Fiscal and Monetary Policy

Executive Summary

This chapter starts from a dual reality. On one hand, Iraq has relatively large foreign reserves, an official exchange-rate system and a central bank with an explicit statutory price-stability objective, while official inflation has remained moderate. The Statistics Authority's July 2026 report recorded a 3.3% annual increase in the general price index and a 0.1% monthly increase. At the end of 2024, the Central Bank recorded headline inflation of 2.6% and core inflation of 2.8%, and cut its policy rate from 7.5% to 5.5% while reactivating its bills and certificates of deposit. ^[7][9][10]

On the other hand, public finances remain highly sensitive to oil revenue. IMF calculations for 2024—used here as a comparative series, not a substitute for Iraqi accounts—put revenue and grants at 39.3% of GDP, including oil revenue of 36.0%, expenditure at 43.5% and the overall deficit at 4.2%. Wages and pensions together reached 22.0% of GDP, while the non-oil primary balance was minus 59.3% of non-oil GDP. Government debt was estimated at 47.2% of GDP in 2024. ^[6] These figures do not mean Iraq is ‘bankrupt’, but show limited budget flexibility when oil falls or exports are disrupted.

The years 2025–2026 confirmed the need to treat projections as scenarios, not facts. The IMF report published in 2025 had forecast, before the 2026 shocks, rising debt and deficits and declining reserves under an assumed trajectory. In June 2026, S&P presented a newer scenario linked to regional war and disrupted oil production, affirming Iraq at B-/B with a negative outlook, estimating reserves at USD 91.9 billion in May 2026 and forecasting a general government deficit of 7.5% of GDP in 2026. The difference between the scenarios is not an error to ‘resolve’ with a middle figure; it shows how year, shocks, definition and methodology fundamentally change outcomes. ^[6][12]

For reserves, the Central Bank supplies a more authoritative Iraqi baseline for their function. Its Monetary Policy Report 2024 recorded IQD 130.3 trillion in foreign reserves at end-2024, down from IQD 145.3 trillion in 2023. In the second quarter of 2025, reserves stood at IQD 126.1 trillion, covering 73.9% of broad money and 128.2% of currency issued, and approximately 14 months of imports according to the Monetary Stability Report. On 19 September 2026, the Bank confirmed that reserves were sufficient to meet legitimate foreign-currency demand at the official rate. ^[7][8][11] Dinar and dollar values cannot be combined into one series without a consistent conversion method, nor can reserves be treated as surplus budget money. The Central Bank itself explains that they provide monetary backing and serve the balance of payments, exchange rate and creditworthiness. ^[19]

The budget in 2026 exposed an institutional problem and opened a reform opportunity. Spending continued under the Federal Financial Management Law and the 1/12 rule amid delayed annual budgeting, while the Ministry of Finance published monthly state accounts through July 2026. At the same time, official discussions for 2027 shifted towards programme and performance budgeting: the Ministry announced a phased plan beginning with model governorates, then its Budget Department clarified that the 2027 budget would retain line-item budgeting for appropriation, accounting and oversight, with a mandatory annex for planning, measurement and priorities. This is the realistic transition: no abrupt abolition of accounting, but a performance layer above it followed by a considered gradual shift. ^{[4][13][14][17]}

The final argument is that fiscal and monetary stability in Iraq in 2045 needs five connected links: a fiscal rule separating permanent spending from oil volatility; a medium-term budget tied to programmes and outcomes; debt, cash and treasury management addressing maturities and risks, not stock alone; a functionally independent Central Bank focused on price stability, liquidity and reserves; and a transparency system completing final accounts and displaying risks and scenarios. The Vision imposes no cosmetic debt, reserve or inflation figures. Where no unified national baseline or valid stress model exists, the first target is to establish one, then define a defensible ceiling or range.

The central question and chapter boundaries

The central question is: what rules and capabilities does Iraq need to maintain price and exchange-rate stability, manage debt and reserves efficiently, and turn the budget from an annual allocation document into a multi-year state plan, in an economy where oil still determines a large share of revenue and foreign exchange?

