Iraq’s 2025 budget is expected to be the first of its kind, relying on a system of correspondent bank transfers amid the challenges of low oil prices and high domestic spending.
The Iraqi economic and financial system is facing a major transformation with the cessation of the “window” and “platform” and the shift to direct bank transfers, which may reveal gaps in the readiness of financial institutions for this change.
In light of the failure to control government spending in line with the decline in oil revenues, this is expected to lead to a large financial deficit, with the possibility of delaying the payment of operating expenses such as employee salaries and retirement, which threatens the stability of the Iraqi economy during this critical transitional period.
Economic researcher, Ziad Al-Hashemi, explained that the 2025 budget will be the first Iraqi general budget to rely on the dinar of correspondent bank transfers in light of (low oil prices) and (high local spending). This is a major qualitative shift that will not be without challenges and risks.
Al-Hashemi said in a post on the “X” platform, “With the window and finally the platform stopping at the beginning of 2025 and the shift towards a direct bank transfer system, the Iraqi government, the Central Bank and the Iraqi economy as a whole will be facing a completely new experience that the Iraqi authorities do not seem to have prepared for adequately.”
He explained, “The Iraqi government continues its high spending without discipline and has not amended the 2025 budget schedules to control spending in a way that is consistent with the variables of the decline in oil prices and indicators of the decline in demand for oil globally during 2025.”
He continued, “As for the Central Bank, it was not able to rehabilitate and develop Iraqi banks and prepare them for the platform’s shutdown phase, and it will be forced to rely on only 4-5 banks that have the ability to pass direct transfers through their correspondent banks, which will create a large (financial bottleneck).”
He explained that, “In light of this, it is expected that Iraq will achieve low oil revenues (less than $6 billion per month) in 2025, which can only be passed through correspondent banks with limited numbers and capacity, to meet the bloated government operating finances that may exceed $8 billion per month.”
He added, “This means that the Iraqi official and economic system will be exposed to a real state of (suffocation or financial difficulty) due to the large deficit between spending requirements and the volume of revenues received. In other words, the 2025 budget expenditures (such as salaries, retirement, etc.) will face serious stumbling and delay in payment with this new system.”
He stressed that “the equation in Iraq will be very complicated during 2025 with the deterioration of oil prices and revenues, met by a large and uncontrolled increase in spending, without taking into account the slowdown in the global economy, and between this and that (the bottleneck of correspondent banks), which will generate a real deficit that may exceed 80 trillion in the best case.”
He pointed out that “these fundamental changes coming to the Iraqi monetary and financial system, and the challenges and risks they entail, have not yet motivated either the government or the Central Bank to move and adopt a special and urgent action plan related to dealing with the variables and data of this critical transitional period, which the Iraqi economy has never experienced before! When will the Central Bank pay attention and when will the government move?”
