Iraq’s Financial Crisis: Al-Zaidi Has Many Options—Why Did He Choose to Make Citizens Pay the Price?

Iraq is facing a severe financial crisis under Prime Minister Ali al-Zaidi’s government, stemming from accumulated economic and fiscal imbalances inherited from its predecessor, the government of Mohammed Shia al-Sudani. Chief among these problems is the country’s debt, which Al-Zaidi has announced has reached 208 trillion Iraqi dinars. However, the severity of the crisis lies not only in the size of the debt but also in the policies adopted to address it and whether those policies distribute the burden fairly between the state and its citizens.

Rather than launching comprehensive fiscal and administrative reforms targeting corruption, wasteful spending, and unjustified privileges, the government, with the approval of the Coordination Framework leadership, moved to change the exchange rate, raising the official dollar rate from 1,320 dinars to 1,500 dinars, according to the announced rate. The measure drew objections from members of parliament, while the prime minister publicly accepted responsibility for the decision.

However, accepting political responsibility does not absolve the government of its obligation to provide clear answers about the reasons behind the decision, the alternatives considered before it was adopted, and the consequences it will have for the national economy and citizens’ livelihoods.

Changing the exchange rate is not merely an accounting adjustment involving numbers. It is a policy decision whose effects extend beyond government calculations and reach Iraq’s markets and households, particularly low-income earners, public-sector employees, and retirees who have no additional sources of income to compensate for the loss of purchasing power.

A citizen earning a monthly salary of one million dinars, for example, previously received the equivalent of approximately -$-757 at the former exchange rate of 1,320 dinars per dollar. Under the new rate of 1,500 dinars per dollar, that salary is worth approximately -$-666, and about -$-609 at the market exchange rate.

The decline in the dollar value of income is not, by itself, a complete measure of purchasing power within Iraq. Nevertheless, it illustrates part of the erosion in the value of wages, particularly when accompanied by rising prices for food, essential goods, and services. Citizens do not purchase their daily necessities in dollars-;- they pay in dinars, the currency in which they receive their salaries. The actual impact, therefore, also depends on how much of the exchange-rate increase is passed through to domestic prices.

When import costs rise and push up the prices of goods while salaries remain unchanged, low-income and middle-class households are the most vulnerable to the resulting damage. In this way, fiscal measures, if not accompanied by social protections and genuine reforms, become an additional burden on citizens already worn down by years of administrative failure, corruption, and mismanagement of public resources.

At the same time, legitimate questions arise about what has happened to public funds, which parties have benefited from corruption and special privileges, and why the government has not begun recovering stolen assets from those who sponsor and facilitate corruption, rather than merely targeting its lower-level operatives, while tightening spending controls before resorting to a measure that affects the value of the currency and citizens’ incomes.

We had hoped that Al-Zaidi’s government would pursue a range of reform options rather than treating an exchange-rate adjustment as one of its primary tools for addressing the crisis. Given Iraq’s oil wealth and public revenues, the country should not have to make its citizens bear the cost of fiscal imbalances on their own. What it needs instead is the political will to put an end to wasteful spending and -restore- the state’s control over public finances.

Among the key alternatives the government could examine and implement, to the extent permitted by law, are the following:

1. Seriously and comprehensively combat corruption.

Begin auditing the sources of wealth held by government officials, political party leaders, and influential political alliances. Compare their assets with their legitimate income before and after assuming public office, and investigate cases involving unexplained increases in wealth.

Estimates have been put forward suggesting that more than -$-500 billion could potentially be recovered. These figures should be independently examined through financial audits and judicial investigations. Every amount proven by the evidence to have resulted from corruption´-or-the unlawful appropriation of public funds should be recovered.

2. Bring all border crossings under effective government oversight.

Subject every border crossing to effective government financial and security supervision, and end any partisan´-or-factional control that obstructs revenue collection´-or-facilitates customs and tax evasion.

3. Strengthen oversight of the Ministry of Oil and its institutions.

Improve auditing procedures covering contracts, exports, revenues, and expenditures, and increase transparency in the management of a sector that forms the backbone of Iraq’s public finances.

4. Introduce mandatory pre-award audits of government contracts.

Implement Prime Minister Ali al-Zaidi’s -dir-ective to audit government contracts before they are signed. This would help prevent inflated costs and unnecessary contracts while reducing opportunities for corruption before public money is lost, rather than relying solely on pursuing violations after the damage has been done.

5. Eliminate unlawful double salaries and duplicate payments.

Abolish multiple salaries received by certain individuals, including allowances granted under different titles, and eliminate payments that lack a clear legal basis, while protecting legally acquired pension rights.

6. Abolish unnecessary provincial councils and amend the Constitution.

Review the role and necessity of provincial councils, abolish those deemed unnecessary, and pursue constitutional amendments as part of a broader institutional reform agenda.