What this chapter resolves

• Distinguishing price stability from fixing every market price, and monetary inflation from supply shocks.
• Distinguishing Central Bank reserves from government financial assets; reserves are not a fund government can withdraw without monetary effects.
• Managing debt according to service, maturity, currency and interest risks, not the debt-to-GDP ratio alone.
• Credit ratings as an outcome of repayment history, reserves, institutions, fiscal flexibility and political risks, not a stand-alone promotional target.
• Turning the 2027 budget and beyond into a gradual programme-and-performance pathway while retaining precise legal accounting.
• Introducing a medium-term fiscal framework, oil stress tests and a rule preventing temporary abundance from becoming permanent commitments.

What the chapter does not repeat

• It does not repeat the strategy for ending the rentier state established in V2-D04-C01, but translates it into fiscal rules.
• It does not repeat investment and export policies or productive-sector programmes; it uses them only to assess spending quality.
• It does not design the entire tax system; it addresses non-oil revenue as part of sustainability and compliance, leaving technical tax and customs details to the relevant policies.
• It is not a comprehensive banking-reform plan; it focuses on channels affecting monetary-policy transmission, government financing and liquidity.
• It does not forecast oil prices, exchange rates or inflation to 2045; these variables require regular updating, not freezing for twenty years.

Operational glossary and measurement rules

Measurement rule: a figure is used within the definition that produced it. Ministry of Finance debt figures may differ from IMF estimates because of coverage or treatment of arrears, guarantees and public entities. Central Bank dinar reserve figures are not directly mixed with S&P dollar estimates. Statistics Authority inflation is the domestic baseline; IMF figures serve comparison and forecasting. When the source year changes or a new shock emerges, figures are relabelled ‘actual/estimated/forecast/scenario’ rather than merged into one series. ^{[5][6][7][9][12]}

The constitutional, legal and institutional framework

The Central Bank: functional independence and a clear objective

Central Bank of Iraq Law No. 56 of 2004, as amended, establishes domestic price stability and a stable, competitive financial system as its primary objective, while supporting sustainable development, employment and prosperity insofar as these do not conflict with those objectives. Its functions include formulating and implementing monetary and exchange-rate policy and managing official reserves. ^[1] This ordering matters: the Bank must not receive a fiscal mandate contradicting price stability or reserve soundness, while independence does not preclude information-sharing coordination with the Ministry of Finance.

Ministry of Finance: the legal basis for budgeting, execution and oversight

Federal Financial Management Law No. 6 of 2019 and its amendment establish the framework for budget preparation, execution, oversight and accounting; implementation instructions were issued in 2025. The Accounting Department explains that it finances current and investment budgets, manages resources, follows monthly and final accounts, supplies financial data to the Council of Ministers and Council of Representatives every four months under Article 34, and provides monthly data to the Central Bank. ^[2][3] These functions exist in law. The problem is not creating another budget body, but connecting them to risk management, outcomes and unified data.

Complementary institutions

The Ministry of Finance's Public Debt Department owns the government-debt function; the Federal Board of Supreme Audit completes the audit and accountability loop; the Ministry of Planning evaluates public investment and development plans; the Statistics Authority produces price and output data; and the Central Bank holds monetary and external data and acts as government fiscal agent for specified instruments. The Vision therefore proposes no permanent ‘supreme stability council’. Coordination uses an official protocol for data, timetables, scenarios and decision responsibility, with each power remaining in its institution.

The fiscal and monetary baseline, 2024–2026

The Ministry of Finance publishes monthly state accounts in 2026. The latest available at this chapter's data freeze was the state account through July 2026, published on 4 October 2026. It also published public-debt tables through 30 June in September 2026. ^[4][5] This chapter uses no figures not extracted from original tables. A report's existence does not justify presenting a figure from a statement or secondary source as official debt stock. This is a working rule: periodic updates replace debt, revenue and execution values directly from ministry tables, not media coverage.

Inflation: what can monetary policy do?

Inflation in Iraq comes through different channels: domestic demand, liquidity and public spending; exchange rates and import costs; food and energy prices; bottlenecks and transport; and administered prices for some services. No single instrument suits every wave. The July 2026 report shows annual inflation of 3.3%, with clear differences between groups. This level does not justify rhetoric of a general crisis, but requires monitoring its source because changes in a key group, exchange rate or supply can quickly alter the trajectory. ^[9]

If inflation arises from broad monetary demand, policy rates, liquidity absorption, reserve requirements and market instruments can play a role. If it arises from interrupted supplies, energy or food, higher interest rates may reduce demand but cannot produce electricity or open borders. The response then combines monetary policy with supply, stock, transport and competition management. Professional policy first diagnoses the shock, then selects the instrument.

