Finance issues an “important” clarification regarding the possibility of adjusting the dollar exchange rate

Finance issues an “important” clarification regarding the possibility of adjusting the dollar exchange rate

WED, 1124-2021,PM 4:06

On Wednesday, the Ministry of Finance issued an important statement regarding the possibility of adjusting the dollar exchange rate and patching the value of the Iraqi dinar, stressing that the 2022 budget will provide opportunities for social protection in Iraq.

The Ministry of Finance said in a statement received by Noon News Agency, that “in the past few weeks, there have been statements among senior political figures regarding the appropriate exchange rate,” adding, “The Ministry of Finance has addressed this issue several times and in a number of detailed presentations regarding the underlying strategy and policy. behind the exchange rate adjustment.

She explained, “We would like to reiterate our position and hope that by presenting our policy in a clear and convincing manner, the next government will have the correct basic information to interact with this matter, knowing that the international community has supported the exchange rate adjustment, as the International Monetary Fund, the World Bank and all industrialized countries supported the step.” publicly and in documents and reports published by them.

And the ministry continued, “When oil revenues collapsed last year, the Iraqi government was facing enormous funding pressures while it was struggling to meet its basic internal and external obligations.”

She said, “The central bank’s foreign exchange reserves were on a rapid decline path, and in December 2020, they were expected to run out within a year. Iraq’s teetering on the brink of a full-blown crisis was a symptom of the prolonged weakness in the face of low oil prices. The government should postpone all non-priority spending and focus on paying salaries in a timely manner, and pensions and social benefits are sufficient.”

She explained that “bridging the very large fiscal deficit without devaluation would have required deep and painful cuts in social expenditures and layoffs of thousands of employees.”

And she indicated, “The devaluation was necessary to allow for more gradual fiscal adjustment and thus avoid major disruptions in key public services, by encouraging domestic consumption to move away from imports, the devaluation of the dinar also helped protect the Central Bank of Iraq’s foreign exchange reserves and gave Iraqi producers an opportunity To create job opportunities and income through better competition in the local market.

On the possibility of revaluing the dinar with the rise in oil prices now, the Ministry of Finance said, “Although the devaluation of the currency last year and the restoration of oil prices have helped improve Iraq’s financial situation, it is important to bear in mind that the country is still very weak.” .

She added, “The current surpluses could turn into deficits with the return of oil prices to normal in the medium term, and another contraction in the oil market could easily bring the country back to the brink of crisis, for the Iraqi economy to regain its full strength and be sustainable, economic policies must be geared toward improving resilience to oil price fluctuations by building fiscal buffers and diversifying the economy.”

And she noted that “the revaluation of the dinar will have the opposite effect,” noting that “there are good reasons for the scarcity of revaluation of fixed exchange rates, for example, in 2005, China revalued its currency in response to intense pressure from the United States, which threatened to impose customs duties on imports.

And on the main consequences of revaluation, and will it help the poor?, Finance explained, “The revaluation will lead to a devaluation of the dinar for oil revenues and thus eliminate a potentially large part of the budget resources, which are employed in reconstruction, health, education, social transfers and other priority areas. “.

And she added, “The government’s ability to face current and future challenges will be severely weakened, and the increase in demand for foreign currencies could destabilize the currency market and lead to widening margins.”

And she indicated, “Experiences from other countries indicate that after reassessment, only a small part of their expanded profit margins is passed on to consumers and they acquire the bulk of it themselves, because the commercial objective of lowering prices is not to benefit consumers but rather to drive out competition, especially local producers. .If domestic producers are already under financial pressure, even a small price cut will be enough to put them out of business.”

She continued, “So the benefits to consumers are likely to be minimal, and the main victims of the reassessment will be local entrepreneurs, farmers and private sector workers. It will become more difficult to drive private sector development and build a local production base when imports become cheaper. For the same reason, groups will not feel the poor and the weak, but with a small amount of benefit, if any at all.”

“Most countries have long recognized that the most effective tool for helping the poor is direct cash assistance to the pockets of those who need it most,” she said.

She pointed out that “the 2022 budget will provide an opportunity to strengthen the social protection network in Iraq, now that the government has the means to do so. Trying to help the poor by raising the value of the dinar will be like throwing cash bills from a helicopter in the hope that it will land on the doorstep of the intended beneficiaries.” While the exchange rate has been adjusted for nearly a year, many irresponsible commentators have linked it to the increasing levels of prices over the past year. This is not true. As with the rest of the world, Iraq is affected by the collapse of global supply chains due to the COVID-19 pandemic. Shipping costs have increased. and transportation significantly, foodstuffs and edible oils increased significantly, as did the costs of building materials and many manufactured goods, including cars and trucks.”

She noted that “the agreed view among economic experts is that supply chains will be re-established in the near future and that this will have a dampening effect on prices. The Ministry of Finance believes that the positive effects of the currency adjustment are beginning to appear. This is reflected in the increasing demands for industrial licenses in Iraq.” , to take advantage of a more competitive exchange rate. Many importers and former traders look at the local market differently now, aiming to increase the level of their productive investment. This will translate into bigger and better job opportunities for our people.”

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