JON DOWLING
Iraq has been talking about oil and the news as well for the past two weeks.
The more they talk about it, the closer the oil and gas law looks to be happening.
Could it be by September? Sure looks that way.
Meanwhile, the Fed admits rate cuts start urgently on September. Everything is coming in for our landing in the near future.
@JonDowling
Iraq's Economic Challenges: Dollar Purchases, Inflation, and Currency Dependency
Iraq's increasing demand for U.S. dollars reveals deeper economic issues that have implications for the country's fiscal health and financial stability [1]. This trend is mainly driven by two factors: the weakening of the Iraqi dinar and the growing dependency on foreign currency transfers. Both issues are interconnected and contribute to the inflation risks Iraq is currently facing.
The Central Bank of Iraq's (CBI) efforts to mitigate currency devaluation and reduce foreign currency dependence have not been as effective as anticipated [1]. By issuing more Iraqi dinars, the CBI intended to strengthen the national currency and limit the use of U.S. dollars. However, this approach has had the opposite effect, leading to a depreciation of the dinar and exacerbating inflation risks [2].
The increase in foreign currency transfers, particularly U.S. dollars, is closely linked to Iraq's heavy reliance on imports. The country's economy is heavily oil-dependent, with oil revenues accounting for a significant portion of its exports and government budget [3]. As a result, Iraq's fiscal stability is vulnerable to fluctuations in oil prices. When oil prices drop, the government faces budget shortfalls, prompting it to seek foreign currency to finance its needs. This, in turn, increases Iraq's dependency on imports and further strains its fiscal reserves.
Despite the government's efforts to implement a three-year budget, aimed at promoting fiscal discipline and economic diversification, the policies have fallen short of creating long-term stability [1]. The large fiscal expansion, initiated in 2023, while supporting a strong recovery in Iraq's non-oil economy, has also led to imbalances due to lower oil prices. The ongoing fiscal expansion is expected to boost growth in 2024, but it risks further deteriorating Iraq's fiscal and external accounts, making the country more vulnerable to oil price fluctuations.
Given the risks posed by regional conflicts and the country's large dependence on volatile oil prices, there is a pressing need for sound macroeconomic policies and structural reforms [1]. These reforms should focus on securing fiscal and debt sustainability, advancing economic diversification, and achieving sustainable, inclusive, and private sector-led growth. Without such adjustments, Iraq faces a high risk of medium-term sovereign debt stress and potential external stability risks.
In conclusion, Iraq's struggle to gain control over its currency and reduce its reliance on the U.S. dollar underscores the complexity of the country's economic challenges. Addressing these issues will require a multifaceted approach that includes fiscal discipline, economic diversification, and structural reforms to ensure long-term stability.
Iraq Now Moving Backwards in Battle to Strengthen the IQD
Awake-In-3D
August 22, 2024
Iraq’s struggle to stabilize the dinar worsens as growing reliance on dollars, rising imports, and inflation risks signal a shift in the wrong direction.
Iraq is facing serious financial challenges as it tries to reduce its dependence on the U.S. dollar and strengthen its own currency, the Iraqi Dinar (IQD). Despite efforts from the government and the Central Bank, Iraq is relying more on the dollar than ever before.
This makes it harder for the country to build a stable economy. Instead of improving the value of its own money, Iraq’s economy is moving in the wrong direction. By printing more dinars and buying record amounts of dollars, the country risks weakening its currency and becoming more dependent on foreign markets.
What you will learn reading this article:
Iraq is struggling to gain control over its currency as its reliance on the U.S. dollar grows. Despite efforts by the Central Bank of Iraq (CBI) to strengthen the IQD and reduce dependence on foreign currency, the country’s economic strategy appears to be faltering.
Recent financial activities suggest that Iraq is moving backward in its quest for economic independence, raising concerns about the future of the nation’s financial stability.
