Understanding the Rise in Foreign Dollar Remittances in Iraq and Its Economic Impact in 2024
In 2024, Iraq has seen a significant increase in foreign dollar remittances, a trend that has caught the attention of economists and policymakers alike .
According to Mazhar Muhammad Saleh, the financial advisor to the Prime Minister, this increase is a direct result of a policy shift by the Central Bank of Iraq.
The bank has altered its approach to foreign transfers and monetary market intervention, leading to a smoother and more flexible process for the private sector.
The Policy Shift and Its Effects
Saleh attributes the rise in foreign currency remittances to the Central Bank's decision to change its financing mechanisms for foreign trade for the private sector .
Previously, the compliance platform rejected nearly 85% of foreign transfer requests, creating a bottleneck for businesses.
However, the bank's new policy of strengthening the accounts of correspondents of Iraqi banks abroad has facilitated a more straightforward and efficient process.
This change has enabled a high rate of daily foreign transfer requests to be processed directly through foreign correspondent banks, without the need for the compliance platform.
The impact of this shift has been positive on the national economy, particularly in stabilizing the supply and demand dynamics within the country.
The increased flexibility in foreign currency transactions has helped in maintaining the stability of economic functions, supporting both the supply and demand sides of the market [6].
The Role of Foreign Remittances in Iraq's Economy
Foreign remittances play a crucial role in the economy of many developing countries, including Iraq [4]. These transfers of money by workers abroad to their families and communities back home have been growing rapidly and now represent a significant source of foreign income for Iraq. While the exact size of remittance flows can be difficult to estimate due to unofficial channels, the recorded international migrant remittances to developing countries are substantial [4].
In Iraq, the rise in foreign dollar remittances has a direct impact on the national economy. The ease of foreign transfers has not only stabilized the supply and demand functions but also contributed to economic growth and development. The increased liquidity and financial stability provided by these remittances can be used for investments, consumption, and other economic activities, which in turn can stimulate the economy [6].
Challenges and Opportunities
Despite the positive effects, Iraq faces challenges in managing the increased inflow of foreign remittances. Ensuring that these funds are used productively and contribute to sustainable economic growth is crucial. The government's strategy revolves around diversification, reducing reliance on oil revenues, and fostering partnerships to drive sustainable growth [5].
As Iraq moves towards a new era of development under Prime Minister Mohammed Shia' Al Sudani [5], the role of foreign remittances in the national economy becomes even more significant. The government is exploring public-private partnerships (PPPs) to finance major development projects over the next two years, which could be facilitated by the increased availability of foreign currency [5].
Conclusion
The rise in foreign dollar remittances in Iraq is a result of a strategic policy shift by the Central Bank.
This change has had a positive impact on the national economy, contributing to stability and growth.
However, managing these funds effectively and ensuring they contribute to sustainable development remains a critical challenge for the Iraqi government.
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