Enhancing Iraq's Currency Value: Key Meetings and Economic Insights
Iraq's currency, the Iraqi Dinar (IQD), has faced significant volatility, reflecting structural imbalances in the economy and external pressures. In 2024, several key meetings and economic insights have emerged as pivotal in efforts to enhance the IQD's value.
Overview of Iraq's Economic Landscape
Iraq remains heavily dependent on oil exports, which account for over 99% of its exports, 85% of the government's budget, and 42% of its gross domestic product (GDP). This reliance exposes the economy to macroeconomic volatility and restricts fiscal space for countercyclical policies.
Inflation has declined to 4% by the end of 2023, partly due to lower international food prices and the currency revaluation in February 2023.
However, the large fiscal expansion initiated in 2023 has worsened imbalances and increased vulnerability to oil price fluctuations.
Key Meetings and Policy Adjustments
Central Bank of Iraq (CBI) Adjustments
In mid-November 2022, the CBI's implementation of global procedural requirements for cross-border payments led to a decrease in the volumes of its daily "Foreign Currency Selling Window," or USD auction.
This decrease, in contrast to the high demand for USD, triggered a supply-demand mismatch and a depreciation of the IQD market price versus the USD.
The CBI and the Iraqi government introduced measures to create domestic demand for the IQD and to accelerate banking adoption, crucial steps for de-dollarization and economic evolution .
IMF Article IV Consultation
On May 13, 2024, the International Monetary Fund (IMF) concluded its Article IV consultation with Iraq, endorsing the staff appraisal. The IMF noted the strong economic rebound and declining inflation but highlighted the risks of a large fiscal expansion and dependence on volatile oil prices. Executive Directors emphasized the need for sound macroeconomic policies and structural reforms to ensure fiscal and debt sustainability, advance economic diversification, and achieve sustainable, inclusive, and private sector-led growth.
Economic Insights and Recommendations
Diversification and Structural Reforms
Experts agree that Iraq needs to address its economy's structural imbalances to halt the dinar's volatility. This includes efforts to diversify the economy away from oil, modernize the financial and banking sectors, and tackle rampant corruption and lack of basic services.
Fiscal and External Stability
The ongoing fiscal expansion is expected to boost growth in 2024 but at the expense of further deterioration in fiscal and external accounts. Policy adjustments are necessary to secure fiscal and debt sustainability and reduce vulnerability to external shocks.
Conclusion
Enhancing the value of Iraq's currency in 2024 requires a multifaceted approach, including policy adjustments, structural reforms, and a focus on economic diversification. Key meetings, such as the IMF's Article IV consultation, and insights from economic experts emphasize the need for sound macroeconomic policies and a shift towards a more sustainable, private sector-led growth model.
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