Fluctuating Dinar: economic experts urge action as dollar soars in Iraq
Iraq’s dinar continues its erratic trajectory against the US dollar, with no resolution in sight despite years of governmental and central bank efforts, experts attributed the instability to weak policies and unchecked market manipulation.
Root Causes of Volatility
The dollar is surging against the dinar at Baghdad’s main currency exchanges, Al-Kifah and Al-Harithiya, surpassing 1,510 dinars per $1. On the streets, exchange shops are marking up selling prices to more than 1,520 dinars.
“The instability in dollar prices reflects the Iraqi Central Bank and government’s inadequate monetary policies, which fail to address the core of the issue,” said Mustafa Faraj, an economic expert. “Their hesitant measures have left them unable to control the dollar’s value.”
Faraj cited US sanctions on neighboring Syria and Iran as a major factor. “The lack of legitimate trade channels with these countries, combined with restrictions on dollar transfers to them, has led to dollar smuggling, driving up its price,” he told Shafaq News Agency.
“When the dollar rises, it pushes up the cost of basic goods, food, and even commercial activity. This cascade of price hikes stems from a failure to find comprehensive solutions and punish manipulators,” Faraj explained.
Emerging Pressures
New dynamics have exacerbated the crisis. Ahmed Eid, an economic researcher, linked heightened demand for dollars to the fallout from the conflict in Syria. “The shift in Syria has disrupted the interests of militia leaders and influential figures, many of whom are now stockpiling dollars to secure alternative income streams,” he said.
Eid pointed to the closure of Syria’s border with Iraq as a catalyst, forcing traders to seek new suppliers in countries like Turkiye and Egypt. “This transition requires substantial dollar liquidity, which further squeezes the market,” he said.
Currency smuggling and money laundering also continue to erode market stability. “These illicit activities persist unchecked, compounding the dollar’s rise,” Eid warned.
Future Uncertainty Amid Policy Shifts
Concerns are mounting about the impact of Iraq’s planned phase-out of its electronic transfer platform for dollar transactions. Introduced in early 2023, the platform was designed to monitor transfers more effectively. However, the Iraqi Central Bank announced in September that it would be discontinued by year-end.
“The Central Bank’s plan to shift dollar transactions exclusively to foreign banks with correspondent relationships is a blow to local banks,” said economist Ahmed Abdul Rabih. “Four dominant banks will monopolize the sector, sidelining smaller institutions and creating a bottleneck for dollar supply.”
“These banks will dictate the exchange rate, likely driving up prices. The Central Bank must advocate for local banks to establish accounts with international institutions like J.P. Morgan and Citibank,” Abdul Rabih urged.
Reassurances from the Central Bank
In response to public concerns, the Iraqi Central Bank has downplayed fears of major disruptions.
In a statement, it described the transition as part of a phased strategy to align with international standards, emphasizing that 95% of transfers had already shifted from the platform to direct banking relationships.
“The transition will be completed gradually, ensuring continuity,” the bank stated, adding that partnerships with foreign banks in China, India, Turkiye, and the UAE would facilitate trade using non-dollar currencies, such as the yuan and euro.
Thirteen Iraqi banks have already begun operations under the new framework, offering pre-approved transfers and enabling global payment systems for personal and commercial needs, the statement said. These steps aim to “stabilize the currency and curb inflation, reinforcing official exchange rates as the benchmark for legitimate economic activities.”
“The official rate reflects real market dynamics,” the Central Bank stressed, warning against unofficial rates driven by “those engaging in unauthorized practices.”
The bank emphasized that it has structured external transfer operations and the fulfillment of dollar demand along proper channels, aligned with international practices, standards, and the Anti-Money Laundering and Counter-Terrorism Financing Law.
“Providing these channels for all purposes at the official dollar exchange rate makes this rate the true benchmark for economic practices, as evidenced by price stability and inflation control. Any other rate traded outside these channels is considered irregular and utilized by those engaging in non-compliant or illicit practices who avoid official channels in their dealings. These individuals bear the additional costs of purchasing at higher rates than the official price to create the illusion of a disparity between the official and unofficial rates.” The statement concluded.
Despite reassurances, skepticism lingers among economic experts, who argue that without stricter enforcement and comprehensive reforms, the dinar’s fluctuations will persist. For many Iraqis, the cost of living remains tightly bound to the fate of the dollar.
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An Expert Predicts Iraq’s Economic Future In 2025
On Saturday, international economist Nawar Al-Saadi revealed the financial and economic future expectations for Iraq at the beginning of the new year 2025. Al-Saadi said,
“Iraq’s economic and financial future expectations at the beginning of the new year carry a mixture of optimism and caution, as they depend largely on a group of economic, political, and regional factors that directly affect the country’s financial and economic stability.”
