2015 budget and biting the Iraqi dinar – the study of the causes and the consequences

2015 budget and biting the Iraqi dinar – the study of the causes and the consequences

March 25, 2015 11:34

25k Iraqi Dinar notesD. Haider Hussain Al Tohme

Euphrates Center for Development and Strategic Studies

Iraqi dinar saw a sudden drop in price against the dollar than it was before the adoption of the state budget in January 29. He warned a number of experts and specialists in the financial and economic of the continuing decline of the Iraqi dinar exchange rate against the US dollar and its impact on the economic situation in the country’s affairs, calling on the central bank to take swift action and effective solutions for the sake of the stability of the dinar exchange to save the national economy price.

The local market has recently seen a recession and volatile serious economic, coincided with the austerity budget for 2015 because of the deterioration of oil prices, and increased the continuing rise in the dollar economic conditions in the country’s exchange rate worse. Citizens expressed their discontent and dissatisfaction with the currency fluctuations, stressing that this volatility cast a shadow over the stability of the domestic market and the standard of living for most classes of people, as well as the opportunity for traders and speculators to manipulate the prices are not justified.

Continued deterioration of the value of the dinar also raised against the dollar amazement and wonder a lot of specialists and non-specialists about the efficacy of the new monetary policy in the country, the fact that the deterioration mentioned revolving around the central bank’s policies, policies which hover around two axes, the first price, which is sold by the dollar against the dinar, and the second The quantity sold of this dollar, the central bank is directly responsible in identified, but that is how the order details need to be clarified.

Originally -lo Strictly Adakkh- The public is who selects the daily market demands of the dollar, while the central bank exercised the role of providing these applications and what is reflected in the pricing. If the central bank to provide all the quantities according to the market mechanism, it will keep prices stable, while that if he sold the amount is less than what is required, the result is a lack of width dollar, which leads to the generation market parallel to sell the dollar, meaning that the dollar becomes his two prices , the first official determined by the central bank, and the other parallel to him away from this price by unmet demand, and is determined by supply and demand forces.

In the past, there was a difference between the two rates: the official price and the market price, but this difference was within the universally accepted standards, the 2% up, whereas the current difference is the 7% up to – 8%, which is a big difference means that we have become about the two prices, the official rate and the black market rate. Dollar exchange rate has risen during the past few days gradually up to 1290 dinars, in its highest rate in years.

To make matters worse, the General Budget 2015 Act, has committed the Central Bank of Iraq, in paragraph 50, identifying sales of foreign currency (dollar) in daily auction ceiling does not exceed 75 million, with the exercise of justice in the sale, and claim the participant in the auction bank providing goods enter the tax documents and data settling accounts and savings Alkmarki within 30 days from the date of purchase of the amount, and so it applies penalties stipulated in the Central Bank Act or regulations issued it, and use other banking tools to maintain the strength of the dinar against the dollar.

In this context, it is noteworthy that the foreign currency sales in the first half of 2014 from the central bank window has reached almost $ 25 billion, according to data published in the bank site, and for the full year compared to the first half of estimated sales of $ 50 billion. Has identified the budget sales ceiling law $ 75 million a day, and when the implementation of this article literally, taking into account the work days and is without a 250 days per year, the annual sales ceiling under the law, may not exceed $ 18 billion, and thus the window sales are less than half estimated for 2015. The demand to reduce the window sales does not mean reducing the demand for foreign currency, but to restrict the supply of government source. And will face a clear contradiction between the officially fixed exchange rate and the amount of sales that the decision of the budget law in advance.

In a related development, Prime Minister Counselor for Economic Affairs and economist Iraqi Dr. denied the appearance of Mohammed Saleh, was announced by some officials, who indicated that the central bank’s actions are the cause of rising prices of the dollar against the dinar, stressing that the central bank basically procedures are immunization to the process of selling the currency action , and it aims to not wasting the currency for the time being, especially since Iraq is suffering from great financial hardship.

Saleh said At interview of the island Nt- The rise in the dollar price came on the back of lower oil prices in the international oil market, though most of Iraq’s imports of Finance comes from oil, and the hard currency comes with oil revenues, adding that the Ministry of Finance turned half of the oil revenues to her reserve and crisis dollars.

Saleh added that Iraq does not have an economic resource is oil gets on the dollar through it, it does not issue a goods and materials and goods out of Iraq, nor reap from religious tourism or general tourism hard currency for the lack of attention, and customs applied to imported goods properly.

He stressed that the new central bank action came to fortify the dollar selling process, not a final stop currency auction, pointing out that the Iraqi dinar completely covered in foreign currency, and there are fears of a weak Iraq reserves of hard currency, at least in the foreseeable future.

The Central Bank of Iraq, had announced in (the 18th of January 2015), that the financial reserves of Iraq is equivalent to one and half times the weakness of the currency bloc, returned it the “best rates” in the countries of the world. He also confirmed that Iraqi financial institutions are “unable” to cover the fiscal deficit, he stressed the need to reconsider the structure of the budget and spending and to diversify sources of income and achieve the investment more broadly to address the decline in oil prices.