Harambe: Bloomberg: Iraq Devalues Dinar to Push Economy Forward Ahead of Deficit
Iraq, which devalued its currency by about 20% against the dollar, said one main reason for the move was to push the economic cycle forward and activate private sector and local production to avoid a severe budget deficit, according to Finance Minister Ali Allawi.
The finance ministry, which controls the reserves from oil sales, will sell its dollars to the country’s central bank at an exchange rate of 1,450 dinar per dollar, which will in turn resell to local banks at 1,460 with a marginal benefit, Allawi said in a televised interview on the state-run Iraqiya channel.
Iraq devalued its currency by the most on record as the cash-strapped government faces an economic crisis brought about by low oil prices and crude-production cuts. The official rate was cut from about 1,190 previously, the first devaluation since 2003.
“What has been done is a preemptive step,” he said. Without the move, “a huge inflation will take place. We will hit the wall,” he added.
The country’s foreign reserves could be depleted in six to seven months if government expenditure stayed on the current trajectory without moving its exchange rate, the minister said. The budget deficit in 2021 could reach to 100 trillion dinars ($84 billion) without this step.
Allawi stressed on the importance of the devaluation as a so-called reformative step, as Iraq’s domestic producers can’t compete with lower-cost imports, which have flooded the local market.
The world’s third-largest oil exporter is taking the steps to avoid depleting its foreign-currency reserves after the coronavirus sapped demand for energy and caused prices to collapse. The government last month sought upfront payments in exchange for a long-term crude-supply contract to help mitigate its dire financial situation.
The International Monetary Fund expects Iraq’s economy to shrink 12% this year, more than that of any other OPEC member under a production quota, and that its budget deficit will reach 22% of gross domestic product.
Shybaby: “raising the exchange rate from 1190 to 1450 dinars per dollar means that the market price will exceed 1500 dinars to the dollar, and this means a 25% drop in the value of the dinar. This leads to a decrease in the purchasing power of employees and people with limited income by more than 25% because more than 75% of goods and services in Iraq are imported, and their prices are set in dollars
RVAlready: Al-Kazemi is having fun with the smoke generator. Shabibi is probably at home, laughing like crazy.
Rock1941: shybaby did they forget which way to move the rate? Lol
Skinman: So they decreased the value of their currency and made a bad situation worse?
Jrw: Skinman, correct, when amount of dinar increases per dollar the value of dinar decreases
Katansmith: Remember the chaos Tony spoke about! Every article says something different. Chaos is reigning supreme around the world…. everywhere.
CharlieOK: I would NOT believe ANY news out of Iraq at this particular time.
Lobodearo: Dont get too down everyone. A friend of mine in Iraq says they are trying to draw as much money as they can off the street, before they revalue higher. We may have to wait until late March, but still better than a stick in the eye.
Sunstar: Iraq Needs The International Investment Contracts To Kick For Their Country To Survive
BF: and they can’t wait until March..LOL
Sunstar: The Plan Is For Their 2021 Budget To Be Completed After The New Rate Has Been Released.
Shybaby: Iraq needs the devaluation ” like a hole in the head ”
Bluelingo: JMPO Sounds like someone is playing a shell game and when the shell is opened it will be a lot different than all the news.