⚠️ Economist Warns of an “Impending Shock” That Could Hit Creditors if Iraq Adjusts the Exchange Rate

Economy | Iraq News | Forex Analysis — Updated 2025

Iraq may be approaching one of the most sensitive economic turning points in recent years.
According to economic researcher Aziz Shwan, a possible reassessment of the Iraqi dinar exchange rate could trigger a major shock for domestic creditors and institutions tied to local debt instruments.

Here’s a full breakdown of what he revealed — and why it matters for investors, markets, and public finances.

💱 Government Policies Bring Stability — But With Future Risks

Shwan explained that Iraq has recently felt the direct impact of government monetary and fiscal policies, even though the administration has now shifted into caretaker status.

According to him, these measures have produced:

✅ Positive outcomes, such as:

• Reducing the outflow of hard currency

• Tightening controls on dollar export channels

• Limiting unregulated activities that previously drained foreign currency

• Encouraging major investors to keep capital inside Iraq

• Boosting productive and service sectors

• Increasing relative market stability

By controlling foreign currency leakage, the government managed to redirect investment internally, triggering visible improvements in local economic activity.

🚧 But Expanding Government Projects Has a Dark Side

Despite the positive effects, Shwan highlights a critical underlying challenge:

🏗️ Massive infrastructure expansion = rising domestic debt

The government’s rapid expansion of infrastructure and public service projects has forced it to:

• Rely heavily on domestic borrowing

• Issue more dinar-denominated debt instruments

• Increase pressure on public finances

• Stretch the fiscal capacity of the state

This growing dependence on internal financing could expose the economy to significant vulnerabilities, especially if currency policies shift.

⚡ The “Impending Shock”: Possible Exchange Rate Adjustment

Shwan warns that the incoming government may be pushed to reassess the dinar’s exchange rate to make it “more realistic.”

❗ Why this could be a shock:

If the official USD/IQD exchange rate rises (meaning the dinar weakens), then:

• The real value of dinar-denominated repayments drops

• Creditors receive less purchasing power when paid back

• Investors holding local debt instruments see immediate losses

• Institutional portfolios tied to dinar assets face financial pressure

This scenario would represent a shockwave across the domestic credit market.

👉 In simple terms:
If the dinar weakens, creditors get paid back in money worth less than what they lent.

🧨 Why Creditors Are at Risk

Shwan emphasizes that a large share of Iraq’s public debt is denominated in dinars — which ties creditor portfolios directly to government exchange-rate decisions.

This means:

• Any increase in the dollar exchange rate ⇒ creditor losses

• Institutions relying on dinar debt returns ⇒ reduced value

• Investors in government bonds ⇒ potential portfolio damage

For banks, investment funds, and private creditors, this creates a high-stakes environment.

🔍 A Critical Turning Point for Iraq’s Economic Future

Shwan concludes that Iraq is now entering a highly sensitive phase where:

• Efforts to maintain monetary stability

• The rising need to finance large public projects

…are colliding in a way that could reshape government budgets for years to come.

He urges policymakers to:

✔️ Develop balanced monetary and fiscal plans
✔️ Reassess spending priorities
✔️ Protect market stability
✔️ Safeguard investors
✔️ Prevent long-term side effects on national budgets

If mismanaged, Iraq could face market disruptions, investor losses, and long-term fiscal strain.

❓ Frequently Asked Questions 

Is Iraq planning to change the dinar exchange rate?

Not officially — but economists warn that the next government might consider an adjustment.

Why would a change hurt creditors?

Because most public debt is in dinars. A weaker dinar means creditors get repaid in currency with lower real value.

Will investors be affected?

Yes. Any shift in the exchange rate could create immediate financial pressure on institutions holding dinar-based debt.

Is the market stable right now?

Relatively yes — but rising government spending and domestic borrowing pose future risks.

What should businesses watch for in 2025–2026?

Policy announcements from the new government, debt restructuring signals, and exchange rate discussions.

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”  An economist reveals an "impending shock" threatening creditors with the possibility of a change in the exchange rate!

Economic researcher Aziz Shwan confirmed that the Iraqi economy has recently witnessed direct effects of the policies of the government, which recently became a caretaker government, noting that these policies have had positive results and others burdened with future challenges.

Shwan explained to the newspaper's platform that the government has taken a series of measures to curb the outflow of hard currency abroad by tightening controls on dollar export channels and reducing unregulated activities. This has contributed to encouraging large investors to direct their investments domestically instead of transferring them abroad. This has had a positive impact on the local market by stimulating the productive and service sectors and giving the economy a degree of relative stability.

In contrast, Schwan pointed out that the significant expansion in government projects, especially infrastructure projects, has forced the government to increasingly rely on financing through domestic debt to cover growing obligations, creating additional pressure on public finances.

The researcher warned that the incoming government might find itself compelled to reassess the dinar's exchange rate against the dollar to make it more realistic, which could negatively impact domestic creditors, given that a significant portion of the public debt is denominated in dinars. He explained that any increase in the official dollar exchange rate would lead to a decrease in the real value of what creditors receive, threatening to create financial pressure on investors and institutions reliant on local debt instruments.

Shwan concluded by saying that the current stage represents a sensitive economic turning point for Iraq, where attempts to strengthen monetary stability intersect with the increasing requirements for financing government projects, stressing the need to adopt balanced financial and monetary planning and rearrange spending priorities to avoid side effects that may affect the market and investors and negatively impact the budgets of future years. link