temporary oil windfalls from creating unfunded permanent commitments.
The draft establishes a “Stabilisation and Generations Fund” with two separate accounts. The stabilisation account holds highly liquid assets to absorb oil downturns and finance essential services instead of abrupt cuts or emergency borrowing. The generations account invests for the long term, converting part of an exhaustible resource into financial wealth. The proposed fund differs from the existing “Iraq Development Fund” established under Regulation No. (3) of 2023: the former is a savings and stabilisation instrument that does not directly finance domestic projects, while the latter is a development and investment instrument.
To prevent the Fund from becoming a parallel treasury, its resources cannot be spent under open-ended administrative discretion. The Law specifies deposit sources and ratios and withdrawal conditions, prohibits pledging assets or lending to the government or public enterprises, and requires dual auditing and publication of data. It also establishes an independent fiscal council with no spending power, providing public forecasts and assessments under a “comply or explain” principle. Final authority remains with government and Parliament while unjustified departures from the rules become harder to sustain.
Constitutional and legal context
The Iraqi Constitution imposes clear constraints on public finance. Taxes and fees may be imposed, amended, collected or exempted only by law. The executive prepares the draft budget and final accounts, while the legislature approves and oversees them. The Constitution also states that oil and gas belong to all the Iraqi people and that resource and revenue management must ensure equitable distribution within the federal state.
Federal Financial Management Law No. (6) of 2019, as amended, established a more developed framework than earlier legislation: a medium-term budget, multi-year forecasts, oil, revenue and expenditure estimates, expenditure ceilings, implementation and accounting rules, borrowing and guarantee provisions, and transparency requirements. There is therefore no legal need to repeal it or build a parallel budget system.
The gap is that the existing law does not convert oil revenue volatility into a clear automatic savings and withdrawal rule linked to sustainability indicators, establish a dual-purpose budget protection and intergenerational savings fund, or impose a debt anchor, non-oil operational rule and integrated escape clause through permanent legislation. A complementary framework law is therefore the most appropriate approach.
Fiscal Baseline and the Problem
Iraq has both a major fiscal advantage and a source of vulnerability: oil revenues are substantial but highly volatile and depend on prices, quotas and production not fully controlled by the budget. When prices rise, spending scope rapidly expands; salaries, appointments, transfers and projects then become commitments difficult to reduce during downturns. This makes the budget procyclical with oil rather than an economic stabilisation instrument.
In its 2025 Article IV consultation report, the IMF estimated that oil would continue to dominate government revenue over the medium term, alongside a growing wage and pension burden and a weak non-oil base. It recommended a rules-based fiscal framework to reduce procyclicality, including a rule linked to improving the non-oil primary balance and saving oil windfalls to build buffers.
The Ministry of Finance has expanded budget and debt reporting, making in-year state accounts and public debt transparency reports available in 2026. This is an important institutional step, but transparency alone does not predetermine what should happen when oil prices rise or off-budget commitments emerge.
Fiscal and monetary buffers must also be distinguished. In March 2026, the Central Bank announced that its foreign reserves covered around twelve months of imports. Those reserves support monetary and external stability; they are not a budget financing fund.
Legislative need
| Question | Assessment | Conclusion |
|---|---|---|
| Is there an actual problem? | Yes; oil volatility affects deficits, liquidity, expenditure and debt. | A permanent rule, not an annual decision. |
| Is the Financial Management Law sufficient? | It provides the foundation for budgeting, borrowing and transparency, but does not establish an integrated savings/withdrawal and rules system. | A complementary framework law. |
| Do we need a new executive budget authority? | No. | The Ministry of Finance remains the executive body. |
| Do we need an independent assessment body? | Yes, for forecasts, oil prices and compliance. | A non-executive fiscal council. |
| Does a development fund already exist? | Yes, the Iraq Development Fund. | Keep the functions separate. |
Proposed legislative policy
The draft has four interconnected levels. First, a medium-term fiscal framework links the draft budget to a path of at least three years. Second, fiscal rules establish a debt anchor, a non-oil primary balance rule and a current expenditure growth constraint. Third, a fund contains stabilisation and generations accounts with clear deposit and withdrawal rules. Fourth, independent transparency covers risks, guarantees, public enterprises, arrears, partnerships and tax expenditures.
The rules are not designed to prevent spending during crises. They include a clear “escape clause” for war, disasters, financial and health crises, severe recession and exceptional oil shocks. Flexibility differs from indiscipline because suspension is limited by reason, duration and amount, with a published return plan.
The 60% debt anchor is not presented as an existing Iraqi constitutional standard. It is a proposed prudential legislative choice, with a 70% upper limit and a transitional provision allowing gradual convergence where initial debt exceeds the anchor.
The bill
Chapter One — General Provisions
Article 1 — Title
This Law shall be called the “Fiscal Responsibility, Fiscal Sustainability and Stabilisation and Generations Fund Law”.
