Photographer: Ahmad al-Rubaye / AFP / Getty Images
Photographer: Ahmad al-Rubaye / AFP / Getty Images
Iraq devalued its currency by almost 20% against the dollar, the most recorded as the government with cash problems faces an economic crisis caused by low oil prices and cuts in oil production. .
On Saturday, the central bank cut the official rate to 1,450 dinars per dollar, the first devaluation since 2003. That’s about 1,190 earlier. Dollars will be sold to local banks at 1,460 dinars per piece.
The devaluation of the world’s third-largest oil exporter threatens to place some goods beyond ordinary Iraqis and cause unrest in a country that matters a lot and still persists in last year’s deadly anti-government protests.
Tax evaders
Iraq’s budget deficit is expected to widen further since 2004 this year
Source: IMF
Finance Minister Ali Allawi said one of the main reasons for the move was to activate the private sector and local production while avoiding a severe budget deficit.
“What has been done is a precautionary step,” Allawi said in a televised interview on the Iraqi state channel. Without the measure, he said, inflation will soar and “we will hit the wall.”
Iraq, which has cash, is seeking an initial payment of $ 2 billion for oil
Iraq is taking the necessary steps to avoid depleting its foreign exchange reserves after the coronavirus has undermined energy demand and caused prices to fall. Without the devaluation, reserves would have been depleted within six to seven months and the budget deficit could reach 100 trillion dinars ($ 84 billion) by 2021, Allawi said.
The International Monetary Fund expects Iraq’s economy to shrink by 12% this year, more than any other OPEC member that has a share of production and a budget deficit of 22% of output. gross interior. Last month the government sought initial payments in exchange for a long-term crude oil supply contract to help mitigate its dire financial situation.
What Bloomberg Economics says …
“The devaluation was inevitable given the fall in oil prices and the budgetary pressures facing Iraq. The government says this is a on time and it will not be repeated, but we shall see if it will be so. It is also important to see the popular response to the resulting increase in the cost of living and the government’s austerity program. “
– Ziad Daoud, chief economist of emerging markets
The economic crisis adds pain to a nation that has been in chaos for most of the period since the 2003 U.S.-led invasion that toppled Saddam Hussein, suffering the civil war, an Islamic State insurgency and a Kurdish push for independence in the north, a major oil-producing region.
Hard times
Iraq’s economy will fall further among OPEC members under quota
Source: IMF forecasts
All major oil producers have been successful in the coronavirus-induced fall in crude oil prices. But Iraq, where oil accounts for almost all government revenue, is in a worse position than most.
Quotas agreed with other oil exporters in an effort to stabilize the market are restricting the number of barrels Iraq can pump. Prime Minister Mustafa Al-Kadhimi, who came to power in May, has warned that the authorities will therefore fight to pay public officials without increasing debt. This threatens the recurrence of the unrest that last year brought down the government and killed hundreds of protesters.
Iraq’s destroyed economy is becoming a threat to OPEC
Protesters at a rally in Tahrir Square in late October denounced corrupt politicians, daily power cuts, dilapidated hospitals, dilapidated roads and lack of jobs and urged the government to ignore production cuts. ‘OPEC.
– With the assistance of Abeer Abu Omar
(Updates with political context, graphic of the third paragraph)