A price early-warning system

The Vision proposes combining monthly CPI data with wholesale and staple prices, wages, rents, official and parallel exchange rates—the latter as an expectations indicator, not a legal reference—credit, public spending, shipping and energy costs. The output is not a ‘secret inflation index’, but a dashboard explaining groups' contributions and distinguishing temporary shocks from persistent trends. The Central Bank uses it in public communication, while government uses its real-economy component to address supply.

No invented numerical target

Iraq Vision 2045 does not impose a 2% or 3% inflation target outside the Central Bank's framework. A formal targeting regime requires forecasting models, effective monetary transmission, high-frequency data and a communication strategy. The Vision's interim objective is for the Bank, when conditions are ready, to adopt a published range explaining its methodology and deviations, while price fluctuations remain low and predictable. Until then, success is measured by stable trends and expectations, not pursuit of a single point.

Monetary-policy instruments and transmission

The Central Bank currently announces a 5.5% policy rate and uses reserve requirements, market operations, Bank bills and certificates of deposit. Its 2024 report recorded reactivation of 14-day and 182-day securities with yields of 4% and 5.5%. ^[7][10] An instrument's existence does not automatically imply strong economic transmission. Its effect depends on market depth, banking competition, deposit behaviour, credit structure and banks' reliance on government business.

Improving monetary-policy transmission requires three parallel tracks: accurate advance government-liquidity forecasts reaching the Bank, a more active short-term money market, and banking reform that strengthens transmission from the policy rate to deposit and lending rates. This chapter does not task the Central Bank with directly creating productive credit. Directed financing programmes need clear limits and separate evaluation so they do not become permanent monetary policy through quasi-fiscal channels.

Separating stability from financing

When Central Bank instruments finance sectors or government without risk pricing or a timed exit, credit costs become hidden in the monetary balance sheet and their effects on liquidity and reserves may be hard to measure. The Vision proposes that exceptional credit initiatives have defined purposes, size and duration, with permanent developmental functions gradually transferred to the budget or financing institutions subject to clear accounting. The Central Bank establishes stability and oversight conditions; it does not replace the Ministry of Finance or development banks.

The exchange rate: an anchor for stability, not a political number

The exchange rate is a principal channel linking oil revenue, dinars, prices and imports in Iraq. On 5 October 2026, the Central Bank's website displayed a dollar reference rate of 1310 dinars, while the IMF's 2024 table used an average of 1300 dinars per dollar. ^[6][24] There is no contradiction requiring reconciliation into one figure: the first is a published rate on the Bank's platform at a specific date, the second an average/definition in an international table. The rate type and date must always be stated.

Stability means neither defending a number at any cost nor leaving markets to volatility. In an import-dependent economy fiscally reliant on oil, exchange-rate changes affect inflation, real income, the budget, debt and reserves. Any future exchange-regime review therefore rests on a comprehensive test: balance of payments, reserves, inflation, non-oil competitiveness, market gap, confidence and government finances. Monetary decisions must not become a budget-deficit financing instrument.

In September 2026, the Central Bank affirmed its ability to meet legitimate foreign-currency demand at the official rate, attributing local-market increases to speculation, expectations and geopolitical conditions. ^[11] This distinguishes parallel-market pressure from reserve depletion or a policy change. The Vision calls for currency-flow data and rapid explanations of procedures to reduce room for rumours, alongside continued reforms to transfer and compliance channels announced by the Bank in June 2026. ^[23]

Foreign reserves: the defence line, not the budget's fund

One of the most serious errors in Iraqi public debate is treating Central Bank reserves as ‘extra money’ directly transferable to projects or salaries. The Bank itself explains that reserves accumulate through oil-revenue monetisation, providing currency backing and supporting the balance of payments, exchange-rate defence, confidence and external borrowing. ^[19] Fiscal withdrawal without a counterpart and monetary management changes backing, liquidity and the ability to meet external demand.

How is adequacy measured?