Article 2 — Objectives
This Law aims to protect the state's fiscal stability, limit oil price volatility's effect on public expenditure, improve debt sustainability, link the budget to a medium-term fiscal framework, build fiscal reserves usable during shocks, convert part of exhaustible resource revenues into financial assets for future generations, and strengthen transparency, accountability and fiscal risk management.
Article 3 — Scope of Application
This Law shall apply to the federal general budget, public treasury, federal borrowing and guarantees, off-budget public funds and accounts, contingent liabilities and partnerships creating federal fiscal obligations. It shall extend to regional and governorate budgets only concerning federal transfers, borrowing or guarantees borne by the federal treasury, or obligations arising for the federal state.
Article 4 — Relationship with the Federal Financial Management Law
This Law supplements Federal Financial Management Law No. (6) of 2019, as amended. That Law shall govern matters not regulated here. This Law shall prevail in conflicts concerning fiscal responsibility rules, the medium-term fiscal framework, savings and withdrawals from the Stabilisation and Generations Fund, and fiscal risk disclosure.
Article 5 — Definitions
The following terms mean: “Ministry”: the federal Ministry of Finance; “Fiscal Council”: the independent Iraqi Fiscal Council established by this Law; “public debt”: total direct financial obligations of the federal government included in debt under adopted accounting and statistical standards; “non-oil GDP”: GDP excluding crude oil and gas extraction according to official data; “non-oil primary balance”: non-oil revenue less non-oil primary expenditure, excluding interest payments and oil revenue; “net oil revenue”: realised federal oil and gas revenues after legally binding costs, deductions and entitlements; “reference oil revenue”: revenue calculated using the reference price and quantity; “oil windfall revenue”: realised net oil revenue exceeding reference oil revenue; “Fund”: the Stabilisation and Generations Fund; “stabilisation account”: the portion allocated to absorbing shocks; “generations account”: the portion allocated to long-term savings; and “escape clause”: temporary, defined suspension of certain fiscal rules when an exceptional event occurs under this Law.
Article 6 — Governing Principles
Public financial management shall observe treasury unity, budget comprehensiveness, realistic estimates, prudent oil price and production assumptions, intergenerational sustainability, no financing of permanent expenditure with temporary revenue, disclosure of contingent liabilities, no off-budget expenditure or guarantees, and transparency of state assets and liabilities.
Chapter Two — Medium-term Fiscal Strategy
Article 7 — Fiscal Strategy
In coordination with the Ministry of Planning and relevant bodies, the Ministry of Finance shall prepare a fiscal strategy covering at least three years, updated annually and accompanying the draft budget. It shall provide the framework for explaining expenditure and borrowing ceilings and major allocations.
Article 8 — Strategy Content
The strategy shall contain macroeconomic forecasts; oil prices and production and export volumes; oil and non-oil revenues; current and investment expenditure; overall and non-oil primary balances; debt and debt service; guarantees; arrears; Fund assets; transfers between government and the Fund; and analysis of risks and alternatives.
Article 9 — Stress Scenarios
The strategy shall present a baseline and at least three stress tests involving a substantial fall in oil prices or export volumes or an increase in financing costs. Each shall show effects on the deficit, debt, liquidity, fiscal reserves and essential expenditure.
Article 10 — Expenditure Ceilings
On a Ministry of Finance proposal, the Council of Ministers shall set a medium-term total expenditure ceiling and indicative sectoral ceilings. The total ceiling may be raised in the draft budget only if the government identifies funding, explains the effect on fiscal rules, and attaches the Fiscal Council's opinion.
Article 11 — Multi-year Commitments
No contract, programme or financial undertaking extending into later years may be concluded without its full future cash cost being estimated in the medium-term framework and a funding source identified. Undisclosed commitments shall constitute a financial violation.
Article 12 — Permanent Expenditure
Permanent salaries, allowances, transfers, subsidies or spending entitlements shall not be created on the basis of temporary or exceptional oil revenue increases unless the strategy establishes a permanent, sustainable funding source.
Article 13 — Investment Expenditure
Available fiscal space shall prioritise ongoing viable investment projects with economic impact. No new project shall be included if it fragments financing or accumulates unfinished projects unless investment portfolio analysis demonstrates budget capacity to fund it within medium-term ceilings.
Chapter Three — Fiscal Rules
Article 14 — Debt Anchor
The medium-term public debt anchor shall be no more than sixty per cent of GDP. If debt exceeds this upon entry into force or following a later shock, the government shall adopt a published corrective plan returning it to the anchor within no more than seven years, unless the escape clause is activated.
Article 15 — Upper Debt Limit
Public debt shall not exceed seventy per cent of GDP except through activation of the escape clause and express legislative approval specifying the excess, duration and return plan. This provision does not itself authorise borrowing.
