Al-Zaydi imitates his predecessors in raising the dollar exchange rate… Motives and consequences

Al-Zaydi imitates his predecessors in raising the dollar exchange rate… Motives and consequences

2026-10-09

Al-Zaydi imitates his predecessors in raising the dollar exchange rate... Motives and consequencesDr. Shwan Zangana
The Iraqi Council of Ministers, in its twenty-second session, held on 6/10/2026, and based on what was presented by the Minister of Finance and the Governor of the Central Bank, decided to amend the exchange rates of the Iraqi dinar against the US dollar as follows:

1- The price at which the Central Bank of Iraq buys the dinar from the Ministry of Finance is 1500 Iraqi dinars per US dollar.

2- The selling price of the Iraqi dinar by the Central Bank of Iraq to all local banks and financial institutions shall be 1510 Iraqi dinars per US dollar.

3- The selling price of the Iraqi dinar by local banks and financial institutions to the end beneficiary shall be 1520 Iraqi dinars per US dollar.

The decision shall be implemented starting from 7/10/2026

Mr. Ali Al-Zaidi imitates his predecessors

With this decision, the Prime Minister of Iraq imitated what the Minister of Finance of Iraq, Mr. Ali Abdul Amir Allawi, did in the government of Mr. Mustafa Al-Kadhimi at the end of 2020, when he reduced the exchange rate of the Iraqi dinar against the US dollar from (1190, 1200, 1210) Iraqi dinars to (1450, 1460, 1470) Iraqi dinars per US dollar, with a contraction rate of 22% for the Iraqi currency.

In doing so, he reinforces the perception among political observers that he is no different from his predecessors, whereas he must prove his radical difference in order to dominate the political scene in Iraq and contribute to the establishment of a new system of government in the Middle East.

It appears that the current contraction of the Iraqi currency, which is about 15%, came less than its predecessor, and was determined in line with the price in the parallel market, and in a form in which the markets can absorb its impact and overcome its shock, through a reasonable rise in the exchange rate of the dollar that may range between 1650 and 1750 Iraqi dinars per dollar.

The motives behind this decision

Conspiracy theories aside, it is clear that this decision is purely a local economic one, stemming from the following motives and reasons:

* The decline in oil imports due to the crisis in the Strait of Hormuz created a large deficit in the general budget, which prompted the government and the central bank to take an exceptional precautionary measure in advance to sustain cash liquidity and provide the budget financing needs and cover its deficit.

The government is reluctant to borrow to provide liquidity and cover the budget deficit, due to the difficulty of borrowing and its burdensome effects on the budget.

* The government needs to take urgent monetary action to provide liquidity, given the geopolitical circumstances surrounding the region, which will affect Iraq.

* The government’s inability to devise efficient means of providing local currency, due to reasons related to the Iraqi political and economic reality, and the immaturity of the Al-Zaidi government in dealing with it.

* The government has to choose the lesser of two evils: either the inability to pay salaries and government spending, or the contraction of the Iraqi currency, causing a limited but noticeable increase in the cost of living.

* The necessary financial allocations to appoint and secure very large numbers of contracts, daily wage workers, and top graduates, as promised by the Prime Minister, imitating his predecessors, for purely political reasons, and ignoring the deficit that will affect the budget with this measure.

The effects of the decision on the economy, markets, and citizens

There is no doubt that this decision has negative and painful effects on Iraq, and that it is an unfair and wrong decision that was taken to avoid other mistakes resulting from mismanagement and financial corruption, but it is not without positive aspects that may not appear at first glance, and these effects can be explained as follows:

Its impact on the Iraqi economy lies in causing an increase in the inflation rate, on the one hand, and a rise in the cost of living resulting from the increase in prices of goods and services, without the public and private sectors raising salary levels to keep pace with this emergency increase, on the other hand.

Overall inflation (as announced) in August had recorded an increase of 0.7% on a monthly basis, compared to July, and an annual increase of 3.3% compared to August 2025.

As for core inflation (excluding food and energy), it recorded an increase of 0.5% in August on a monthly basis compared to last July, and recorded an annual increase of 3.4% compared to August of 2025.

I believe that the decision to devalue the Iraqi dinar will push inflation (both overall and core) to rise to between (4-5)%.

This decision will contribute to providing cash liquidity in the national currency and enabling the government to spend on public expenditures, especially employee salaries, and to prepare for emergencies that may arise in light of the tense regional situation and the drums of war.

This decision is not merely a change in the exchange rate, or a monetary decision with economic implications, but it now includes legal and contractual dimensions whose effects will appear in long-term contracts, investment projects, contracting agreements, and contractual relationships with foreign entities, as it will require determining which party bears the risks of changing the exchange rate of the Iraqi dinar in those contracts.

