DINAR REVALUATION UPDATE: ANALYSIS OF THE IRAQI DINAR'S PURCHASING POWER IN 2024, 24 AUGUST

Analysis of the Iraqi Dinar's Purchasing Power in 2024

In 2024, the purchasing power of the Iraqi dinar (IQD) is subject to a complex interplay of economic policies, global market dynamics, and domestic fiscal management. 2 As of the current year, Iraq has embarked on a significant shift towards de-dollarization, aiming to strengthen the dinar and reduce its vulnerability to external economic shocks.  2

De-Dollarization Efforts and Their Impact

On January 1, 2024, Iraq implemented a ban on all transactions involving the US dollar, marking a strategic move to stabilize the fluctuating black market exchange rate and bolster the use of the Iraqi dinar.  2

 This decision was precipitated by prolonged currency instability, exacerbated by stringent US regulations on international money transfers since November 2022. 2 The move towards de-dollarization is expected to enhance Iraq's monetary sovereignty and mitigate the financial vulnerabilities associated with fluctuations in the US dollar. 2

Fiscal Policies and Their Effect on the Dinar

Iraq's fiscal policies, particularly the large-scale budget expansions enacted in 2023 and 2024, have significantly impacted the dinar's purchasing power. 4 The 2023 budget, passed in June 2023, was Iraq's largest to date, totaling 198.9 trillion Iraqi dinars or approximately $153 billion. 3 Despite the potential for positive economic effects, such as funding for local investment projects and public sector employment, these expansive budgets have also contributed to imbalances, jeopardizing fiscal and external stability. 4

Challenges and Opportunities

The de-dollarization strategy presents both challenges and opportunities for the dinar's purchasing power. While diversifying currency reserves helps mitigate risks associated with the US dollar's volatility, the large fiscal expansions and lower oil prices could result in fiscal and external imbalances. 4 Inflation declined to 4% by the end of 2023, largely due to lower international food prices, the dinar's revaluation in February 2023, and the normalization of trade finance. 4 However, without policy adjustments, the risk of medium-term sovereign debt stress remains high. 4

Outlook and Recommendations

The International Monetary Fund (IMF) has emphasized the need for sound macroeconomic policies and structural reforms to secure fiscal and debt sustainability, advance economic diversification, and achieve sustainable, inclusive, and private sector-led growth. 4 The IMF's assessment underscores the importance of addressing the downside risks posed by regional conflicts and Iraq's heavy dependence on volatile oil prices. 4

Conclusion

The purchasing power of the Iraqi dinar in 2024 is influenced by a confluence of factors, including de-dollarization efforts, fiscal policies, and global market dynamics. While the Iraqi government's strategic moves aim to strengthen the dinar and enhance economic stability, challenges persist, necessitating careful policy adjustments and reforms to secure long-term fiscal health and economic diversification.