Article 16 — Non-oil Primary Balance Rule
Where debt exceeds the sixty per cent anchor or stabilisation account assets fall below target, the strategy shall seek annual improvement of at least one percentage point of non-oil GDP in the non-oil primary balance, unless the Fiscal Council establishes that this adjustment in a particular year threatens essential service continuity or worsens a severe recession.
Article 17 — Primary Current Expenditure Growth Rule
Nominal primary current expenditure growth in the budget year shall not exceed the trend nominal growth rate of non-oil GDP adopted in the fiscal strategy, except to the extent financed by a demonstrated permanent increase in non-oil revenue or under an activated escape clause.
Article 18 — No Full Expenditure of Windfall Revenue
Oil windfall revenue shall not enter the spending base in full; the amount required by this Law shall be transferred to the Fund. Additional in-year allocations shall not rely on an immediate oil price rise before revenue is actually realised.
Article 19 — Golden Financing Rule
From the fourth fiscal year after entry into force, net new borrowing shall not finance increases in salaries, wages or recurrent operating expenditure. It shall be limited to investment assets, refinancing existing debt, short-term liquidity management, or escape-clause exceptions.
Article 20 — Debt Service
The strategy shall include an indicator of debt service risk relative to public and non-oil revenues. Corrective action shall be taken where the trajectory threatens essential expenditure financing or materially increases refinancing risks.
Article 21 — Compliance Schedule
The draft budget shall not be submitted to the Council of Representatives without a schedule showing compliance with each fiscal rule in this Chapter, or the extent and legal basis of deviation and the corrective plan.
Chapter Four — Reference Oil Price and Revenue
Article 22 — Reference Price
The fiscal framework shall use a prudent reference oil price no higher than the lower of the average actual Iraqi oil export price over the preceding five fiscal years and the average annual forecast for the coming fiscal year from at least three independent international institutions specified by instructions. Each figure's source and method of conversion to an Iraqi oil price shall be published.
Article 23 — Reference Quantity
The reference export quantity shall reflect realistic capacity, actual averages, Ministry of Oil plans and binding international obligations. The budget shall not assume exports exceeding demonstrated operating capacity or disregard production and marketing constraints known when it is prepared.
Article 24 — Stability of the Method
The reference price or quantity calculation method shall not change after submission of the draft budget except for a factual error or documented material change. In either case, the change, reasons and Fiscal Council opinion shall be published.
Article 25 — Oil Windfall Revenue
Oil windfall revenue shall be calculated quarterly from net oil receipts actually collected, after priority legal entitlements, costs and obligations, against reference revenue proportionate to the period.
Article 26 — Negative Shock
If actual oil revenue falls below reference revenue, the gap shall first be addressed through expenditure and liquidity management, followed by stabilisation account withdrawals under this Law. The fall shall not automatically be offset by increased debt without updating sustainability analysis.
Chapter Five — Stabilisation and Generations Fund
Article 27 — Establishment of the Fund
A sovereign financial fund called the “Stabilisation and Generations Fund” is established with legal personality and financial and administrative independence. Its assets belong to the Republic of Iraq for the Iraqi people's benefit, not to any ministry or incumbent government.
Article 28 — Nature of the Fund
The Fund shall comprise two accounts separate in accounting and investment: the stabilisation account and the generations account. Their purposes shall not be conflated, nor one used to bypass the other's withdrawal restrictions.
Article 29 — Distinction from the Iraq Development Fund
The Fund established here differs from the Iraq Development Fund governed by Regulation No. (3) of 2023. The Iraq Development Fund is an investment, development and project instrument; the Stabilisation and Generations Fund is a savings and fiscal stabilisation instrument and shall not directly finance domestic projects. This Law neither abolishes the Iraq Development Fund nor transfers its assets.
Article 30 — Fund Resources
Resources shall comprise prescribed transfers from oil windfalls, investment returns, unconditional gifts accepted under the law, and actual surpluses allocated by the budget law. This shall not justify borrowing to deposit into the Fund.
Article 31 — Basic Transfer Ratio
From the third fiscal year after entry into force, fifty per cent of realised oil windfall revenue shall be transferred to the Fund. Transitional ratios shall be twenty-five per cent in the first year and thirty-five per cent in the second.
Article 32 — Allocation between Accounts
Where the stabilisation account's market value is below ten per cent of the previous year's GDP, transfers to the Fund shall be allocated seventy-five per cent to stabilisation and twenty-five per cent to generations. After that threshold is reached, allocation shall be twenty-five per cent to stabilisation and seventy-five per cent to generations.
Article 33 — Stabilisation Account Objective
The stabilisation account shall build a liquid fiscal buffer reducing the need for sharp expenditure cuts or costly borrowing when oil revenues fall or an economic or security shock or widespread disaster occurs.
Article 34 — Generations Account Objective
The generations account shall convert part of an exhaustible resource's value into a long-term financial asset portfolio, promoting intergenerational equity and reducing national wealth's dependence on underground oil.
