Beware, Al-Zaydi government and its central bank, of manipulating the dinar’s exchange rate.

Beware, Al-Zaydi government and its central bank, of manipulating the dinar’s exchange rate.

2026-06-23 05:03

Dr. Shwan Zangana
Iraq is suffering from a significant decline in its oil and non-oil revenues due to the decline in oil prices and the economic recession that has put pressure on non-oil revenues. The revenue crisis has worsened since the beginning of this year and the region’s entry into a heated conflict, especially after the closure of the Strait of Hormuz and the drop in oil exports to their lowest levels.

The previous Sudanese government designed the general budget based on an approximate annual deficit of 24 trillion Iraqi dinars. When Al-Zidi took over the premiership, he found this large deficit in his lap, and he had to deal with it through fiscal and monetary policy tools. It seems that many tools were proposed, but the most dangerous of them for the Iraqi economy is manipulating the exchange rate, especially since it had been manipulated previously, leaving devastating effects.

The markets have been discussing this ominous option since the change of the central bank governor, and the dollar exchange rate has risen, influenced by rumors and leaks. This prompted the government spokesperson to respond to these leaks through statements that did not include an explicit announcement of changing the official dollar exchange rate, but he spoke of a “flexible approach” in managing the exchange rate, which is an implicit admission that the government’s preferred and flexible option is to change the exchange rate. It seems that the discussion within the corridors of the central bank and government institutions is focused on the amount of the dollar exchange rate increase.

If the goal is only to cover the budget deficit, which amounts to about 25 trillion Iraqi dinars, then this means that the Central Bank will raise the exchange rate of the dollar from 1320 dinars to a rate ranging between 1600 and 1700 dinars, which is the rate at which it can provide the necessary Iraqi cash liquidity to cover the budget deficit, considering the average annual oil revenues to be around 70 billion dollars.

The Central Bank had previously exercised its authority to print 25 trillion dinars during the previous months as a quick means of providing liquidity and covering the budget deficit. Despite this quantitative easing of the money supply, the dinar exchange rate was not affected in the markets. The reason for this is the shortage of Iraqi dinar liquidity in the local markets, due to the smuggling of about 25 trillion dinars out of Iraq. The new issuance came to replace the smuggled dinar in the markets.

The Central Bank of Iraq raising the exchange rate of the dollar does not mean an increase in the money supply of Iraqi dinars in the markets, but rather an increase in government revenues as a result of the dollar being exchanged at a higher price in the local markets, and within the volume of the circulating supply therein. This means an increase in the prices of goods, because most of them are imported goods in US dollars, which is what we call exchange rate inflation, or inflation resulting from the rise in the dollar exchange rate, which amounts to about 25%, in the event that the exchange rate rises above 1600 dinars per dollar.

This inflation will be paid for and borne by the ordinary citizen, especially the employee, who is already suffering from limited resources, high prices, and economic stagnation. Then the government comes along and burdens him further by manipulating the exchange rate, considering it the easiest and quickest tool to provide liquidity for the budget, while

There are many other monetary and financial tools that can replace this nefarious and ominous manipulation, which can be listed as follows:

1- Rationalizing the budget, canceling projects financed by loans, and restructuring government employment.

2- Selling some government assets in a transparent global auction, and depositing the proceeds into the public treasury.

3- Controlling the collection and enforcement of state revenues in all sectors, departments and institutions.

4- Cancel the current Iraqi currency and print a new Iraqi currency in its place, to force smugglers to bring the smuggled Iraqi dinar into Iraq, and require them to deposit the Iraqi dinars in local banks, to be delivered to them in installments over a period of one or two years, and then the Central Bank issue bonds and Islamic sukuk to withdraw these funds and cover the deficit in the budget.

5- Stop spending on government investment projects from the general budget, and finance them by putting citizens’ savings into the development process, and establishing development projects, health, education and service, with Islamic financing formulas and contracts, such as financial leasing, Islamic bonds, profit-sharing, partnership and manufacturing and others. These financings will strengthen the general budget and cover an important part of its deficit.

6- A monthly deduction of 5% from each employee’s salary, in the form of a loan to the government with an annual interest rate of no less than 8%, to be returned, with interest, to the employees once economic stability is achieved. This will provide the treasury with an amount of approximately 4.5 trillion dinars annually.

7- Reformulating the investment law, ending its use for establishing service projects such as housing, commercial buildings and the like, and directing it towards establishing real productive projects, agricultural, industrial and others, and canceling all fictitious investment contracts, and replacing them with contracts that target development activities.

8- Expediting the conclusion of the oil export contract via Turkey, and contributing constructively to finding real and fair solutions for both parties, considering that the Turkish export pipeline is ready and immediate, and that Iraq is able to export most of its oil through this pipeline, and will be able to market it in new markets in Europe and America.

These are some of the fiscal and monetary policy tools that the Al-Zaidi government and its central bank can use to address its monetary crisis. They are effective tools that can be implemented immediately, and they will bear fruit if they are practiced transparently and efficiently. They are undoubtedly better than the ominous manipulation of the exchange rate.

Beware… beware of manipulating the exchange rate and manipulating people’s livelihoods and sustenance, for this is a great worldly responsibility, and a greater and more serious responsibility in the Hereafter… Have I not conveyed the message? O God, bear witness.

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