The Vision adopts no dollar reserve target for 2045. Adequacy has multiple measures: months of import coverage; reserves relative to money supply and currency issued; short-term external debt and debt-service coverage; IMF measures such as ARA; and oil-export interruption scenarios. The Bank's report for the second quarter of 2025 recorded approximately 14 months of imports, 73.9% of M2 and 128.2% of currency issued. ^[8] These values are strong against traditional thresholds, but the Vision's task is to preserve the buffer under shocks, not chase a nominal value.

Source and timing differences

At end-2024, the Central Bank reported IQD 130.3 trillion, while the IMF estimated gross reserves at USD 100.3 billion. In May 2026, S&P estimated USD 91.9 billion; in September the Central Bank affirmed adequacy without publishing a new stock figure in its statement. ^[7][11][12] Do not combine these figures or convert them at a daily rate to construct a series. Each source has a unit, date and definition. The national dashboard must use the Bank's official series, while IMF/S&P data provide external verification and comparison.

Reserve-management policy

The principle is safety first, then liquidity, then return within the Bank's mandate. Currency, maturity, custodian and gold diversification must address actual risks, not respond to political rhetoric. The public receives enough information to understand adequacy and general direction without operational allocations that harm portfolio management. Government fiscal surpluses, if achieved, require a separate fiscal decision on debt repayment or government/savings assets; they are not mixed with Central Bank holdings.

Public debt: stock, service and risks

Iraqi debt debate oscillates between two simplistic positions: ‘debt is low because we have oil’ and ‘debt is dangerous because it increased’. Neither is sufficient. Servicing capacity depends on revenue structure, maturities, currency, interest, holders, reserves, the debt-service-to-revenue ratio and contingent obligations and guarantees. The Vision therefore does not use debt-to-GDP alone as a ceiling.

The IMF provides a comparative 2024 baseline of 47.2% of GDP. Its 2025 report tables show an upward trajectory under a no-reform scenario: 54.3% in 2025, 62.3% in 2026 and 77.6% in 2030. ^[6] These are not realised figures; they are projections showing what could happen if spending and revenue assumptions continue. After the 2026 shock, S&P presented a different path. The correct lesson is not to select the most dramatic forecast, but to build a national sustainability analysis updated quarterly and annually.

In September 2026, the Ministry of Finance began publishing public-debt tables through 30 June 2026, alongside a debt strategy/bulletins. ^[5] This series must become the operational reference. At this chapter's data freeze, the stock value had not been extracted from the table file itself, so the Vision attributes no new official figure to the first half of 2026. This illustrates intellectual honesty: a number's absence from verifiable text does not turn the gap into zero or an estimate.

Debt-risk dashboard

Debt strategy and the domestic government-securities market

Professional debt management starts with an annual financing plan and medium-term debt strategy, not issuance when liquidity runs short. The Ministry of Finance publishes a targeted mix of maturities, currencies and sources, testing it against oil, interest and exchange-rate shocks. The chapter sets no ready-made ideal domestic/external debt ratio; the choice changes with market depth, cost and risks.

A regular domestic Treasury-bill and bond market can build a benchmark yield curve, provide banks with liquid assets and assist monetary policy, provided it does not become a compulsory channel for permanent deficits or unlimited crowding out of private credit. The Central Bank states that it manages Ministry of Finance bill auctions as fiscal agent. The institutional distinction between government issuance and monetary-policy decisions must remain clear. ^[10]

Issuance rule

• An issuance calendar published as far as possible, with standard maturities rather than numerous fragmented issues.
• Measure debt cost through total yield and risks, not coupon rate alone.
• Prevent large maturities accumulating in one year without a refinancing plan.
• Do not use the Central Bank as a direct deficit financier beyond legal limits; market operations must serve its monetary instruments.
• Tie external borrowing to a project or purpose where possible, examining currency and contract risks.

Credit ratings: an institutional outcome, not a public-relations campaign

On 12 June 2026, S&P affirmed Iraq's long-term sovereign rating at B- and short-term rating at B, with a negative outlook, after removing it from negative CreditWatch. The agency cited heavy oil dependence, a production and export shock, and fiscal and external pressures, balanced by large reserves and external-debt servicing capacity. It estimated reserves at approximately USD 91.9 billion in May 2026. ^[12] This assessment is time-specific and conditional on war and oil-price assumptions; it does not become a ‘grade for Iraq’ outside its context.