7. Review Rafha-related salaries and benefits.

Reassess the system of financial entitlements according to principles of social justice and legal eligibility, and verify its actual cost to the public budget.

According to a figure attributed to Maher Hussein Rashid, the former -dir-ector general of the National Retirement Authority, in an official statement in September 2024, these benefits cost the treasury 38 billion dinars per month. This figure warrants the publication of detailed official data.

Any proposed legislative changes should also be examined carefully to ensure fairness and to prevent the infringement of rights except as permitted by law.

8. Consider reducing the salaries and allowances of senior officials by at least 30 percent.

Examine the possibility of cutting salaries and allowances for the three presidencies, ministers, special-grade officials, and -dir-ector generals by at least 30 percent, wherever permitted by law.

Reform should begin at the highest levels of government, not with the salaries of employees who depend on their monthly income to meet their families’ basic needs.

9. Avoid creating additional ministries and government positions.

Refrain from expanding the government bureaucracy´-or-establishing new ministries and additional deputy prime minister positions unless a compelling need can be demonstrated. Such expansion would only increase administrative expenditures during a financial crisis.

10. Sell surplus government vehicles and review official vehicle fleets.

Review the fleets of vehicles assigned to members of parliament and government officials, sell vehicles that are no longer needed, and-limit- official vehicle use to what is justified by the nature of each position and its actual security requirements. Clear and consistent rules should govern these arrangements.

11. Reassess the size of security details assigned to political leaders and officials.

Review the number of security personnel assigned to political party and alliance leaders, government officials, and members of parliament. Staffing levels should be determined through professional security assessments rather than allowing public resources to fund privileges that exceed actual security needs.

12. Review pension entitlements and eliminate unlawful privileges.

Verify eligibility requirements and qualifying years of service, eliminate exceptional benefits that have no legal basis, and ensure that public officials are subject to the same legal principles as other citizens.

13. Reduce the number of government advisers.

Enforce Law No. 3 of 2022 regulating the work of advisers, in accordance with its provisions, including rules governing the number of advisers, their academic qualifications, and their required professional experience.

The actual number of advisers serving the presidencies and ministries should be audited, and the need for each position should be reassessed. Advisory appointments should not become another channel for unnecessary government spending.

14. End political and administrative power-sharing based on party and sectarian affiliation.

Replace the distribution of government positions according to party and sectarian loyalties with appointments based on competence, integrity, and professional experience.

This system of political patronage not only weakens administrative effectiveness but also exposes state institutions to conflicts of interest and the division of influence among competing political groups.

15. Establish a unified national security system.

Ensure that military and security decisions remain in the hands of the country’s official constitutional institutions, and bring an end to competing centers of armed power and external allegiances.

These changes should be implemented in accordance with the Constitution and applicable laws, ensuring unified command and control over security and military resources.

16. Deposit public revenues from religious shrines into the state treasury in accordance with the law.

Subject revenues associated with the administration of religious shrines and religious institutions to appropriate financial oversight, auditing, and transparency requirements, taking into account each institution’s legal status and the nature of its assets.

Independent audit committees could be established, bringing together the relevant financial and oversight authorities to ensure that procedures are lawful and that funds are not handled outside the applicable legal framework.

17. Adopt a well-planned trade policy that supports domestic production.

Reduce unproductive imports and encourage local industry and agriculture while respecting Iraq’s international trade commitments. Arbitrary measures that drive up prices´-or-harm consumers should be avoided.

18. Rationalize public spending and review government expenditures.

Review all categories of government spending, eliminate unnecessary expenses, and halt stalled projects that offer no clear economic return.

Resources should instead be -dir-ected toward essential services, infrastructure, and productive projects. The government should also publish regular reports detailing how public funds are spent and what results are achieved.

19. Review the recruitment of foreign workers.

Reassess the employment of foreign workers, particularly in occupations for which qualified Iraqi workers are available, and enforce labor, residency, and financial-transfer regulations.

Such measures should be based on a genuine assessment of labor-market needs while preserving access to specialized foreign workers whose expertise is necessary for the national economy.

These options, alongside reform of the tax and customs systems and improvements in public financial management, represent potential avenues for addressing the crisis through a comprehensive plan.

No single measure is necessarily going to generate enormous savings on its own. However, a combination of reforms, implemented seriously and consistently, could reduce waste, increase revenues, and improve the efficiency of public spending.

Most importantly, the success of these measures requires political will that is independent of the interests of parties and power brokers who benefit from the status quo. It also requires effective parliamentary oversight, independent financial audits and judicial scrutiny, and the regular publication of data that allows citizens to see how much money has been recovered and how much has been saved.

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