Iraq has appointed a new central bank governor as the country faces financial pressure from declining oil exports and international focus on efforts to tackle money laundering and terrorism financing.
Nazar Nasser Hussein, a career regulator and anti-money laundering specialist, took charge of the central bank on Sunday. He succeeds Ali Al Alaq, a financial expert, policymaker and academic who led the central bank from 2014 to 2020, before being reappointed to the role in early 2023.
Mr Hussein's appointment places him at the centre of Iraq’s most pressing economic challenge: restoring financial stability while pushing through banking and financial reforms.
He holds a master’s degree in law and has spent more than 25 years at the central bank. He has held legal, administrative and supervisory roles, helping to draft and oversee banking regulations and to develop compliance mechanisms aligned with international standards.
Most recently, he served as director general of the Iraqi Office for Anti-Money Laundering and Counter-Terrorist Financing.
Mr Hussein also has an international profile, having represented Iraq at global forums and been a part of national delegations alongside officials from the central bank and Foreign Ministry, as well as security and judicial bodies. He has often attended meetings of the Middle East and North Africa Financial Action Task Force, where regional policies on tackling financial crime are shaped.
Iraqi Prime Minister Ali Al Zaidi stressed the “importance of proceeding with banking reform programmes" during a ceremony at his office on Sunday to formally hand control of the central bank to Mr Hussein. Mr Al Zaidi said the reforms "contribute to achieving financial stability and provide the economic and investment environment suitable for enhancing development”, the Prime Minister's office said in a statement.
He also emphasised the need to “keep pace with global digital transformation and to apply international standards in financial policy implementation", it added.
Mr Al Zaidi, who took office in May, praised former governor Mr Al Alaq for his service and named him economic adviser to the Prime Minister, signalling continuity on strategic programmes.
Since late 2022, Iraq's banking sector has come under heavy scrutiny from the US Treasury Department, which has accused the sector of money laundering and supporting Iran and other US-sanctioned countries to access US dollars.
Under pressure from Washington, former prime minister Mohammed Shia Al Sudani's government introduced financial and economic reforms. These included strict controls on foreign transactions in US dollars and requiring traders to file all details of goods they want to import and the final beneficiary. Other steps taken included activating an electronic payment system, encouraging banks to offer a variety of services, and calling on the public and businesses to open accounts.
Crisis-era governor
Mr Hussein takes over as the Iran war has disrupted Iraqi trade routes, derailed crude exports through the Strait of Hormuz, strained foreign exchange inflows and heightened risk perceptions among investors.
Oil revenue makes up at least 90 per cent of Iraq's budget, but volatility in global markets and regional insecurity have left Baghdad with less fiscal space to fund reconstruction, public salaries and subsidies.
The central bank's foreign currency reserves have come under strain, decreasing by 6.3 per cent since the end of 2025 to $91 billion at the end of May, the bank’s figures show.
The gap between the official rate for the Iraqi dinar and the parallel market rate has widened again. Annual inflation rose from 2.2 per cent in March to 4.3 per cent in April, according to the central bank. For businesses and households, the uncertainty feeds into delayed investment and higher costs for imported goods.
At the same time, progress in developing Iraq’s banking sector has been modest. State banks still dominate, dozens of private banks are still prohibited from dealing in US dollars and financial inclusion is still picking up. Digital payments have grown since 2022, but cash still dominates transactions. Bringing the sector in line with international compliance standards is a prerequisite for attracting foreign investment and correspondent banking relationships.
FATF grey list
Compounding the challenge is Iraq’s placement on the Financial Action Task Force grey list this month. The FATF referred to deficiencies in anti-money laundering and counter-terrorist financing frameworks, including gaps in supervision of designated non-financial businesses and professions and delays in prosecuting complex financial crimes.
Grey listing does not trigger sanctions, but it does increase scrutiny of transactions involving Iraqi banks, raises compliance costs and can deter foreign banks from maintaining correspondent relationships. For a country seeking to diversify its economy and attract private capital, the designation is a reputational and operational burden.
Mr Hussein’s background makes him an unsurprising choice for this moment. His most recent posts gave him direct experience with the technical deficiencies identified by FATF and familiarity with regional efforts to align policies with the task's force's recommendations.
The central bank’s immediate task is to co-ordinate with the Ministry of Finance, the judiciary and commercial banks to implement an action plan that satisfies FATF benchmarks and supports a push for removal from the list.
Reform options on table
The new central bank governor inherits a reform agenda that includes several difficult items such as the exchange rate policy, banking sector restructuring, monetary operations and liquidity, and digital transformation.
In late 2023, the central bank revaluated the dinar from 1,460 to 1,310 to the dollar, but market pressures have resurfaced. However, the rate on the black market − now at about 1,550 − has remained a challenge.
Facing the shock of dwindling oil revenue, the bank is expected to consider devaluation of dinar this year, sources said.
As part the reforms, the government has also committed to merging or restructuring weak state banks and tightening supervision of private banks. The aim is to enforce capital adequacy, governance and compliance standards without triggering liquidity shocks. Digital banking licences and partnerships with FinTech firms are also part of the plan to expand financial inclusion.