Article 35 — Independence of Fund Assets
Fund assets shall not form part of ministries' or executive bodies' funds. They may not be pledged, attached or used to guarantee borrowing by a public body, public enterprise or project, nor offset against debts not owed by the Fund itself.
Chapter Six — Withdrawals from the Stabilisation Account
Article 36 — Ordinary Withdrawal Conditions
Withdrawals may be made if actual net oil revenues fall at least ten per cent below the period's approved reference revenue and the shortfall threatens essential expenditure or priority ongoing investments.
Article 37 — Withdrawal Amount
An ordinary withdrawal shall not exceed the lower of the actual oil revenue shortfall and thirty-five per cent of the stabilisation account's opening-year balance. It shall be transferred to the public treasury and shown separately as financing revenue in the budget and accounts.
Article 38 — Emergency Withdrawals
An additional amount may be withdrawn when the escape clause is activated for war, national disaster or a widespread financial or health crisis, with Council of Representatives approval of amount and purpose, preserving where possible minimum assets sufficient for essential service continuity.
Article 39 — No Withdrawals to Increase Discretionary Expenditure
The stabilisation account shall not fund permanent increases in salaries, hiring or non-temporary subsidies, overruns in projects not reassessed, or off-budget institutions.
Article 40 — Replenishment after Withdrawal
If the stabilisation account falls below ten per cent of GDP, oil windfall allocation shall prioritise replenishment under Article (32) until the target is reached.
Chapter Seven — Generations Account and Long-term Investment
Article 41 — Prohibition on Principal Withdrawals
The generations account's principal shall not be withdrawn during the first fifteen years after entry into force, except for an existential threat to the state approved by a two-thirds majority of the Council of Representatives, on a Council of Ministers proposal and published Fiscal Council opinion.
Article 42 — Sustainable Transfers after the Protection Period
After fifteen years, the budget law may transfer to the treasury no more than two and a half per cent of the account's average market value at the end of the previous five years, provided that the transfer does not reduce assets' long-term real value according to the Fiscal Council and Fund auditor.
Article 43 — Investment Policy
Investment policy shall define return, risk, liquidity, time horizon, benchmarks, concentration limits, credit ratings, currencies and responsible investment. Generations account investments shall normally pursue long-term international diversification based on risk and return, rather than domestic political or commercial direction.
Article 44 — Stabilisation Account Portfolio
Stabilisation account assets shall prioritise high liquidity and capital preservation. They may be invested in high-quality deposits and short- or medium-term sovereign and money-market instruments under a published policy ensuring availability during shocks.
Article 45 — Prohibition on Financing Government and Public Enterprises
The Fund shall not purchase bonds or bills issued by the Iraqi government, lend to it directly or indirectly, finance public enterprises or state-owned banks, or guarantee their obligations. Its purpose is to build a net financial asset for the state, not recycle debt within the public sector.
Article 46 — Domestic Investment
The generations account shall not directly invest in domestic projects, real estate or Iraqi companies. Domestic development investment shall proceed through the budget, Iraq Development Fund and designated instruments. The Fund may hold Iraqi securities listed on a regulated market only if they form part of a broad international investment index and within narrow policy limits.
Article 47 — Monetary Coordination
The Fund shall coordinate currency conversions and large flows with the Central Bank of Iraq without compromising its independence or monetary policy objectives. Fund assets shall not count as official central bank reserves unless owned by the Bank under its law.
Chapter Eight — Fund Governance
Article 48 — Board of Trustees
A seven-member Board of Trustees shall govern the Fund: a senior Ministry of Finance representative, a Ministry of Planning representative, a professional nominated by the Central Bank, and four independent members experienced in asset management, economics, law, accounting and risk management. Independent members shall be appointed by the Council of Ministers after a public hearing before the Council of Representatives' Finance Committee.
Article 49 — Membership Requirements
Members shall possess competence, experience and integrity, shall not simultaneously hold an executive post in a company dealing with the Fund, and shall have no final conviction for a felony or misdemeanour involving dishonour or dishonesty. They shall submit declarations of interests and financial disclosure under existing laws.
Article 50 — Term and Independence
Independent members shall serve staggered five-year terms renewable once to ensure continuity. Early removal shall require a reasoned lawful ground involving loss of eligibility, serious misconduct or permanent incapacity.
Article 51 — Executive Management
The Board of Trustees shall appoint a chief executive through an advertised, merit-based competition, responsible for implementation within approved policy. The Board shall not intervene in selecting an individual investment where authority has been professionally delegated within policy limits.
Article 52 — Custodians and Investment Managers
Asset custodians, investment managers and advisers shall be selected through professional competition using cost, competence and risk management criteria. Related-party dealings are prohibited except under disclosure rules and independent approval.
Article 53 — Santiago Principles
Consistently with the Iraqi Constitution and law, the Fund shall adopt the Santiago Principles of generally accepted practices for sovereign wealth funds as a framework for governance, transparency, investment and risk management, and publish periodic self-assessments of compliance.
