IMF Engages With Iraq on Preparing New Bailout Program

ERBIL (Kurdistan24) - The International Monetary Fund (IMF) said on Thursday that it is engaging with Iraqi authorities as it prepares a new bailout program for Iraq, whose economy has been battered by the war on Iran.

“Our plan now is to engage with the authorities to understand better their priorities, how they want to address their vulnerabilities, and then to move ahead on how we can best support them with a program,” IMF spokesperson Julie Kozack said at a press briefing in Washington.

Kozack pointed to the severe financing constraints Iraq faced before the war began. She said the country’s very narrow non-oil revenue base is also putting pressure on its fiscal balance.

The US-Israel war on Iran, launched in late February, plunged the region into conflict. Tehran’s retaliatory action virtually blocked the Strait of Hormuz, a key energy supply route.

Iraq’s economy depends heavily on energy exports, which almost entirely rely on transport through the strait.

Iraq was already under acute fiscal constraints before the war, and the IMF forecast this month that its economy would contract by 16% this year.

The last of Iraq’s three most recent programs with the IMF ended in 2019. According to IMF data, Iraq has a total of around $428 million in interest payments due to the Fund by 2030.

IMF Chief Kristalina Georgieva first disclosed that Iraq had approached the Fund for a new program at the Fund’s annual meetings in Bangkok in October.

At those meetings, she praised the resilience of global economic growth in the face of the wars in Iran and Ukraine, but warned that outcomes were highly uneven, with more vulnerable economies hit hard by the conflicts.

On Oct. 8, 2026, during a session at the Iraqi Parliament, Iraqi Prime Minister Ali Falih al-Zaidi delivered a speech defending the decision to adjust the dollar exchange rate and saying that he will never to resort to external and domestic borrowing.

Describing the financial situation he inherited, Zaidi said: “I took on the task when public debt exceeded 208 trillion dinars.The government is required to provide 10 trillion dinars every month to secure salaries, and despite the stifling crisis we managed to provide it. I took on the task while the country’s economy was under an undeclared siege, as a result of the halt in oil exports and the closure of the Strait of Hormuz because of the regional situation and the war.”

Zaidi said the government faced three options for securing salaries and overcoming the crisis: “The first was to go for compulsory savings and delay entitlements, leaving the employee to live on promises. The second was to distribute salaries and pay them every 45 days, that is, every month and a half. The third was to resort to external and domestic borrowing, drowning the country in more debt when it is already burdened by it. Because we did not want to borrow, so as not to exhaust the economy further and shackle future generations, we were compelled to go for the option of adjusting the exchange rate.”

He also said the gap between the official and parallel dollar rates did not previously benefit citizens. “The difference in the dollar exchange rate previously [between the official and parallel rates] did not go to the citizen, but was taken by the corrupt and currency speculators,” he said.

“Today we are in a fierce battle with corruption, and the Iraqi economy must be managed and treated with a sound economic mindset, not a policy of patchwork.”