He added, “International estimates indicate an improvement in Iraq’s economic growth rates, according to reports from the International Monetary Fund, where
it is expected that the Iraqi economy will witness growth of 1.4% during the next year, with an expected increase of up to 5.3% in 2025.
This growth reflects the recovery of the economy.”
After the challenges it faced in recent years, especially after the economic contraction that reached 2.2% in 2022, economic growth will be mainly driven by stabilizing oil prices and increasing investments in non-oil sectors.” Al-Saadi pointed out,
“There are fears of a deterioration in the financial situation due to the expected deficit in the state’s general budget, as the deficit is expected to expand to 7.6% of the gross domestic product during the next year, compared to 1.3% in the current year.
This deficit is due to fluctuations in oil prices, which are the main source of government revenues.
The economic situation is further complicated by the heavy dependence on oil, as it constitutes about 90% of Iraq’s revenues.
Any decrease in its global prices may lead to severe financial pressure on the government.” He pointed out that
“other challenges relate to inflation rates, which are expected to rise slightly to reach 3.5% in 2025.
This rise reflects the effects of financial pressures and internal economic challenges, including the rise in prices of goods and services as a result of increased production and import costs.
Oil production:
Iraq is expected to continue to maintain a high level of production, with plans to enhance its production capacity to reach about 4 million barrels per day by the first quarter of 2025. However, the
success of these efforts will remain linked to stability. political and relations with OPEC, in addition to achieving long-term investments in energy infrastructure.”
Al-Saadi continued:
“At the banking sector level, the government seeks to implement structural reforms to
improve the efficiency of the banking system and
increase transparency, and
these reforms come within a larger vision to
develop the Iraqi economy and
diversify sources of income away from excessive dependence on oil.”
The specialist in international economics concluded his speech by referring to all the aforementioned data, by saying that
“Iraq may be facing hot economic and financial events with the beginning of the new year, and the
main challenge lies in the government’s ability to manage these challenges effectively through balanced financial and economic policies aimed at Promoting economic stability and diversifying the economy to achieve sustainable growth.”
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An Economist Urges Those In Charge Of The Industrial Project Financing Initiative To Take Measures That “Attract Investors”
Economist Manar Al-Obaidi confirmed today, Saturday (December 21, 2024), that the
industrial project financing initiative is one of the main initiatives that aims to support the industrial sector in Iraq and enhance its role in achieving economic development, noting
a package of measures that must be taken to ensure that it is directed in the right way. Serves its national goals “attracting investors.”
Al-Obaidi said in a post on the “Facebook” platform, followed by “ Baghdad Today ,” that
“the initiative comes as part of the efforts made to stimulate industrial activity by providing financing on easy terms, including low interest rates, flexible payment periods, and encouraging guarantees,” noting that
“These advantages make the initiative attractive to investors, as it gives them the opportunity to establish industrial projects that support the local economy and reduce dependence on imported goods.”
Trillion Iraqi dinars this year, which highlights the urgent need to activate such initiatives to reduce this economic burden,” stressing
“the necessity of setting clear controls and goals for the initiative to ensure its success.” and achieve its goals.” He continued,
“Setting measurable goals helps direct efforts effectively and ensures achieving the desired results.
The general goal of promoting industry, despite its importance, is a broad goal and not subject to precise follow-up,” stressing that
“it is necessary to formulate specific goals linked to indicators.” Measurable performance, so that the extent to which the initiative achieves these goals can be evaluated.” He stated,
“Unfortunately, Iraq’s experience with the Small and Medium Enterprises Financing Initiative shows the importance of this point.
More than 18 trillion Iraqi dinars have been allocated to this initiative,
but a large portion of the funding was directed toward projects not related to supporting the productive economy, such as construction and housing projects.” He noted that
“this approach did not achieve the desired goals of the economic initiative and led to a reduction in its effectiveness.” He stated,
“To ensure that the initiative’s funding is directed towards projects that achieve national goals, key criteria must be determined to evaluate projects applying for funding, which include:
1- Reducing the import bill:
One of the main goals of any industrial project is to reduce dependence on imports.
However, it should be noted that some projects may claim to reduce the import bill, but in reality they replace the import of the finished product with the import of raw materials.
This trend does not contribute to reducing the total value of imports, but rather leads to additional losses, such as the state losing customs revenues on imported goods, as imported raw materials are exempt from customs under investment laws.
Therefore, priority should be given to projects that rely on local raw materials or that operate in the field of extractive and recycling industries, compared to manufacturing industries that depend on importing raw materials.
2- Providing job opportunities:
Modern technology has reduced the need for manpower in many industries, as production lines have become semi-automated.
Therefore, funding priority should be for projects that provide significant direct and indirect employment opportunities.
The ultimate goal of strengthening the industrial sector is to create job opportunities for youth and job seekers, and
if the initiative does not achieve this goal, its benefit will be limited.