Article 54 — Public Record
The Fund shall publish its governing statutes, objectives, governance structure, investment policy, withdrawal and deposit rules, audited financial statements, returns and risks against benchmarks, and aggregate expenses and fees, without revealing real-time trading details whose disclosure would harm investment value.
Chapter Nine — Independent Iraqi Fiscal Council
Article 55 — Establishment of the Fiscal Council
An independent technical council called the “Independent Iraqi Fiscal Council” is established with legal personality and technical and administrative independence. It shall have no power to impose taxes, spend, borrow or amend the budget. Its role shall be limited to independent analysis, assessment and disclosure.
Article 56 — Fiscal Council Functions
The Council shall assess macroeconomic and revenue forecasts, verify the reference oil price methodology, evaluate draft budget compliance with fiscal rules, analyse debt sustainability, examine costs of new measures, advise on escape-clause activation and return plans, and issue a semi-annual public finance report.
Article 57 — No Duplication with the Financial Stability Council
The Fiscal Council shall not replace the Financial Stability Council, Central Bank or Ministry of Finance. The Financial Stability Council coordinates institutions and policies concerning financial and monetary stability, while the Fiscal Council independently evaluates fiscal policy and this Law's rules.
Article 58 — Council Composition
The Council shall comprise five experts in macroeconomics, public finance, debt, accounting and statistics, appointed to staggered six-year terms by the Council of Representatives from a public shortlist prepared by an independent merit-based committee. Members shall not simultaneously be ministers, members of Parliament or executive party officials.
Article 59 — Access to Information
The Ministries of Finance and Planning, Central Bank and public bodies shall provide necessary data within specified periods, respecting legal confidentiality. The Council may publish that a body failed to supply requested information without disclosing confidential data.
Article 60 — Comply or Explain
Where the government departs from a material Fiscal Council assessment concerning forecasts or rules, it may proceed within its powers, provided that it publishes a specific written explanation of the reasons and fiscal effect. The Council's opinion shall not replace executive or legislative authority.
Chapter Ten — Debt, Guarantees and Fiscal Risk Management
Article 61 — Debt Strategy
The Ministry of Finance shall prepare an annually updated medium-term debt strategy identifying domestic and external debt composition, currencies, maturities, fixed and floating rates, refinancing and exchange-rate risks, and an annual borrowing plan consistent with the debt anchor.
Article 62 — Borrowing
New borrowing shall serve a specified legally authorised purpose, with its effect on debt, debt service and fiscal rules explained. Financing instruments reducing medium-term refinancing risk and cost shall be preferred over focusing solely on first-year cost.
Article 63 — Sovereign Guarantees
A federal guarantee shall be issued only within an annual budget-law ceiling, after assessing call probability, pricing risk and entering it in a central register. A risk fee may be charged to the beneficiary and a prudential provision made for guarantees likely to be called.
Article 64 — Partnerships and Long-term Contracts
Direct and contingent fiscal obligations from public-private partnerships, guaranteed purchase contracts and long-term undertakings shall appear in the fiscal risk statement. They shall not conceal debt or move expenditure off budget.
Article 65 — Public Enterprises
Public enterprises and their owner bodies shall provide the Ministry of Finance with information on debts, guarantees, arrears, pension obligations and contracts carrying fiscal risks. The Ministry may record a contingent liability in risk accounts even where it is not direct treasury debt.
Article 66 — Arrears
The Ministry of Finance shall maintain a central register of arrears owed to contractors, suppliers, employees and others. New obligations without valid appropriation or authority are prohibited. A timetable for clearing verified arrears and preventing recurrence shall be published.
Article 67 — Pension and Social Protection Risks
Long-term actuarial obligations of pension, social security and social transfer systems shall be included in fiscal risk reporting through periodic estimates. They shall not be treated as zero merely because they are not payable in the budget year.
Chapter Eleven — Budget and Risk Transparency
Article 68 — Fiscal Risk Statement
The draft budget shall include a unified fiscal risk statement covering oil sensitivity, debt, guarantees, arrears, public enterprises, partnerships, major litigation, pensions, potential banking risks to the treasury, disasters, and off-budget obligations that could become public expenditure.
Article 69 — Tax Expenditures
The Ministry of Finance shall annually publish a tax expenditure statement estimating major exemptions, reductions and exceptions, beneficiaries and legal purposes, and whether they are time-limited and evaluable.
Article 70 — Supplementary Budget
A supplementary budget shall be submitted only for a material change that cannot be accommodated through virement powers and reserves. It shall state funding sources and effects on fiscal rules, the Fund and debt. A higher oil price alone shall not justify increasing permanent expenditure.
Article 71 — In-year Accounts
The Ministry of Finance shall publish monthly or regular periodic execution reports on revenues, expenditure, financing, arrears, transfers to the Fund and withdrawals. Classifications shall be comparable with the budget law and final accounts.
