Resumen de Assessment of the Financial Sustainability of External Debt in Iraq: an Econometric Analysis

Mahdi Bashir Mahmoud Al Obaidi, Abdulrahman Najm Almashhadani

• Purpose:  This paper aims to study the possibility of external debt achieving financial sustainability by learning the most important economic variables affected by external debt and possible scenarios to achieve financial sustainability.

    Theoretical framework:  The sustainability of external debt is one of the critical issues in economies, especially emerging ones. Establishing structural projects, infrastructure projects, and economic investment is one of the essential factors in achieving financial sustainability. However, Iraq has resorted to external borrowing to confront the economic, political, and security crises represented by the drop in global oil prices.

    Design/methodology/approach:  The research seeks to explore developments related to Iraq's foreign debt and analyze developments related to financial sustainability in the Iraqi economy. To achieve the research goal, the paper uses an analytical approach by analyzing external debt and economic variables for the period 2004-2021 and interpreting indicators of external debt and financial sustainability in Iraq for the period 2004-2021 using the econometric model.

    Findings:  The results show that the external debt is not optimally exploited and directed towards consumer spending and imported goods. A few of them are towards projects with low income, which led to the lack of real financial sustainability in the Iraqi economy. Furthermore, the increase in reliance on public borrowing to finance the budget deficit led to a rise in the internal debt, especially in 2020, which means an increase in financial obligations on the state not only abroad but also internally, which made the revenue structure burdened with financial commitments internally and externally, as well as not directing domestic savings to contribute In building the economy and working on its consumption, which prevented the achievement of financial sustainability.

    Research, Practical & Social implications:  This paper contributes to the search for an alternative standard model capable of effectively explaining the financial sustainability of the external debt in Iraq.

    Originality/value:  This is one of the first papers that examine the possibility of achieving the financial sustainability of external debt in Iraq using the econometric approach.