The Impact of Domestic Public Debt and Budget Deficit on Aggregate Supply in Iraq

  • Authors

    • Dr. Mahdi Khaleel Shadeed Al-Mamoori University of Babylon / College of Administration and Economics
    • Dr. Abduljasim Abbas Alaallah University of Babylon / College of Administration and Economics
    • Dr. Haidar Ali Al Dulaimi Al-Mustaqbal University
    https://doi.org/10.14419/6wdyfg95

    Received date: July 14, 2025

    Accepted date: August 30, 2025

    Published date: September 15, 2025

  • Internal Public Debt; Budget Deficit; Aggregate Supply.

  • Abstract

    public debt, the general budget deficit, and aggregate supply in the Iraqi economy—over the period 2004–2021, by employing the Vector ‎Error Correction Model (VECM), which is suitable for non-stationary, cointegrated time series. The structural imbalance in aggregate supply, driven by the high relative contribution of the oil sector, has significantly influenced changes across all economic sectors that constitute ‎the gross domestic product (GDP), as well as those linked through forward and backward linkages. Consequently, domestic public debt has ‎increased, accompanied by a limited sustainability of the budget deficit.‎

    Furthermore, negotiations with the International Monetary Fund, the World Bank, and the Paris Club, in cooperation with international ‎financial and legal advisors and auditors, contributed to a substantial reduction in Iraq’s external debt—achieving an 80% write-off of the total ‎external public debt. This had a positive impact on the absolute values of GDP, the budget deficit, and the overall macroeconomic performance.‎

    Econometric analysis confirms the existence of both long-run and short-run relationships among the study variables. These relationships ‎appear more pronounced in the direction from the budget deficit and aggregate supply to domestic public debt, as well as from domestic ‎public debt and aggregate supply toward the budget deficit within the Iraqi economy. Moreover, the temporal path of aggregate supply ‎closely mirrored the trajectories of both domestic public debt and the budget deficit throughout the period 2004–2021‎.

  • References

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  • How to Cite

    Al-Mamoori, D. M. K. S. ., Alaallah , D. A. A. ., & Al Dulaimi, D. H. A. (2025). The Impact of Domestic Public Debt and Budget Deficit on Aggregate Supply in Iraq. International Journal of Accounting and Economics Studies, 12(5), 643-651. https://doi.org/10.14419/6wdyfg95