Harmonization of Fiscal and Monetary Policies for Mitigating Financial Dominance in Iraq

The paper aims to explore the role of harmonizing monetary and fiscal policies in reducing financial dominance in Iraq. The study employs a descriptive analytical approach to examine the data, demonstrating its impact and role in enhancing economic stability in Iraq. Secondary data were extracted from the Central Bank of Iraq’s annual economic reports and the General Directorate of Statistics and Research for the period from 2007 to 2023. The results indicate that financial dominance in Iraq has increased due to rising oil revenues and expanding public spending. In contrast, this spending continues to have a limited impact on investment activities, contributing to the strengthening of the economy’s rentierism. Financial dominance is characterized by the government’s ability to determine the size of the budget deficit without consulting the central bank or monetary authority. Furthermore, the reliance of fiscal policy on monetary policy to finance the budget deficit has negative repercussions that prevent monetary policy from performing its functions properly. The results also demonstrate an apparent lack of harmonization between fiscal and monetary policies in the Iraqi economy. This has had numerous repercussions that have impacted the economy, most notably the continued state of financial dominance for several years. This study proposes a framework for coordination between fiscal and monetary policies by suggesting coordination in plans and programs to rescue the Iraqi economy and enhance its ability to confront and avoid financial collapses that may arise from unexpected emergencies.