A credit strategy is not a request for an agency upgrade. It reduces factors making debt service less certain: recurring deficits, a narrow revenue base, delayed final accounts, political/geopolitical risks, weak banking and data gaps. Real improvement in these factors lowers the risk premium even before the rating letter changes, while an external shock may temporarily alter the outlook without implying collapse across every part of the economy.

The national creditworthiness dashboard

The Vision proposes an annual Ministry of Finance ‘sovereign risk statement’ covering debt service, reserves—from the Central Bank with its permission—fiscal balance, oil sensitivity, contingent liabilities, arrears, final accounts and legal risks. It does not imitate rating-agency models, but prevents the state from discovering its risks through an external agency's report.

The budget: from spending headings to a state-building plan

A traditional budget precisely answers who may spend which amount under which heading. This is essential for legality and oversight, but cannot alone answer what outcome was purchased, what it cost, whether it was achieved or its effect three years later. Programme and performance budgeting does not remove the first question; it adds the others. This is the right reform for Iraq: strong line-item accounting + programme planning + outcome indicators + an accountable outcome owner.

Every budget programme must have a short definition, baseline, annual and medium-term outcome, institutional outcome owner and cost/outcome indicator. Investment projects connect to programmes rather than existing as lists detached from the services they will produce. Ministries cannot improve ‘financial execution rates’ through faster spending without actual outputs.

Five questions before allocating a dinar

• What problem or public outcome does this spending finance?
• Is there a legal basis and existing programme, or is this a recurring item without design?
• What is the life-cycle cost after project completion, including operations, maintenance and staff?
• What outcome indicator can be measured at year-end beyond the spending rate?
• If oil falls, is this spending essential, deferrable or to be cancelled?

2026–2027: the transition window to programme and performance budgeting

The year 2026 involved transitional fiscal management. The officially published rule when the 2026 budget could not be approved was continued spending under the Federal Financial Management Law at 1/12 of the previous year's actual current expenditure, while ongoing investment projects and obligations continued subject to legal conditions and liquidity. ^[2][25] The Ministry of Finance also continued publishing in-year state accounts through July 2026. ^[4]

The opportunity emerged in preparing the 2027 budget. In July 2026, the Minister of Finance announced to the Finance Committee a phased programme-and-performance budgeting plan beginning with model governorates. The Budget Department then explained that the 2027 format would retain line-item budgeting for appropriation, disbursement, accounting and oversight, adding a mandatory annex for planning, measurement, prioritisation and linking spending, projects and programmes to monitorable tables. On 4 October 2026, the Finance Committee was discussing the draft 2027 budget and requesting documents from Finance, Planning, Oil and the Central Bank. ^[13][14][17]

This step should not be overstated. The first phase is not ‘full performance budgeting’, but a programme and outcome dictionary consistent with existing accounting classifications and a test of data quality. If indicators fail or become cosmetic, the system is corrected before wider rollout. The hybrid model preserves fiscal accountability while building performance-management capacity.

A medium-term fiscal framework and an oil rule

Iraqi public finances' structural problem is not one deficit year, but salary, subsidy and operating decisions lasting years while oil revenue can change within weeks. The solution is a medium-term fiscal framework setting multi-year ministry and programme ceilings against revenue scenarios rather than one oil price. Each annual budget becomes year one of a rolling four- or five-year framework, explaining changes from the previous framework's ceilings.

What rule best suits an oil state?

The Vision imposes neither a ‘60% debt-to-GDP’ rule nor a ‘fixed oil price’, because these imported figures do not reflect Iraq's structure. Recent IMF literature on resource-rich countries focuses on insurance against shocks: the state does not spend every windfall in high-price years and builds room to protect spending during downturns. ^[20] Norway separates structural non-oil spending from petroleum revenue and links it to a long-term framework, while Chile uses a structural balance based on a reference copper price estimated by independent experts. ^[21][22] The transferable lesson is separating permanent spending from current prices, not the fund, percentage or institution's name.

The proposed Iraqi rule

An Iraqi fiscal rule combines three indicators: the non-oil primary balance, a ceiling on growth in permanent current spending, and net assets/debt under stress tests. The actual rule values follow the Ministry of Finance's scenario model and measurement of commitments. When oil revenue exceeds a conservative reference price/volume, the surplus follows a predetermined order: settle arrears, protect high-return investment, reduce costly debt, then build government financial assets if analysis establishes the need. No new savings institution is created automatically where the treasury and existing frameworks can perform the function.

