Delayed public sector salaries in Iraq revive debate over the central bank's room to manoeuvre

Delays in public sector salary payments in Iraq have revived debate over how much the Central Bank of Iraq can do to ease the government's fiscal pressure. According to a Shafaq News report on Sunday, 2 August 2026, last month's salaries remain unpaid while regional tensions continue to disrupt Iraqi oil exports.

Abdul Rahman Al-Mashhadani, an economist and professor at the Iraqi University, said the central bank's foreign reserves are designed to finance imports, support the exchange rate and contain inflation, not to cover budget deficits. He said the reserves remain sufficient to cover roughly one year of imports and that Baghdad could temporarily borrow dinars from the central bank through September, but that sustained borrowing would raise inflationary pressure if export disruptions continue. He added that if those steps fall short, the government may have to raise fees and taxes or reduce salary allowances.

Mahmoud Dagher, a former central bank director, stressed that the institution cannot directly resolve fiscal imbalances because its mandate is set by law, and that changing the dinar's exchange rate should remain a last resort. Economic expert Mohammed Al-Hassani said the current strain reflects weak cash flow management rather than a shortage of resources, urging Baghdad to prioritise salaries and pensions and to consider domestic bond issuance for short term financing.