The impact of the lack of integration of fiscal and monetary policies on domestic debt in Iraq for the period 2004-2023

Abstract

This study aims to analyses the relationship between fiscal and monetary policy during the period from 2004 to 2023, focusing on the extent of their integration and their impact on domestic debt and monetary stability. The analysis is based on annual fiscal and monetary data to understand the dynamics of economic changes throughout this period. The findings indicate that the relationship between fiscal and monetary policies was not sustainably integrated. Certain periods, such as 2004–2007 and 2016–2019, witnessed positive coordination that led to economic stability, while other periods, such as 2012–2015 and 2020–2023, experienced clear imbalances. The study also revealed that domestic debt levels significantly increased during periods of declining government revenues, rising from 6.1 trillion in 2004 to 70.5 trillion in 2023, reflecting a growing reliance on domestic borrowing to finance deficits. In contrast, foreign reserves rose from 10.1 trillion in 2004 to 145.2 trillion in 2023, contributing to the stability of the official currency market. The study concludes that achieving a better balance between fiscal and monetary policy requires structural fiscal reforms, including reducing dependence on domestic debt, diversifying government revenue sources, and strengthening the independence of the central bank to limit indirect monetary financing. The study also recommends developing the local bond market, improving public spending efficiency, and enhancing foreign reserves as a means to support monetary stability, thereby contributing to long-term fiscal sustainability and reducing the risks of inflation and monetary volatility.