Budgetary Surpluses, Deficits, and Money Supply (M2) in Iraq: A Bayesian Vector Autoregression Perspective

Abstract

This study examines the relationship between Iraq's general budget performance (deficit/surplus) and the money supply (M2) from January 2004 to June 2024. The primary purpose of the research is to analyze how fluctuations in the money supply impact fiscal outcomes in Iraq, a country heavily reliant on oil revenues. Utilizing the Bayesian VAR (BVAR) approach, the study incorporates prior information to enhance the analysis of multivariate time series data. The findings reveal a very weak negative correlation between M2 and the budget performance, indicating that changes in the money supply do not significantly influence Iraq's fiscal health. Instead, the budget is primarily affected by its own dynamics and external factors, such as oil prices. The study concludes that enhancing fiscal management and diversifying revenue sources are crucial for achieving stable economic growth and ensuring fiscal sustainability in Iraq.