The budget is “deferred” until the market stabilizes.. How does the introduction of the budget affect the dollar and cause it to rise?

The budget is “deferred” until the market stabilizes.. How does the introduction of the budget affect the dollar and cause it to rise?

2023-02-06

Yes Iraq: Baghdad
Experts and specialists agree that the introduction and legislation of the 2023 budget at this time when the dollar exchange rates fluctuate and rise greatly, causes the crisis to complicate and the exchange rates to rise to greater levels, which is what caused the budget to be delayed for fear of proposing it and thus complicating the crisis.

3 different hypotheses were put forward about the reason for the delay in the budget due to the exchange rate, the first of which was talk about the Sudanese proposal to reduce the exchange rate in the budget to 135 thousand dinars per 100 dollars, which is still subject to discussion, but other opinions of specialists and experts indicate that the real reason and how to influence The budget on the dollar and its delay, is that offering the budget and pumping its money into the markets, the street and projects will cause an increase in liquidity from the dinar and thus increase demand and purchase of the dollar, which will cause an increase in its prices.

And the rapporteur of the Parliamentary Finance Committee for the fourth session, Ahmed Al-Saffar, suggested, in a statement reported by the official newspaper, that the budget would be delayed even if it was sent by the Council of Ministers to the House of Representatives, as it needs a period of time due to its problems.

He explained, “According to the information, the Prime Minister, Muhammad Shia’ al-Sudani, carried out a simple restructuring of the budget in line with his government approach, especially with regard to finding solutions to address poverty, unemployment, inflation, and others.”

And he noted that “the problem that will face the budget (the price of a barrel of oil) on which the budget is prepared and built, and in light of the fluctuation of oil prices between high and low, the legislator faces a problem on which price the budget will depend on, in addition to the problem of the exchange rate of the dollar, and this is a big problem, especially There is talk that the government will change the exchange rate approved in the budget.

Al-Saffar warned that if the budget is approved and money is pumped into the market through public expenditures while maintaining the same ineffective procedures, this “will amplify and exacerbate the problem of the exchange rate, given that an increase in the amount of cash in circulation leads to greater demand.” On the dollar, which in turn leads to more increases if the necessary measures are not taken by offering the dollar.

For his part, the expert on economic affairs, Jaafar Baqir Alloush, said, “The delay in approving the budget is related to the crisis of the rise in the exchange rate of the dollar in the parallel market.” Foreign trade, and this was announced in the official speech of the state.

He noted that the exchange rate is not linked to the budget, “on the contrary, it is the budget that is affected by the exchange rate of the dollar.” With regard to the volume of estimated expenditures in the budget (200 trillion dinars) compared to the exchange rate, Alloush explained that it is “a price equation that helps increase the mass Dinar cash directed to restrict aggregate demand (of this size) with limited dollar revenues, and thus will contribute to raising the value of the dollar against the Iraqi dinar.

The expert called for finding a simultaneous treatment of the crisis through three real starting points: the first is controlling liquidity levels and not inflating them, and the second is finding a new mechanism that governs the relationship between the two currencies (the dinar and the dollar) outside the rules of the old currency window, and the third is controlling foreign trade and directing it towards the necessary commodities. The average, they are: directing demand towards the interior, closing the real outlets for smuggling, and creating a sound economic environment for national production, and there is nothing wrong with returning to activating industrialization strategies to replace imports.

Alloush believed that “immediate patchworks that help expand the base of dollar provision create fragility in the exchange market and the crisis may worsen at any time. Monetary and financial policies must be reformulated and the current prevailing financial hegemony, which has proven its inability to address emergency crises, must be abandoned.”

As for the economist, Nabil Al-Marsoumi, he agrees with the opinion of the rapporteur of the former Finance Committee, Ahmed Al-Saffar, by saying that “launching the budget will lead to spending in both its consumption and investment parts, which will lead to spending additional funds, which generates inflation in money and government spending, and this leads to an increase in imports funded by dollars.” And the pressure on the hard currency will increase,” noting that “if the exchange market in Iraq does not stabilize, it is possible that approving the budget will lead to a rise in the exchange rate at higher levels than it is now.”

yesiraq.com