New Iraqi Government Faces Mounting Fiscal Pressure as Eco Iraq Outlines Crisis Solutions

ERBIL (Kurdistan24) - Iraq’s worsening financial crisis has prompted renewed debate over emergency economic measures after Eco Iraq presented three proposals aimed at helping the country confront mounting fiscal pressure triggered by the regional war and the closure of the Strait of Hormuz.

In a press statement published on Saturday, the observatory said the crisis in the Strait of Hormuz had significantly affected Iraq’s financial revenues, while the country was already facing a pre-existing budget deficit and rising domestic debt.

Eco Iraq stated that the new government led by Prime Minister Ali al-Zaidi now faces three primary options to address the crisis, beginning with domestic borrowing.

According to the observatory, internal borrowing would be carried out through the Ministry of Finance issuing treasury bonds or treasury transfers purchased by the Central Bank of Iraq in exchange for providing liquidity to the government with specified interest rates.

The statement noted that previous Iraqi governments relied heavily on this mechanism in recent years, contributing to a decline in Iraq’s official reserves to approximately 125.6 trillion Iraqi dinars.

Eco Iraq said the second option involves adjusting the Iraqi dinar exchange rate to 150,000 dinars per 100 US dollars instead of 132,000 dinars, with the aim of increasing government revenues in local currency and reducing the fiscal deficit.

The observatory explained that a similar measure had previously been implemented during the government of former Prime Minister Mustafa al-Kadhimi following the financial crisis and falling oil prices, adding that the exchange rate could later be restored if oil and financial revenues improve.

The third option proposed by the observatory is external borrowing, similar to the approach adopted during the government of former Prime Minister Haider al-Abadi.

Eco Iraq noted that some previous international loans had been linked to reform measures and financial and economic conditions related to public spending, employment, and fiscal policy.

IMF and World Bank discussions

The proposals come as Iraq holds preliminary discussions with the International Monetary Fund and the World Bank regarding possible financial assistance following severe losses in oil revenues caused by the Iran war and the closure of the Strait of Hormuz.

According to a Reuters report published on Friday, Iraqi officials approached the IMF during the institution’s spring meetings with the World Bank in Washington last month to discuss possible funding mechanisms.

A source close to the IMF and an Iraqi government official said to Reuters, discussions remain ongoing regarding the amount of financing Iraq may require and how any future loan would be structured.

An Iraqi official advising on financial policy said the talks are expected to be finalized once the new government in Baghdad formally assumes power.

The war, which began on February 28, 2026, with a large-scale US-Israeli military campaign against Iran, triggered Tehran’s closure of the Strait of Hormuz and caused major disruption across the Middle East.

Iraq was among the countries hardest hit by the crisis, as the closure of the waterway halted most Iraqi oil exports, which account for nearly all government revenues. Before the conflict, the Strait of Hormuz carried nearly one-fifth of the world’s crude oil supplies.

IMF spokeswoman Julie Kozack said the Fund was working alongside the World Bank and the International Energy Agency to assess the impact of the war on member states.

Kozack also stated that the IMF remained engaged in active discussions with several countries seeking policy advice, noting that IMF Managing Director Kristalina Georgieva had indicated that at least 12 countries could seek between $20 billion and $50 billion in assistance.

She did not specify which countries had formally requested support.

The World Bank said it generally does not comment on shareholder discussions before board approval.

Iraq possesses the world’s fifth-largest petroleum reserves, and its economy remains heavily dependent on oil exports.

According to IMF data, Iraq’s most recent financial agreement with the Fund was a $3.8 billion standby arrangement that expired in July 2019, of which $1.49 billion was drawn. Iraq currently owes the IMF approximately $2.39 billion, including around $891 million provided through a rapid financing instrument.

The financial debate now unfolds as Iraq’s new government attempts to navigate one of the country’s most difficult economic periods in years, amid shrinking revenues, regional instability, and growing pressure to secure liquidity while maintaining economic stability.