Iraq Denies $11 Billion Foreign Loan Plan: What It Means for Its Budget

Iraq's government has officially denied reports it plans to borrow 16 trillion dinars, or roughly $10.56 billion to $11 billion, from foreign sources to cover its 2027 budget deficit (Thenewregion). This clarification could offer some reassurance for businesses and investors concerned about the nation's financial stability and its heavy reliance on oil.

What sparked the denial?

Government spokesperson Haider al-Aboudi issued the denial on Friday, October 30, 2026, stating there was “no need for such borrowing, given the current indicators for oil exports” (Video-agencyia).

The reports originated from Iraqi economist Nabil al-Marsoumi, who claimed Iraq intended to borrow 16 trillion dinars externally and 22 trillion dinars domestically for the 2027 draft budget (964media). He even named potential lenders such as Saudi Arabia, Kuwait, China, Germany, and France (964media).

Al-Marsoumi later reiterated his claims, stating the draft budget details 38 trillion dinars in total borrowing (Channel8). He also questioned the accounting within the draft, suggesting some figures might be presented to make the deficit appear smaller (Channel8).

Why Iraq's finances are under scrutiny

Iraq's economy is deeply tied to oil, which provides over 90% of government income, making it vulnerable to price swings (Iraq-businessnews). This dependence means the budget is highly sensitive to global oil market fluctuations and regional disruptions.

The country faced significant budget deficits in 2026, exceeding 21 trillion dinars ($16 billion) by mid-year, and reaching around 30.432 trillion dinars ($20.02 billion) by the end of August (Rudaw). This fiscal pressure has been building for some time.

Domestic public debt hit approximately 117 trillion dinars by October 2026 (Iraq-businessnews). Foreign reserves also dropped from $109 billion to about $80.6 billion by October 2026 (Iraq-businessnews).

Oil revenues for the first seven months of 2026 fell by roughly 53% compared to the same period in 2025 (Iraq-businessnews). This was largely due to the effective closure of the Strait of Hormuz, which drastically cut oil exports from 3.36 million barrels per day (bpd) in February to 131,000 bpd in April 2026 (Theinsightinternational).

Political instability has also prevented the passage of federal budgets for 2025 and 2026, forcing reliance on monthly spending fractions (Rudaw). This lack of a clear budget framework adds to economic uncertainty.

What this means for your money and business

The government's denial suggests a more confident outlook on oil revenues, potentially easing immediate concerns about public finances. This could help stabilise expectations for government payments and public services.

However, the underlying vulnerabilities remain. Development and investment adviser Mohammed Al-Najjar warned that “Declining oil revenue could strain government salaries and public services, while investor uncertainty could limit hiring…Rising food and medicine prices would further burden households, particularly if regional disruptions affected Iranian gas supplies used to generate electricity in Iraq” (Channel8).

Continued reliance on domestic borrowing could also reduce the capacity of local banks to lend to private businesses, impacting growth and job creation. This can create a crowding-out effect in the financial system.

If Iraq were to seek loans from the International Monetary Fund, it could face conditions requiring spending cuts, potentially impacting public sector salaries and subsidies for low-income citizens (Iraq-businessnews). Such measures, while aimed at fiscal health, can have immediate social consequences.

What to watch next

The government's economic policy emphasises “the precise allocation of Iraq's revenues to support public spending and meet the state's financial requirements,” according to spokesperson Haider al-Aboudi (Video-agencyia). He also noted that an increase in oil export volumes has contributed to boosting revenues (Video-agencyia).

Iraq is currently debating a record-setting 2027 draft federal budget, projecting total public expenditure at around 217.2 trillion dinars ($143.6 billion) and an estimated deficit of 43 trillion dinars (Vartv). This substantial deficit will need careful management.

This deficit is anticipated to be covered by higher oil export prices or volumes, domestic and international borrowing, and carry-over funds (Vartv). You can read more about Iraq's budget deficit and dinar devaluation plans here.

The government is revising its oil price assumptions for the 2026 budget to a range of $55-$62 per barrel, down from $70 per barrel in the 2023-2025 framework (Kurdpress). Iraq is estimated to need oil prices at approximately $86 per barrel to achieve a balanced budget (Kurdpress).

Baghdad is reportedly considering devaluing the dinar to trade between 1,400 and 1,500 per USD (Shafaq). While this would boost the local value of oil revenues, it would also increase the cost of imported goods, affecting household purchasing power.

To reduce its sole reliance on the Strait of Hormuz, Iraq has agreed to build alternative pipelines through Turkey and Syria (The National). This strategic move aims to enhance export security and resilience, as discussed in our article on Iraq's oil export strategy and plans for an Iraq-Syria oil pipeline. The IMF projects 19% economic growth for Iraq in 2027, suggesting a potential rebound after a projected 16% contraction in 2026 (Iraq-businessnews).

The bottom line

Iraq's denial of an $11 billion foreign loan signals confidence in its immediate oil revenues, but the underlying challenge of a large projected budget deficit for 2027 remains. While the government aims to manage finances carefully, its heavy reliance on oil exports and ongoing political instability mean its financial health will continue to be closely tied to global energy markets and domestic reforms.

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