DINAR REVALUATION REPORT: Strategies to Stabilize the Iraqi Dinar in 2024, 10 SEPT

Strategies to Stabilize the Iraqi Dinar in 2024

Stabilizing the Iraqi Dinar has been a critical concern for Iraq's economic policymakers, particularly in light of the country's reliance on oil exports and the volatility of global oil prices. In 2024, the Iraqi government, in conjunction with the International Monetary Fund (IMF), has undertaken several measures to ensure the stability of the Iraqi Dinar and promote broader economic health. 1

Fiscal Policy Adjustments

Following a significant fiscal expansion in 2023, Iraq's government is reassessing its fiscal strategy to avoid exacerbating imbalances. The expansion, aimed at stimulating the non-oil economy, has led to improved domestic conditions and a rebound in economic activity. 1 However, the large fiscal expansion has also contributed to concerns over fiscal and external account deficits, increasing Iraq's vulnerability to oil price fluctuations. To address this, the government is considering policy adjustments to ensure fiscal sustainability and reduce vulnerability to oil price volatility. 1

Monetary Policy and Exchange Rate Management

The Central Bank of Iraq has been actively involved in stabilizing the exchange rate of the Iraqi Dinar against the US dollar. Despite fluctuations in the parallel market, the Central Bank has maintained a stable official exchange rate, supported by Iraq's robust foreign reserves.  4 The bank's financial advisor, Mazhar Mohammed Saleh, has assured the public of the dinar's stability, emphasizing that the official exchange rate dominates in containing any short-term impacts from the parallel market. 4

Structural Reforms and Economic Diversification

Recognizing the need to reduce dependence on oil, Iraq is pursuing structural reforms to diversify its economy. The IMF and the World Bank have been instrumental in supporting these efforts, emphasizing the importance of improving governance, enhancing export capacity, and developing the private sector. 3 These reforms aim to build a more resilient and diversified economy, with a focus on non-oil sectors such as agriculture and services.  2

Enhancing the Value of the Iraqi Dinar

In a bid to further stabilize and potentially increase the value of the Iraqi Dinar, the Central Bank and the Finance Committee have been discussing methods to strengthen the currency. 5 These discussions encompass monetary policy, the banking system, and strategies for improving the dinar's value. Central Bank Governor Ali Al-Alaq has reviewed economic and monetary aspects, emphasizing the importance of establishing rules to monitor financial transactions and analyze cash operations. 5

Addressing Economists' Concerns

Economic experts have expressed mixed views on the stability of the US dollar against the Iraqi Dinar. While some, including the Prime Minister's financial advisor, Mudhher Muhammad Salih, have asserted that the stability is genuine and robust. 4others argue that true stability would be achieved only when the dollar returns to the Central Bank's official rate. 6

Conclusion

The stabilization of the Iraqi Dinar in 2024 is a multifaceted challenge that requires a combination of fiscal prudence, effective monetary policy, structural reforms, and a diversified economy. With guidance from international organizations and a commitment to sound economic governance, Iraq aims to secure the dinar's stability and promote sustainable, inclusive growth.