Record-Breaking Dollar Purchases Signal Alarming Economic Trends
One of the clearest signs of Iraq’s deepening economic troubles is the Central Bank’s substantial purchases of U.S. dollars. In July 2024, the Central Bank of Iraq bought an unprecedented $9.6 billion worth of dollars from the Ministry of Finance, marking a record high since such transactions began in 2003. The trend is not confined to a single month either; in 2024, monthly purchases of U.S. dollars have averaged $5.9 billion.
This pattern of heavy reliance on the dollar is driven largely by the government’s growing expenditure, which requires more Iraqi dinars to fund its operations. As the government spends more, it turns to the dollar to keep the economy running. However, these purchases erode the strength of the IQD, pushing Iraq further from its goal of economic sovereignty.
Issuance of More Iraqi Dinars Weakens Its Value
To meet the Ministry of Finance’s financial needs, the Central Bank has issued more Iraqi dinars, but this strategy is creating new problems. Printing more dinars risks oversupply, which weakens the currency and threatens to fuel inflation. Historically, Iraq has struggled with inflationary pressures, and the current influx of newly minted dinars could reignite those issues.
Rather than stabilizing the currency, this approach is diluting the dinar’s value, putting Iraq in an even more precarious position. Instead of fostering a strong IQD, the country is becoming increasingly dependent on foreign currency reserves, predominantly U.S. dollars, to maintain its financial balance.
Rise in Foreign Currency Transfers Highlights Dependency on Imports
Another backwards trend is the rise in foreign transfers of U.S. dollars, which surged by 99% in recent months, reaching over $264 million in a single auction. The Central Bank uses these transfers to pay for imports and settle international accounts. The spike in foreign transfers is evidence of Iraq’s reliance on international markets to meet domestic needs.
This dependence on foreign goods and services weakens the IQD and diminishes the prospects of building a robust domestic economy. Each dollar sent abroad is a reminder of Iraq’s continued dependence on foreign markets, making it increasingly difficult to achieve economic independence.
Economic Policies Fall Short of Long-Term Stability
While the Central Bank has made efforts to ease the process for private banks to transfer money overseas, these policy changes are far from a solution. Such measures may keep imports flowing and help Iraqi banks pay international suppliers, but they fail to address the core issues plaguing Iraq’s economy.
The real problem lies in the country’s dependence on the U.S. dollar and its lack of a comprehensive strategy for strengthening the IQD. Unless Iraq shifts its focus to long-term growth and economic independence, these short-term policy changes will only provide temporary relief without resolving the underlying challenges.
Supporting Sources:
Iraq's De-Dollarization Program in 2024: A Strategic Shift in Economic Policy
In a significant move towards enhancing its monetary sovereignty, Iraq embarked on a de-dollarization program in 2024. This strategic shift aims to reduce the country's dependence on the US dollar and promote the use of the Iraqi dinar in domestic transactions and international trade.
Iraq's decision to de-dollarize is rooted in a series of economic and political considerations. The country has faced challenges with currency instability, escalating prices, and waves of civil unrest. The dinar's vulnerability to fluctuations in the US dollar has led to significant economic risks, including financial vulnerabilities and reduced monetary sovereignty. The move is also a response to stringent US regulations governing international money transfers, which have impacted Iraq's economy negatively.
Iraq's Central Bank has taken the lead in implementing the de-dollarization program. Effective January 1, 2024, Iraq banned all transactions involving the US dollar. The primary objectives include wresting control over the fluctuating black market exchange rate and bolstering the utilization of the Iraqi dinar. This strategic transition is expected to contribute to the diversification of currency reserves, helping to mitigate risks associated with the oscillating value of the US dollar.
The de-dollarization program holds promise for Iraq's economy on multiple fronts. By reducing reliance on the US dollar, Iraq aims to strengthen economic stability and foster conditions conducive to economic diversification. The adoption of the dinar in more transactions can lead to improved monetary sovereignty and reduced exposure to external economic shocks.
