Will Iraq's new government reconsider dinar exchange rate?
A number of leaders of the Coordination Framework, the bloc leading the new Iraqi government, are pushing to increase the value of the dinar in an attempt to support the poor — yet some argue the measure could backfire.
BAGHDAD — Prominent Iraqi politician and former Prime Minister Nouri al-Maliki called on the government of Mohammed Shia al-Sudani to increase the exchange rate of the Iraqi dinar against the US dollar by 5.5% in the coming days, amid warnings by economists that such a move could spiral the economy into recession.
The previous government, headed by Mustafa al-Kadhimi, had launched a financial and fiscal reform plan known as the White Paper, mainly aimed at restoring balance to the economy, reducing the public sector and investing financial resources in improving public services and developing productive sectors. The White Paper confirmed that the previous exchange rate was detrimental to the agricultural and industrial sectors.
On Dec. 19, 2020, the Central Bank of Iraq devalued the dinar against the US dollar, which dropped from 1,182 dinars to 1,450 dinars per $1, due to the financial crisis that hit the country in the wake of the drop in oil prices in the global market to less than $30 a barrel, and the increase in Iraqi government spending on state employees' salaries. To secure these salaries Iraq had resorted to loans from banks and to the re-deduction of bonds to the Ministry of Finance, which amounted to more than 30 trillion dinars ($20.6 billion).
In a press statement, the central bank at the time said the structural distortions in the Iraqi economy impoverished public finances and restricted the ability of reform due to the economic policy leadership and the primacy of politicians' priorities over the economy and its stability.
