Iraq's $48.8 Billion Budget Deficit and Dinar Devaluation Plan: What It Means for You

Iraq's upcoming 2027 federal budget, currently under parliamentary discussion, proposes a substantial $48.8 billion deficit and a new official exchange rate of 1,500 Iraqi Dinars (IQD) to the US dollar (Hathalyoum). This significant shift could directly impact your daily expenses and business profitability across the country.

What the new budget proposes

The draft budget, endorsed by the Ministerial Council for the Economy in late September, sets out total spending at nearly 200 trillion dinars, or approximately $133 billion at the proposed new exchange rate (Hathalyoum). This budget aims to address Iraq's financial challenges, largely driven by fluctuating oil revenues and high public spending (Gulfif). Finance Minister Faleh al-Sari has been overseeing its preparation and is set to brief parliament's finance committee this week (Hathalyoum, Thenewregion).

A key proposal is the formalisation of the exchange rate at 1,500 IQD per US dollar, a move that could significantly increase the local value of Iraq's dollar-denominated oil income by an estimated 20 trillion dinars (Gulfif). The budget also assumes an oil price of $58 per barrel and introduces a new "program and performance budgeting" system, initially for the electricity sector and two provinces (Hathalyoum, Theinsightinternational).

Why Iraq's dinar is under pressure

The Central Bank of Iraq (CBI) has maintained an official exchange rate of about 1,300 dinars to the dollar since February 2023 (Dinarexchange.com). However, the parallel market rate in Baghdad and Erbil has recently hovered around 1,570 IQD per dollar, reaching as low as 1,600 IQD per dollar in June 2026 (Dinarexchange.com). This gap is a significant concern for authorities.

Past devaluations, such as the 20% cut in December 2020 that set the rate at 1,450 IQD per dollar, aimed to shore up government finances and protect foreign currency reserves (Dinarexchange.com). The recent pressure on the dinar stems from new US Federal Reserve controls, implemented with the CBI, designed to curb currency smuggling (Gulfif). Furthermore, Iraq's economy is highly dependent on oil exports, which fund nearly 84% of government spending, making the dinar vulnerable to global oil price shifts and political instability (Gulfif). The ongoing Iran conflict and disruptions in the Strait of Hormuz have also severely impacted Iraq's oil exports, as most seaborne crude transits this vital waterway (Gulfif). Iraq's 2 Million Barrel Oil Shift: What It Means for Export Security

What this means for your money and business

For Iraqi households, a weaker dinar means imported goods, including essential food, medicine, and consumer products, will become more expensive (Gulfif). This will reduce the real purchasing power of public sector salaries and pensions, contributing to inflationary pressures that diminish citizens' buying power (Gulfif). Millions of state employees and pensioners have already faced delayed payments due to stalled oil exports (Gulfif).

Businesses that rely on imports will see their costs rise, impacting their profit margins. While the proposed 150,000 IQD to $100 rate might apply to certain housing payments, it is not uniformly available to investors in the Kurdistan Region, who cannot access dollars at the official rate, creating operational challenges (Kurdistan24, Kurdistan24).

The large budget deficit makes it challenging for the government to maintain public expenditures, including crucial pensions and wages (Gulfif). The absence of an approved budget for much of 2026 has already hindered effective financial management, limiting access to borrowing and liquidity (Gulfif). Domestic public debt surged to approximately 109.5 trillion dinars by July 2026, a significant increase from the end of 2025 (Gulfif). Foreign reserves also decreased from $97.4 billion at the end of 2025 to about $80.6 billion in July 2026 (Gulfif).

What to watch next

The draft budget is expected to reach the Council of Ministers for approval and then parliament by October 15, 2026 (Hathalyoum). Finance Minister Faleh al-Sari will brief the finance committee to clarify the budget's priorities (Thenewregion). The final passage is anticipated in late 2026 or early 2027 (Gulfif).

A crucial development will be the formal codification of the IQD/USD exchange rate into Iraqi law, which could stabilise the currency and establish a legal benchmark for future adjustments (Gulfif). Negotiations between Baghdad and the Kurdistan Region over the Region's share of the federal budget are also critical, as this must be resolved before the budget is finalised (Gulfif). The budget includes plans for government funds to finance infrastructure projects, aiming to boost private sector involvement (Theinsightinternational).

Key Budget Figures and Dates:

• Proposed 2027 Budget Deficit: $48.8 billion (Hathalyoum)
• Proposed Exchange Rate: 1,500 IQD to $1 (or 150,000 IQD for $100) (Hathalyoum)
• Current Official Exchange Rate: Approximately 1,300 IQD to $1 (Dinarexchange.com)
• Parallel Market Rate (early Oct 2026): Around 1,570 IQD to $1 (Dinarexchange.com)
• Oil Price Assumption: $58 per barrel (Hathalyoum)
• Expected Submission to Parliament: By October 15, 2026 (Hathalyoum)

The bottom line

Iraq's proposed 2027 budget, with its substantial deficit and planned dinar devaluation, represents a critical juncture for the nation's economy. While a weaker dinar could boost government revenues, it will likely increase living costs for households and operational expenses for businesses. The successful navigation of parliamentary approval and the resolution of regional financial disputes will be vital for economic stability.

This article is for information only and is not financial advice.