As for its impact on the markets, it will directly affect the prices of goods and services, depending on their price elasticity and the control of supply and demand. We will inevitably witness an increase in the prices of goods and services, especially imported goods, but I believe that this increase will be limited, and the markets will adapt to it in the future.

The rise in prices of imported goods may provide an opportunity to boost local production, which has been suffering from price competition with imported products, and this is something that the government and investors should take advantage of.

This decision will push importers to import through the platform and at the new exchange rate, which was the prevailing rate in the parallel market, and on which the prices of goods in the markets were based, in order to maintain price levels, and thus alleviate the impact of declining sales and maintain their current levels, which means a decrease in customs transactions outside the platform, and a reduction in tax evasion.

One of the side effects of this decision on the markets is the settlement of debts in dollars and dinars between traders and their clients in the markets. This dilemma coincides with cases of change or fluctuation in exchange rates, due to a government decision, or a crisis in the markets.

As for the impact of this decision on citizens, it is manifested in their loss of 15% of the purchasing power of their resources. The impact of this decision will be very bad on employees and workers in the public and private sectors, given the stability of their resources. If the government does not raise their salaries in line with the contraction of the national currency, they will inevitably suffer from the high cost of living from now on.

The timing of this infamous decision is wrong for the citizens, as it comes amid a global rise in prices, geopolitical risks, and political and economic mismanagement by the Iraqi government, which burdens them in a sequential, harsh, and painful manner.

Figures and estimates of the draft general budget for the year 2027

* Total expenditure: ranging between 200 and 217 trillion Iraqi dinars

* Expected revenues: Approximately 170 trillion Iraqi dinars

* Crude oil export capacity is estimated at (4) million barrels of oil per day

* Financial deficit: estimated at approximately 30-50 trillion Iraqi dinars

* Estimated price of a barrel of oil: The government estimates it to be between $58 and $70 per barrel.

* Dollar exchange rate: An exchange rate of approximately 1500 Iraqi dinars per US dollar was adopted.

These estimated figures are not realistic, in general, which means that a larger-than-expected budget deficit may push the government to make a decision later in the second half of next year to change the exchange rate of the Iraqi dinar to (1700-1800) Iraqi dinars to one US dollar, unless it takes the necessary economic and political measures to restructure the Iraqi economy.

What should al-Zaidi have done?

Al-Zaydi had many options, some difficult to implement and long-term, or options that could not be implemented. He was in a hurry and wanted to get ahead of events, so he chose the easiest one, which he implemented with the stroke of a pen.

However, I believe that his advisors led him in the wrong direction, pushing him to address a series of accumulated errors with another egregious mistake, when he could have resorted to the following options to address the budget deficit crisis and implement investment projects:

1- Given the government’s reluctance to issue sovereign bonds, due to low demand for them and because they are debt instruments that burden the government, it can issue Islamic investment instruments on oil assets and properties, and participate in their revenues and services. These are legitimate partnership instruments and not debt instruments, capable of attracting citizens’ savings and foreign capital together. I have a detailed study on this procedure, which I will present to the government soon, God willing.

2- Cancel the old currency, issue a new currency, and exchange it for the old currency according to specific controls, and deliver it during periods. The currencies that are delivered internally will have their replacements delivered within a month, and the currencies that come from abroad will have their replacements delivered after one year. In this way, sufficient liquidity will be provided to the government to temporarily alleviate its budget deficit, until other monetary measures are taken.

3- Raising the mandatory reserve of local currency for Iraqi banks from 22% to 30%, in order to provide cash liquidity of local currency to the Central Bank, which in turn will lend it to the government.

4- Deducting 10% from the salaries of employees who receive salaries above 1.5 million Iraqi dinars, and postponing their payment until a date when the government is able to return it to them in full.

5- Stopping government recruitment in the 2027 budget, rationalizing spending in it as much as possible, and postponing the implementation of investment projects for one year. All of this, in addition to taking other financial measures, will provide the government with cash liquidity and reduce the budget deficit.

6- There are monetary and financial measures taken in such cases, according to the principles of economics, but I did not address them, because they are well-known classic measures, on the one hand, and because the Al-Zaidi government cannot implement them efficiently under the current circumstances, such as controlling non-oil resources, forcing the smuggled Iraqi currency to enter the Iraqi development process, and collecting taxes from international companies operating in Iraq, especially oil companies, and others.

In conclusion, I expected Al-Zaidi’s government to be different from its predecessors, but it proves, day after day, that it resembles them in many of its actions, procedures, and even its way of thinking, and this is not a good sign.

shafaq.com