Someone suggested reducing employee salaries.. Experts warn of the repercussions of raising the value of the Iraqi dinar

Someone suggested reducing employee salaries.. Experts warn of the repercussions of raising the value of the Iraqi dinar

2022-11-13 07:27

Someone suggested reducing employee salaries.. Experts warn of the repercussions of raising the value of the Iraqi dinarShafaq News/ The US “Al-Monitor” website questioned the feasibility of calls for re-raising the value of the Iraqi dinar against the US dollar, as it quoted experts warning them of the possibility that this could lead to economic recession, and negatively affect the ability of Iraqi products to compete, and the investment environment. .

The US report stated that the current Prime Minister, Muhammad Shia Al-Sudani, was in the past among those who demanded the return of the dollar’s exchange rate to its previous value, as he was saying at the time that the devaluation of the dinar might cause the outbreak of the “revolution of the hungry.”

Now, the former Prime Minister Nuri al-Maliki recently called on the Sudanese government to increase the exchange rate of the dinar against the US dollar by 5.5% during the coming days.

And the government of Mustafa Al-Kazemi had previously launched a financial reform plan known as the “white paper” in order to restore balance to the economy, reduce the public sector and invest resources to improve public services and enhance productive sectors, and the “white paper” considered that the previous exchange rate caused damage to the agricultural and industrial sectors.

On December 19, 2020, the Central Bank decided to reduce the value of the dinar against the dollar, from 1182 dinars to 1450 dinars per dollar, in response to the financial crisis that hit the country with the decline in oil prices in global markets to less than 30 dollars a barrel. Increasing government spending on state employees’ pensions.

The report added that in order to secure these salaries, Iraq sought loans from banks and to re-adjust the value of the bonds to the Ministry of Finance, which amounted to more than 30 trillion dinars ($20.6 billion). However, the Central Bank announced at the time that the structural imbalance in the country’s economy had weakened public finances and impeded the possibility of carrying out reforms.

The report stated that after the re-pricing of the dinar against the dollar, a strong current emerged, led by a number of politicians, most notably the Sudanese at the time, who demanded the return of the dollar exchange rate to its previous value, as the Sudanese argued at the time that the devaluation of the dinar would lead to a “revolution of the hungry.”

The report indicated that despite the rejection of the decision at the time, the new dollar exchange rate served some local industries that could compete with imported goods and contribute to achieving self-sufficiency.

In light of this situation, Iraqi imports declined from $21.5 billion in 2019 to $15.6 billion in 2021. Also, foreign investors moved quickly to make investments that amounted to more than $35 million during 2021. Also, Iraq’s exports of other goods ( Excluding oil), it rose by more than 400 million dollars during the same year, and reached 4.6 billion dollars from 3.8 billion dollars in 2020.

The report also noted that Al-Sudani, after he took the reins of leadership, retracted his previous position, and started talking about the fact that the Central Bank is an independent body, and it is the competent authority to determine the exchange rate, and the government cannot interfere, noting that Al-Sudani met with the Governor of the Central Bank, Mustafa Ghaleb. Scary on October 31 last, and they discussed monetary policy developments.

The report added that with Al-Sudani taking office, the markets are witnessing a period of stagnation, while businessmen and citizens are concerned about the devaluation of the dinar.

He added that Mustafa Al-Kazemi’s government was not able to address the negative repercussions of devaluing the dinar, especially those affecting the poor classes, but it allocated more than 6 billion dollars with the aim of supporting vulnerable groups, then Parliament decided to reduce it to less than one billion dollars.

The governor of the Central Bank pointed out that the devaluation of the dinar added to the state’s general budget 23.5 trillion dinars (16.2 billion dollars).

However, the Central Bank warned that re-pricing the exchange value may cause confusion in the markets, threaten investments and lead to an economic recession, which weakens confidence in financial policy and the local currency, and contributes to promoting speculation on foreign currencies and resorting to saving foreign currencies.

The bank pointed out that the old exchange rate helped secure a competitive advantage for imported goods and services, and prevented the promotion of local products.

Therefore, economists warn against restoring the dinar’s exchange rate to its previous value in the coming days, which may cause problems that are difficult to address during the next two years.

The report quoted the economist Mahmoud Dagher as saying that treating the mistake with another mistake will certainly lead to the undermining of the national currency, warning that “the economy will collapse, and all goods will be sold and bought in US dollars only.”

Dagher explained that the increase in the value of the dinar will cause problems with regard to contracts between the government and the private sector, and between companies and retail traders, adding that “solving these issues easily is not possible, and the exchange rate turmoil will affect the investment environment.”

The economic expert stressed that “the Iraqi dinar should not bear the brunt of the problems of fiscal policy.”

On the other hand, Dagher called on the government to reduce the salaries of state employees, which amount to more than 63 trillion dinars (43 billion dollars) and to allocate the financial abundance that is achieved from this reduction, with the aim of promoting economic development.

Dagher expressed his belief that the fiscal policy is still populist, as the government refuses to reduce employee salaries, impose taxes or reduce public spending.

As for the government’s financial advisor, Mazhar Muhammad Salih, he considered that it is possible to resort to the option of gradually increasing the value of the dinar.

Saleh explained that the adjustment to the exchange rate should be done gradually and over a year in order to secure “the appropriate atmosphere for adjusting prices.”