Non-oil revenue and tax discipline

Non-oil revenue in the IMF's 2024 accounts was approximately 3.3% of GDP, small relative to oil revenue. ^[6] The objective is not higher taxes by any means. Good revenue comes from a larger formal economy, simpler rules, better compliance, digitalisation, fees matched to services, and economically managed public property/assets, with protection for low-income groups under the Constitution and law. Burdening only the small formal sector may push activity underground and harm productive transformation.

The first phase focuses on the ‘gap between what is due and what is collected’: existing lawful taxes or fees not collected efficiently. ASYCUDA in customs, electronic invoicing and payments, and integrated registers improve collection before rates are raised. Every new tax proposal needs distributional-impact analysis, compliance-cost assessment and a behavioural revenue estimate, not simply a new rate multiplied by a theoretical base.

The fairness principle

Revenue diversification must not mean passing the oil shock to households. Consumption taxes or fees may be easy to collect but weigh more heavily on low-income groups. The Vision therefore connects reform to targeted exemptions/protection, broader property, income and traceable-activity bases, fewer unjustified exemptions, and publication of tax exemptions' cost as ‘tax expenditure’.

Current and investment spending: protecting outcomes, not line items

Spending reform does not mean current spending is bad and investment spending good. Doctors' or teachers' salaries and water-station maintenance are current spending that may produce high value, while an unfinished capital project can burn money. The Vision's criterion is spending's function, outcome and life-cycle cost. Nevertheless, 2024 figures reveal structural pressure: current spending at 35.5% of GDP versus capital spending of 8.1% in the IMF series, and wages and pensions at 22%. ^[6] This limits adjustment flexibility when oil falls.

The state uses periodic spending reviews rather than across-the-board cuts. Each review examines programmes without outcomes, duplicated functions, costly recurring procurement, broad untargeted subsidies, stalled projects, unmaintained assets and functions suitable for digitalisation. Savings do not automatically return only to the treasury; some return to programmes demonstrating better outcomes, making institutions partners in efficiency rather than opponents of reform.

Protecting productive investment during shocks

During an oil shock, investment is politically the easiest item to freeze, yet may contribute most to energy, water, transport and productivity. Projects are therefore classified before crises as critical to continuity, high-development-return, deferrable or unjustified. Do not launch numerous new projects and then protect all existing ones equally. The investment gateway established in the first chapter becomes a fiscal instrument here: accepted projects receive multi-year commitments visible in the medium-term framework, not interruptible annual promises.

Commitments, arrears, cash and treasury management

A budget can appear balanced on paper yet encounter cash difficulties if payments are concentrated or revenue delayed. Cash management therefore differs from budget preparation. The Ministry of Finance needs weekly and monthly revenue, payment and balance forecasts, with better links to agencies' accounts, to identify liquidity gaps before maturity and choose cheaper financing.

Arrears are not free financing. Delaying contractors' or suppliers' payments shifts the deficit to the private sector, raises future contract costs and weakens banks. A central commitments and arrears register must record age, agency and cause, settle old arrears under a published plan and introduce commitment control preventing agencies from signing obligations without funding or a medium-term ceiling.

Treasury Single Account

The right direction is to view state cash as a unified balance wherever possible, with subaccounts for oversight, instead of scattered balances obscuring total treasury needs. This chapter does not assume Iraq has a fully functional Treasury Single Account. First, government accounts and balances must be inventoried, then a model designed to fit the federal structure and banking and legal rules. Success is measured by fewer idle balances and less unnecessary short-term borrowing.

Final accounts and oversight: closing the fiscal loop

The budget cannot become a state plan unless accounts are closed and actual outcomes known. In September 2026, the Finance Committee was discussing the final-accounts bill for 2012–2015 and reasons for delay. On 20 September, it discussed with the Federal Board of Supreme Audit the importance of completing accounts alongside the shift to programme and performance budgeting. ^[15][16] This delay is not an archival matter: it weakens learning from appropriation–execution differences and leaves oversight years behind decisions.

The institutional objective is regular annual closure within statutory deadlines, with reconcilable monthly and in-year accounts, settlement of advances, deposits and creditors, final audit and searchable publication. The chapter sets no new numerical deadline conflicting with law. Legal and operational periods are reviewed and a corrective pathway first clears the backlog, then prevents a new one.

