A year after the decision..a report discussing what to reduce the value of the Iraqi dinar and what it should be

A year after the decision..a report discussing what to reduce the value of the Iraqi dinar and what it should be

2021.12.18 – 15:31

Baghdad – people

On such days and a year ago, the Central Bank of Iraq approved on December 19, 2020, the devaluation of the Iraqi dinar from 1200 dinars per dollar to 1460 dinars per dollar, equivalent to 22%.

The Central Bank of Iraq attributed the reasons for the devaluation of the dinar at the time to what it described as structural distortions in the Iraqi economy that impoverished public finances and restricted the reform capacity sought by the government and the Ministry of Finance.

The devaluation of the dinar caused a great shock to the Iraqi street, which was not expecting such a step, especially as it came at the height of the spread of the Corona pandemic, which caused business interruption, study disruption, market closure and health curfew, as well as the collapse in oil prices that Iraq relies on. Its sales to supplement the general budget by 95%.

A full year after the devaluation of the dinar, Iraqis and economists are wondering about the most important pros and cons that have been achieved.

What are the pluses?

Iraq’s decision to devalue the national currency coincided with the Iraqi government’s presentation of the economic reform project, which it called the “white paper” at a time when the government confirmed that it was necessary to reform the structural system of the country’s economy.

Regarding the advantages of devaluing the currency, the financial and economic advisor to the Iraqi government, Mazhar Muhammad Salih, confirms that the benefits achieved from devaluing the Iraqi currency are great and cannot be neglected, and that the talk about returning to the old exchange rate has become a thing of the past.

And he added – in a press statement – that changing the exchange rate gave strength to many of the country’s economic joints, which is consistent with the statements of the Central Bank, which confirmed that raising the exchange rate led to an increase in the competitiveness of the local product, as well as reducing expenditure pressure on the Ministry of Finance by 23%, which is This enabled the Ministry of Finance to overcome the crisis resulting from the drop in global oil prices during 2020 and the first months of 2021.

What did the government gain?

In this regard, the economic expert Hammam Al-Shamaa explained – during his speech to Al Jazeera Net – that changing the exchange rate has positives for the government and greater negatives for the Iraqi people, indicating that the government benefited from the currency devaluation in strengthening its financial budget by providing 23% of the salaries of employees who They receive salaries from the government such as retirees and daily wage earners.

On how, he explained that the salaries of Iraqi employees were spent in dinars, while the state’s oil imports were in dollars, and therefore, instead of the state reducing the salaries of state employees and retirees and the possibility of facing a popular reaction, it decided to reduce the value of the currency, which enabled it to avoid the reaction that would have occurred Although the result is the same in both cases.

In this context, the Iraqi government is the biggest winner from the reduction of the dinar by 90%, according to a member of the Finance Committee in the former parliament and the deputy winner of the recent elections, Jamal Kougar, who indicated that the government saved between 20 to 23 trillion dinars as a result of the decrease in the real value of employee salaries. Which rebounded to the benefit of the operational and investment budget in the country.

Speaking to Al-Jazeera Net, Cougar believes that changing the exchange rate was a rescue for the Iraqis, despite their immediate damage, especially since Iraq’s economy depends almost entirely on the state with the absence of an active private sector, and that popular benefit may be in the long run.

As for the increase in the size of the monetary reserve in the Central Bank, he explained that the change in the exchange rate led to an increase in the volume of the reserve by an estimated 15 billion dollars to reach nearly 65 billion dollars.

What are the negatives?

Among those who praised the exchange rate change and those who criticized the government move, Al-Shamaa believes that the negatives were significant and led, days after the devaluation of the dinar, to an increase in overall prices in the country, indicating that real estate prices rose by about 50%, in addition to that some foodstuffs increased their prices by more. than 23%.

He attributed this to the reaction and the decline in confidence in the government economically and the fear of a new change in the currency exchange rate, which, within a year of the government move, led to a rise in the unemployment rate and the level of inflation to large numbers that Iraq has not witnessed since 2003, according to Al-Shamaa.

Al-Shammaa’s talk is consistent with the statements of the Iraqi Ministry of Planning, which came through its spokesman, Abdul-Zahra Al-Wandawi, who indicated – in a press statement – a few days ago that the annual inflation rate increased by 6.8% last November compared to the same month last year 2020.

As for Jamal Cougar, he identified the damage to the Iraqis in 3 points, the first of which is the decline in the value of the Iraqi people’s revenues in the public and private sectors by 23%, in addition to the Iraqis’ loss of confidence in the government, which was reflected in the rise in the prices of consumer goods by a much greater rate than the change in the exchange rate.

With regard to the third point, which is represented in the parliamentary demands during the past months to restore the exchange rate to its previous position, which led to the withdrawal of hard currency from the black market and the instability of commodity prices so far, according to what Cougar confirmed.

What are the economic goals?

Professor of Economics at the Iraqi University Abdul Rahman al-Mashhadani believes that the government planned two goals to support economic development by devaluing the national currency; The first is to support industry and agriculture, and the other is to maintain the reserves of the central bank.

Changing the exchange rate alone is not sufficient to achieve economic development, according to al-Mashhadani, who explained that Iraq lacks agriculture and industry, in addition to opening the Iraqi borders wide to the goods of neighboring countries, especially from Iran and Turkey, whose currency is witnessing a significant decline that enhances their export capacity, considering that The devaluation of the Iraqi dinar was wrong in light of Iraqi data indicating that 90% of Iraq’s consumption needs are imported, and that the government should have exempted raw materials (which are not available locally) entering the local industry from taxes and customs.

With regard to the reserves of the Central Bank, Al-Mashhadani indicated – to Al-Jazeera Net – that the increase in reserves by an estimated 15 billion dollars during the current year did not come as a result of changing the exchange rate, but rather due to the recovery of oil prices globally, pointing out that any collapse of oil prices for many months will ultimately lead to The monetary reserve has declined again, especially since the size of the state’s large cash reserve does not necessarily mean the strength of its economy in the absence of industry and agriculture.

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