3- Relying on energy alternatives:
Energy costs are considered one of the biggest challenges facing the local industry in Iraq, as they directly affect the competitiveness of products.
Therefore, projects that rely on alternative energy sources such as solar energy and other clean energy should be encouraged.
Although investment in these alternatives may be high initially, in the long term it can reduce production costs and improve the competitiveness of local products.
4- Encouraging exports:
Most industrial projects in Iraq focus on the large local market, but it is necessary to direct part of production towards export.
Iraq enjoys a strategic location that allows it to benefit from the large volume of trade exchange between the Gulf countries and Turkey, which exceeds 20 billion dollars annually.
Iraq can also benefit from its geographical proximity to Europe and Asia to reduce logistical costs and expand the target market base.
Projects that allocate part of their production to export should receive priority funding.
5- Localization of industries and technical knowledge:
The initiative should seek to encourage the localization of global industries within Iraq, especially in the areas of electronic devices and cars.
Attracting international companies to work inside Iraq will not only strengthen the local industry, but will contribute to the transfer of technical knowledge and encourage foreign direct investment.
Projects targeting the localization of major industries deserve top priority in funding.
6- Additional factors for evaluation
• Future expansion plans for the project.
• The extent of women’s empowerment in the project.
• Environmental impact and waste handling mechanisms.
• The location of the project and the extent of its impact on the geographical distribution of development. He stressed
Initiative implementation mechanism
“the need for financing decisions to be based on a comprehensive evaluation system that goes beyond the feasibility study submitted by investors,” stressing
“the need for the evaluation to include clear and specific goals for the state, with relative weights for each goal to determine funding priorities.” Al-Obaidi pointed out,
“This system ensures that funding is directed towards projects that achieve the highest added value to the national economy,” noting that the industrial project financing initiative has great potential to stimulate the industrial sector and promote economic development in Iraq.
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What Are The Goals Of Expanding External Transfer Channels By The Central Bank Of Iraq?
Economic affairs specialist Alaa Al-Fahd revealed the goal of the Central Bank of Iraq to expand external transfer channels for local banks.
Al-Fahd said, in an interview with “Baghdad Today,” that “as part of the Central Bank’s policy and its ongoing attempts to control foreign transfers to finance trade, especially in dollars, there is a continuous effort to expand the basket of foreign currencies that are used for imports, especially
with the countries that we have.” Import transactions, the transfer is in the currencies of the countries, and there was an agreement regarding this with the Turkish side, as well as the Emirates, China, and today with Jordan and Saudi Arabia.”
He stated, “This step reduces the demand for the dollar to finance foreign trade.
Most of the demand for the dollar is to finance foreign trade, and with the expansion of the basket of currencies, the pressure in the parallel (black) market on the dollar decreases, and this reduces the exchange rate in the local market.” He added,
“This step will also allow many banks to deal with many countries according to the currencies of those countries, and
this enhances a major role in developing the work of banks in terms of experience.
Its main goal is to control the dollar exchange rate and work to reduce it.”
Did Non-Oil Revenues Contribute To Iraq’s Budget?
Advisor to the Prime Minister, Mazhar Muhammad Saleh, confirmed today, Saturday, that non-oil revenues have witnessed a significant change in their contribution to budget resources, while he stated that the government program seeks to raise them to 20%.
Saleh told the official agency, followed by Al-Eqtisad News, that
“there are two paths in the rise in non-oil revenues, which have witnessed a significant change in their contribution to the federal general budget resources, as indicated by Prime Minister Muhammad Shiaa Al-Sudani,” indicating that “the
first path is an increase in the growth rate.” in the non-oil GDP to reach 6% annually, and
it represents a leap in the development of the productive activities of the non-oil sectors of the economy, headed by the
transportation sector,
digital communications technology, and
housing. Construction,
infrastructure,
agriculture, and
clear industrial transformation.” He added, “The
other path is the development taking place in the general budget resources other than the oil resource as a result of the high discipline in tax and customs collection after the introduction of digital processes and automation and the expansion of touching on neglected tax bases,” pointing out that “the
progress achieved is consistent with the government program to seek to raise the share of non-oil revenues.” Oil revenues over time and within the economic reform packages by making it 20% instead of less than 10%. Saleh explained,
“This issue is related to
growth in non-oil gross domestic product on the one hand, and
maximizing the budget’s resources financially from traditional revenue sources, whether
direct and indirect taxes, and
various related government revenues,
which generates a complementary relationship between financial sustainability and economic sustainability over time, which is a higher goal than Objectives of the government program.
Prime Minister Muhammad Shiaa Al-Sudani had confirmed that
“non-oil revenues reached 14 percent from 7 percent,” noting that “the
unemployment rate decreased from 16.5 to 14.4, and the
poverty rate was reduced from 23 percent to 17 percent.”
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