Performance oversight does not replace legality oversight

Under programme budgeting, a programme may meet an indicator while procurement is unlawful, or spending may be fully legal but produce no outcome. Two forms of oversight therefore operate together: financial/legal oversight of appropriation and procedure, and performance oversight of economy, efficiency and effectiveness. The Federal Board of Supreme Audit must develop performance auditing alongside, not instead of, compliance auditing.

Central Bank independence and fiscal–monetary coordination

The Ministry of Finance and Central Bank need daily coordination on data, liquidity, debt and foreign exchange, but coordination does not turn one into the other's arm. Finance decides taxes, spending and borrowing under law; the Central Bank decides monetary instruments, policy rates and reserve management according to its statutory objective. ^[1][3]

Deficit financing is the most dangerous overlap. When domestic borrowing pushes banks towards excessive government exposure or requires monetisation, fiscal policy may spill into the Bank's balance sheet, liquidity and reserves. The Central Bank itself has explained that domestic deficit financing can pressure reserves through spending and imports, and that direct government financing is legally constrained. ^[19] The fiscal framework therefore includes an advance assessment of the borrowing plan's effects on liquidity, credit and reserves.

A technical coordination committee, not joint authority

The Vision proposes regular technical meetings among the treasury, Debt Department, Central Bank and Planning, using a fixed data agenda: oil flows, government dinar and dollar flows, debt issuance plans, maturities, bank liquidity, imports and reserves. Decisions remain with competent institutions. A periodic summary of non-market-sensitive matters is published so coordination does not become a source of ambiguity or rumours.

Shock scenarios and stress tests

Iraq needs a budget that ‘lives’ under more than one trajectory, rather than being built on a single oil price and redesigned after a shock. Before approval, Finance tests at least four shocks: lower oil prices, lower volumes/export disruption, higher interest or financing costs, and an import/exchange-rate shock. Two can be combined in a severe scenario. Each receives automatic, predetermined responses rather than improvisation.

Comparing the IMF and S&P in 2026 provides a practical example. The IMF's 2025 report projected a 2026 deficit of 9.2% of GDP and reserves of USD 79.2 billion under its assumptions at the time. S&P in June 2026 projected a 7.5% deficit after a regional shock, assuming higher oil prices but lower production, and estimated May reserves at USD 91.9 billion. ^[6][12] Before asking ‘Who is right?’, ask when the scenario was developed, what shock it assumes and how it is defined.

International comparisons: mechanisms, not copying

Norway: separating oil from current spending

Norway's framework measures the structural non-oil deficit and compares revenue use with the size of the Government Pension Fund Global and expected real return, allowing economic-cycle flexibility. In its 2026 budget, for example, Finance clearly presented the structural non-oil deficit relative to mainland GDP and fund value. ^[21] Iraq's lesson is not a fund of the same size or a 3% ratio. Oil revenue does not enter annual spending decisions as permanent income, and the rule is public with measurable deviations.

Chile: a reference price, not the market price

Since 2001, Chile has used a structural/cyclically adjusted balance, with independent experts estimating long-term copper prices and trend output before budgeting. In 2026, these committees continued supporting the 2027 budget. ^[22] Iraq need not copy a copper committee, but can separate reference oil-price estimation from budgetary political bargaining and publish and review methods and assumptions.

What Cannot Be Transferred

Norway has different institutions, finances and vast assets, while Chile has a deeper tax economy and financial markets. The Vision therefore transfers neither debt ratios, fund rules nor committee counts. Iraq initially needs a simpler rule: a ceiling on permanent current commitments, a non-oil balance and a stressed debt path, adding complexity as data and final accounts improve.

Iraq's fiscal and monetary position in 2045

In 2045, the budget is both a financial and strategic document. Parliament and the public know what outcomes the state will purchase, not merely what it will spend. Every major commitment has a multi-year cost and financing source, and every capital project displays its operations and maintenance. In-year and final accounts appear on a regular cycle and inform the next budget.

Oil does not disappear from public finances, but no longer determines the state's ability to meet essential monthly commitments. The spending rule prevents permanent expenditure rising with every price cycle, and debt serves as a considered financing instrument rather than a silent substitute for reform. The domestic debt market is more regular and deeper, with risks, maturities, currencies and guarantees managed in one dashboard.