Article 72 — Final Accounts
Final accounts shall be submitted within Financial Management Law deadlines and include actual fiscal-rule compliance, explaining differences between estimates and outcomes and showing oil windfall revenue and transfers due to the Fund.
Article 73 — Open Data
Core fiscal strategy, debt, Fund and execution tables shall be published in machine-readable and human-readable formats, respecting security, commercial confidentiality and personal data.
Chapter Twelve — Escape Clause and Correction
Article 74 — Escape-clause Events
One or more rules may be temporarily suspended for war or widespread conflict, a major national disaster, a widespread public health crisis, a banking or financial crisis threatening stability, severe recession, or an exceptional oil shock causing a major fiscal loss that ordinary management tools cannot absorb.
Article 75 — Activating the Escape Clause
The Council of Ministers shall propose activation through a reasoned decision specifying the event, rules to suspend, duration, cost and funding sources. The Fiscal Council's opinion shall be attached. Council of Representatives approval shall be sought if the effect exceeds one fiscal year or breaches the upper debt limit.
Article 76 — Duration
Activation shall last no more than one year, renewable once through the same procedures, unless war or disaster continues under a specific law.
Article 77 — Return Plan
Activation shall include a plan for gradual return to the rules beginning no later than the year following the exceptional event's end, specifying the debt and non-oil balance paths and rebuilding of the stabilisation account.
Chapter Thirteen — Oversight and Accountability
Article 78 — Parliamentary Oversight
The Ministry of Finance shall submit a semi-annual report to the Council of Representatives' Finance Committee on rule compliance, the Fund, debt and risks. The independent Fiscal Council's report shall be presented in a public session at least annually.
Article 79 — Federal Board of Supreme Audit
The Fund, its transfers and accounts, and the Ministry of Finance's implementation of this Law shall be subject to Federal Board of Supreme Audit oversight. The Board may examine windfall calculations, withdrawal and guarantee legality, and recording of obligations.
Article 80 — External Fund Audit
The Fund shall appoint a qualified international or domestic external auditor through open competition, in addition to Federal Board of Supreme Audit oversight. Audited financial statements and the full audit opinion shall be published.
Article 81 — Liability for Concealment or Circumvention
Deliberately concealing a fiscal obligation, guarantee or arrears, or creating an arrangement to circumvent this Law's rules, shall constitute a serious violation. Suspected corruption, crime or employment misconduct shall be referred to competent bodies under existing laws, without retroactive criminalisation or punishment of good-faith professional error.
Article 82 — Protection of Professional Judgment
An official or expert shall not be liable merely because actual results differ from an economic forecast published in good faith using a professional method and data then available. Liability shall arise for fraud, deliberate concealment or gross negligence under the law.
Chapter Fourteen — Transitional and Final Provisions
Article 83 — First Year
Within ninety days of entry into force, the Ministry of Finance shall publish the baseline for debt, guarantees, arrears, financial assets and contingent liabilities. The Fiscal Council shall independently assess it within sixty days of receiving the data.
Article 84 — Initial Fund Capital
This Law shall not deduct past revenues or require borrowing to establish the Fund. The Fund shall begin with the first windfall transfer due after entry into force; the budget law may allocate initial capital from an actual cash surplus.
Article 85 — Building the Stabilisation Account
The transitional transfer ratios in Article (31) shall apply. After receiving the Fiscal Council's opinion, the Council of Representatives may retain the second-year ratio for one additional year if debt exceeds the upper limit or public liquidity is under severe pressure. Transfers shall not be entirely cancelled where an oil windfall exists.
Article 86 — Transitional Debt Plan
If public debt exceeds sixty per cent of GDP at entry into force, the government shall submit, with the next budget, an annual path returning it to the anchor within seven years. Exceeding the anchor initially shall not itself be a violation where the plan is approved and implementation demonstrated.
Article 87 — Regulations and Instructions
The Council of Ministers shall issue implementing regulations within one hundred and eighty days. The Ministry of Finance, Fund and Fiscal Council shall issue instructions within their respective mandates. Regulations shall not alter transfer ratios, withdrawal limits or the debt anchor.
Article 88 — Review of Rules
Five years after entry into force, the Council of Representatives shall comprehensively review the debt anchor, withdrawal limits and sustainable transfer rule on a joint report by the Ministry of Finance, Fiscal Council and Federal Board of Supreme Audit. Rules may be amended only by law.
Article 89 — Continuation of Existing Institutions
This Law shall not affect the mandates of the Central Bank of Iraq, Federal Board of Supreme Audit, Iraq Development Fund or any existing fund except expressly. Reporting shall be coordinated to avoid duplication and unify debt, guarantee and risk definitions.
Article 90 — Repeal of Conflicting Provisions
Any subordinate legislative provision conflicting with this Law shall be repealed. Existing laws, including the Federal Financial Management Law, shall remain effective outside areas of conflict.
Article 91 — Entry into Force
This Law shall enter into force ninety days after publication in the Official Gazette. Provisions with transitional deadlines shall apply according to those deadlines.