Iraq faces several challenges in its de-dollarization journey, including the need to strengthen domestic financial institutions and the banking sector. The Central Bank plans to gradually cancel the dollar auction during 2024, leading to its complete cancellation by the end of the year. This move is part of a broader strategy to enable Iraqi banks to establish solid banking relationships with the global and regional banking sector.
Iraq's shift towards de-dollarization raises questions about the future standing of the US dollar as the predominant global reserve currency. The move could signal a trend towards a more multipolar world order in terms of international trade and currency usage.
Parliament's "Forgery" of the Budget... A "Dangerous Precedent" Swinging Between Denial and Confirmation, Putting Mandalawi on the Brink of Overthrow
Independent MP Ahmed Majeed Al-Sharmani commented today, Thursday (August 22, 2024), on the existence of manipulation and changes in the 2024 budget tables approved by the House of Representatives.
Al-Sharmani told Baghdad Today, "The parliamentary investigations are ongoing and ongoing in order to find out the truth about the existence of manipulation and change in the 2024 budget schedules."
He added: "We requested all papers and documents from the Parliamentary Finance Committee to audit the tables and reveal the truth about any tampering with them, and we are still waiting for those papers to reach us from the committee, and after the audit we will take a position in the event of any tampering."
He pointed out that "this move is supported by most of the representatives, and we cannot remain silent about such a serious issue in which there is manipulation if these allegations are true, in addition to the existence of a parliamentary investigative committee specializing in this file."
Acting Speaker of the House of Representatives, Mohsen Al-Mandalawi, denied any manipulation of the budget tables, saying that “the budget tables voted on by the House of Representatives are the same ones sent by the Council of Ministers and returned to it.”
Al-Mandlawi posted on his Facebook account, yesterday, Wednesday (August 21, 2024), that “after following up on what is being published and broadcast of inaccurate talks by some media outlets, the budget tables voted on by the House of Representatives are the same ones sent by the Council of Ministers and returned to it, according to our parliamentary decision No. (64),” stressing that no amendments have been made to them, according to the statement .
He pointed out that "the aforementioned tables are the same ones that were sent to the government after approval," noting that the Council Presidency "has formed a high-level committee to examine the circumstances raised regarding the issue and determine their truth."
Investigations are ongoing
However, the Parliamentary Finance Committee confirmed that the investigation committee is continuing to investigate the circumstances of tampering with the budget tables and the CD, noting that the government has begun working with the tables voted on by the House of Representatives.
Committee member Moeen Al-Kadhimi said in a statement followed by "Baghdad Today", Tuesday (August 20, 2024), that "the investigation committee formed by the parliamentary finance and related to tampering with the budget tables sent by the government to parliament and which were voted on is still ongoing," noting that "the investigation was conducted with the Secretary-General of the Council of Representatives and the Director of the Office of the Speaker of the Council of Representatives ."
At the beginning of last June, the House of Representatives approved the amended Federal General Budget Tables No. (13) for the year (2024) . During the House of Representatives session, the estimates of the General Budget Tables for the year 2024, its attachments, and the deficit financing tables were approved .
Al-Mandlawi may lose his position
MP Basem Khashan, for his part, confirmed the possibility of terminating the membership of the acting Speaker of the House of Representatives, Mohsen Al-Mandalawi, if the charges of tampering with the budget tables, which were recently revealed by the Prime Minister’s Office, are proven.
In a televised interview followed by "Baghdad Today" (August 19, 2024), Khashan said, "Parliament committed legal violations in amending the budget schedules, and they were on their way to being published and implemented had it not been for the government's scrutiny, noting that many representatives were deceived in this file ."
The Council of Ministers had spoken of an increase of 15 trillion dinars in the last tables, and it was not included in the agreement, discussions and voting, requesting a re-audit.
However, information indicates that there is a difference in the numbers amounting to more than 10 trillion added to the original budget of 211 trillion dinars, which is something that economic experts consider a dangerous precedent, given the failure to submit final accounts link