Central Bank instruments transmit more effectively to markets, within a publicly understandable price-stability framework. Reserves are assessed by adequacy under stress and managed for safety, liquidity and return, not used as a second treasury. Clear transfer channels and faster data and communication make foreign exchange less vulnerable to rumours. Credit ratings improve as risks genuinely decline, not because the state targets a particular letter.

Stages of transformation, 2027–2045

Indicator and Target Dashboard

Governing principle: debt, reserve and inflation thresholds are not invented. Indicators requiring a national model begin with an institutional target: build and publish the model, then adopt a range or ceiling after stress testing. The following time-bound targets therefore combine established baseline values with defensible implementation milestones.

Implementation programme package

P1 — The medium-term fiscal framework and oil rule

Finance develops a rolling multi-year framework with a conservative reference oil price/revenue, a non-oil primary balance, a ceiling on permanent current spending and a stressed debt path. Figures are not fixed before modelling.

P2 — Programme and performance budgeting

Develop the hybrid 2027 pathway: programme dictionary, outcomes, outcome owners, indicators and linkage of projects and expenditure to programmes, evaluating pilots before wider rollout.

P3 — Fiscal and sovereign risk platform

A unified dashboard within Finance covering debt, arrears, guarantees, PPP and public-entity commitments and oil sensitivity, with an annual public risk statement.

P4 — Debt strategy and issuance market

A medium-term debt strategy, issuance calendar, maturity, currency and interest analysis, benchmark yield-curve development, and measurement of government financing's impact on credit and liquidity.

P5 — Cash and commitment management

Daily/weekly/monthly treasury forecasting, commitments register and controls, government-account inventory and a lawful path towards more efficient cash consolidation.

P6 — Final accounts on time

A backlog-clearing plan, automated reconciliation, a settlement timetable and linkage of monthly and final accounts, with audit and accountability for delays.

P7 — Price-stability and monetary-communication framework

An inflation, trend and liquidity dashboard, forecasts, explanations of monetary decisions, money-market and absorption-instrument development, and separation of development-financing programmes from permanent monetary policy.

P8 — Reserve-adequacy framework

An annual multi-measure, multi-scenario test; publication of aggregate adequacy indicators; and continued portfolio management for safety, liquidity and return.

P9 — Sectoral spending-review programme

Periodic reviews of cost, duplication, subsidies, procurement and projects, redirecting savings towards programmes delivering better outcomes.

P10 — Creditworthiness policy

A transparency-based data and investor-relations package: debt, risk and accounts reports, reserves from their official source, and a reform plan; no cosmetic ratings campaign.

Implementation, Cost and Financing Matrix

Costs in this matrix concern institutional capacity, systems and data, not massive economic-support programmes. The chapter allocates no financial figures without engineering/technical design. When an information system or account integration requires procurement, an independent cost study precedes budget inclusion.

Risks and safeguards

Rights and social safeguards also govern the framework. Fiscal stability does not justify arbitrary service cuts or shifting reform costs to the weakest groups. Every spending or tax reform undergoes distributional analysis, protects minimum health, education and social protection, and clearly explains who bears costs and why. The state cannot build trust by demanding discipline from citizens while retaining unjustified exemptions or spending for the powerful.

Conclusion and closure of Part Four

Part Four began by asking how state dependence on rent ends, then moved through the productive economy, industry, agriculture, investment and exports. This chapter closes the loop: without disciplined fiscal and monetary policy, oil can finance expansion and destroy it at the first shock; deficits can crowd out the private sector; exchange rates can transmit a confidence crisis into prices; and debt can turn future budgets into servicing past obligations.

Stability is not a narrow accounting goal. A disciplined budget protects a school, hospital, water project and productive capacity when oil falls. Adequate reserves allow trade and currency to function under shocks. Good debt finances an asset or bridges a gap at acceptable cost without threatening future decisions. Low inflation makes salaries, contracts and investment predictable. Better ratings follow as an outcome.

The economic part's final principle is therefore this: Iraq becomes a strong economy not by possessing more money, but by knowing how to turn volatile money into lasting capability, when to spend, save, borrow or absorb liquidity, and how to measure every decision's outcome. At that point, the project moves from resources to the people who will operate this state and economy.