Statement of reasons
This Law is enacted to strengthen fiscal sustainability and protect the budget from oil revenue volatility; build buffers preventing sharp cuts to essential expenditure during shocks; ensure temporary oil price increases do not become unfundable permanent commitments; improve debt sustainability, transparency and management of guarantees, risks and arrears; convert part of exhaustible oil revenues into financial assets for present and future generations; and establish independent assessment of forecasts and fiscal rules while preserving the government's and Council of Representatives' constitutional budget powers.
Explanatory memorandum
Why the Non-oil Primary Balance?
The overall deficit may improve solely because oil prices rise, even while spending expands unsustainably. The non-oil primary balance excludes oil revenues and interest payments and measures how much the state spends beyond its non-oil revenues. It is therefore a more useful indicator for assessing the fiscal policy stance across the cycle in an oil economy.
Why Combine a Debt Rule and an Operational Rule?
A debt rule alone is distant in horizon and may permit excessive spending before the ceiling is reached. An expenditure rule alone may not address high debt. The draft combines a debt anchor with the non-oil balance and expenditure growth, pairing a long-term indicator with annually monitorable tools.
Nature of the Numerical Limits
The proposed debt, transfer and withdrawal ratios are prudential legislative choices, not constitutional figures or existing international obligations for Iraq. The Law therefore provides review after five years to test them against debt costs, market depth, non-oil growth and Fund assets.
Why Two Accounts within One Fund?
Stabilisation needs liquidity and rapid withdrawals; generations savings need a long horizon and tolerance for market volatility. Combining both purposes in one portfolio produces unclear investment policy. The Law separates their accounting and investments while retaining common governance to reduce administrative costs.
Why Does the Fund Not Finance Domestic Projects Directly?
Iraq already has an investment budget, the Iraq Development Fund and project financing instruments. Allowing the savings fund to finance domestic projects directly would conflate stabilisation with development policy, create an off-budget spending channel, and potentially turn savings into illiquid domestic obligations.
Why Prohibit Purchases of Government Debt?
If the government borrows and its sovereign fund buys that same debt, no net financial wealth is created for the public sector; the obligation is merely rearranged within the state. The draft prohibits this route so savings remain genuine and available during shocks.
Distinction from Central Bank Reserves
Central bank reserves protect the currency, payments and monetary stability. Fund assets are treasury financial property serving different purposes. Operations must be coordinated, but central bank reserves shall not be treated as budget balances, nor Fund assets counted as official reserves merely because the Bank holds them in custody.
Why an Independent Fiscal Council?
Fiscal rules depend on oil, growth and revenue forecasts. If the body seeking higher expenditure also supplies the only estimate, the rule can become a matter of assumptions. The Fiscal Council does not prevent government decisions; it publishes a second assessment and requires departures to be explained. Decisions remain political and constitutional, but information becomes more balanced.
Rationale of the Fiscal Rules
| Rule | Purpose | Correction Mechanism |
|---|---|---|
| 60% Debt Anchor | Protect medium-term solvency. | A seven-year return plan where exceeded. |
| 70% Upper Limit | Prevent open-ended borrowing. | Exceeded only through an escape clause and parliamentary approval. |
| Improved Non-oil Balance | Reduce spending dependence on oil. | Annual improvement when debt is high or buffers weak. |
| Current Expenditure Constraint | Prevent an oil boom becoming a permanent commitment. | Linked to trend non-oil GDP growth or new permanent revenue. |
| Saving Part of Windfall Revenue | Separate expenditure from immediate oil prices. | Phased transfers reaching 50% of exceptional oil surplus. |
No single rule should be read in isolation. In a year of higher oil prices and low debt, the rules permit investment and services to continue but prevent spending the entire increase. When prices fall, the stabilisation account cushions the shock. During an exceptional crisis, the escape clause is activated instead of silently breaching the rules.
Design of the Stabilisation and Generations Fund
| Element | Stabilisation Account | Generations Account |
|---|---|---|
| Objective | Cover revenue and liquidity shocks. | Long-term savings and intergenerational equity. |
| Horizon | Short to medium term. | Very long term. |
| Liquidity | High. | Lower, with broader diversification. |
| Risk | Low, prioritising capital preservation. | Measured risks for long-term returns. |
| Withdrawals | For revenue shortfalls or emergencies within limits. | Principal protected for 15 years, followed by a limited sustainable withdrawal rule. |
The draft sets a stabilisation account target of 10% of GDP. This is not an estimate of the next shock's scale, but a legislative reference for building a substantial buffer, reviewed after five years. During accumulation, 75% of Fund transfers go to stabilisation and 25% to generations; after the target is reached, priority reverses towards generations.
The deposit rule uses realised revenue, not estimates. Transfers do not occur merely because market prices rise for a few days, but only after net revenue exceeds a published benchmark.
