Analysis of the relationship between public spending and financial fragility in Iraq

Abstract

Iraq is considered one of the oil-producing countries that relies on oil revenues to finance public spending and the budget. Oil revenues constitute a large proportion of total public revenues, often exceeding 90%. These prices are subject to global economic fluctuations, and with the growth of public expenditures mostly non-productive consumer spending and the neglect of diversifying revenue sources and supporting the private sector, this has led the state to resort to public debt to finance the budget deficit, which has direct and indirect effects on various economic sectors, especially putting pressure on the public budget to repay these debts and the resulting interest. This is due to the close relationship between high levels of non-productive public spending and financial fragility in most countries, particularly developing ones. The relationship between public spending and financial fragility in Iraq was tested during the period )2003-2023(using the ARDL model. The results showed a linear relationship between the rise in public spending rates and the growth rates of financial fragility indicators in Iraq over the study period. Given that Iraq relies heavily on oil revenues, which are tied to global economic fluctuations, in public spending that is predominantly characterized by consumptive rather than productive expenditure.