The financial deficit and liquidity crisis in Iraq... between shock management and economic reform.

Economic crises force the decision maker to make difficult choices, but good crisis management does not begin with choosing a financing tool, but with diagnosing the nature of the crisis itself. Different diagnoses lead to different tools, and the success of economic policy is not measured by how quickly money is saved, but by its ability to contain shock without creating greater disruptions in the future.

The sharp decline in oil revenues during the first half of 2026 reopened the debate on the best ways to manage the financial deficit and secure the liquidity needed to continue public spending in Iraq. However, the ongoing controversy often starts from discussing tools before diagnosing the nature of the crisis.

In light of this diagnosis, four major options have emerged in the economic debate as means of covering the deficit and securing liquidity, namely selling state assets, devaluing the dinar, expanding borrowing, and resorting to monetary issuance. Although these options may at first appear to be equivalent alternatives, they vary dramatically in nature and economic effects. Some provide temporary liquidity at the expense of state assets only, some transfer the cost of the crisis to society through inflation and the erosion of purchasing power, and some postpone the problem into the future through accumulation of debt, while others can serve as a project for the management of a natural investment complex, and if all of these policies and policies are not implemented economically, they can be implemented economically, economically and economically.

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