Legislative and Institutional Alignment
| Existing framework | Treatment |
|---|---|
| Federal Financial Management Law No. (6) of 2019, as Amended | Remains the principal law for budget preparation, execution, accounting and borrowing; the draft adds sustainability rules, the Fund and Fiscal Council. |
| Federal Budget Law | Remains the appropriation instrument, but must comply with permanent rules without implicitly overriding them. |
| Central Bank of Iraq Law | The Bank's independence and reserves remain unaffected; coordination concerns only custody, transfers and liquidity. |
| Federal Board of Supreme Audit | Retains legal and financial oversight, with an explicit mandate to examine transfers, withdrawals and concealed obligations. |
| Iraq Development Fund — Regulation No. (3) of 2023 | Remains a development fund; is not merged with the Stabilisation and Generations Fund. |
| Financial Stability Council | Remains a coordination framework; the independent Fiscal Council provides analysis and scrutiny rather than executive coordination. |
Financial and Implementation Implications
The draft does not adopt an artificial aggregate cost figure. Most implementation falls to existing institutions: the Ministries of Finance and Planning, Central Bank and Federal Board of Supreme Audit. Additional institutional costs focus on the Fiscal Council and its small secretariat, Fund governance, accounting and asset and risk management systems, external audit, and connecting debt, guarantee, public enterprise and arrears data.
The most important cost is opportunity cost, rather than administrative expenditure: some oil windfall revenue will become assets instead of being spent immediately. This is not a treasury loss; it exchanges an extracted oil asset for a financial one, reducing immediate expansion capacity while improving later resilience.
During the first year, the implementing regulation shall provide a five-year estimate of deposit rules' expected liquidity effects, possible asset accumulation scenarios, effects on financing needs, asset management costs and expected returns expressed as ranges rather than guarantees.
Transition and Implementation
The Law addresses the risk of immediately imposing an ideal rule on public finances already under pressure. Windfall transfers therefore rise from 25% in the first year to 35% in the second and 50% from the third. Initial excess over the debt anchor requires a return plan rather than constituting an immediate violation.
Establishing the Fund requires neither deductions from historical funds nor borrowing to display a nominal balance. It begins with the first exceptional oil surplus realised after entry into force. During the first year, debt, guarantees, arrears and contingent liabilities must be inventoried, a unified register of partnerships and long-term contracts prepared, and definitions harmonised across relevant bodies.
International Standards Relevant to Iraq
IMF literature on resource-rich countries shows that more coherent frameworks combine a debt or net asset anchor with an operational expenditure or non-oil balance rule, supported by a resource fund and clear deposit and withdrawal rules. The primary objective is protection against shocks and reduced spending procyclicality with commodity prices.
For sovereign wealth funds, the Santiago Principles provide an appropriate governance benchmark: a declared legal purpose, clear separation of owner, board and management, risk-and-return-based investment policy, transparency, risk management and auditing. The draft uses these principles without elevating them above Iraqi legislation.
Sources and references
- Constitution of the Republic of Iraq, 2005 — Iraqi Council of RepresentativesConstitutional basis for taxation, the budget, responsibilities, oil and gas ownership, and revenue distribution.
- Ministry of Justice — Issuance of Federal Financial Management Law No. (6) of 2019Official reference for publication in Iraqi Gazette Issue 4550.
- Ministry of Justice — Federal Financial Management Law No. (6) of 2019 with Its AmendmentUpdated official reference confirming the Law and its amendment.
- Ministry of Finance — Financial Management Law
- Ministry of Finance — Federal Budget LawsPublished laws include the Federal General Budget Law for fiscal years 2023–2024–2025.
- Ministry of Finance — Budget Execution Reports during 2026At document preparation, state accounts through July 2026 had been published.
- Ministry of Finance — Public Debt Department ReportsInclude debt transparency reports through 30 June 2026 and quarterly data.
- Ministry of Planning — Summary of the National Development Plan 2024–2028Includes prudent fiscal policy, correction of expenditure composition, and transition to programme and performance budgeting.
- Ministry of Justice — Iraq Development Fund Regulation No. (3) of 2023
- Iraq Development Fund — Official WebsiteExplains the existing Fund's development and investment character.
- Central Bank of Iraq — Reserves Statement, 8 March 2026Reported foreign reserve coverage of around 12 months of imports.
- International Monetary Fund — Iraq 2025 Article IV Consultation
- International Monetary Fund — Iraq 2025 Report, No. 25/183Includes debt, deficit and non-oil balance projections and sustainability risk analysis.
- International Monetary Fund — A New Fiscal Framework for Resource-Rich Countries, 2023
- International Monetary Fund — How to Design a Fiscal Strategy in a Resource-Rich Country, 2021
- International Forum of Sovereign Wealth Funds — Santiago PrinciplesA widely used international benchmark for sovereign wealth fund governance, transparency and risk management.
Proposed legislation within Ali Zuweid's Political Programme · Prepared by Ali Zuweid