How Iraq is Stabilizing the Dinar in 2024

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.

DINAR REVALUATION REPORT: Analysis of Iraq's 2024 Budget and Its Impact on the Iraqi Dinar, 10 SEPT

 Analysis of Iraq's 2024 Budget and Its Impact on the Iraqi Dinar

The 2024 budget in Iraq has been a topic of significant interest and debate, particularly in its potential to influence the value of the Iraqi Dinar. 1 Passed by the Council of Representatives, this budget, spanning 2023 to 2025, is one of the largest in Iraq's history, estimated at 198.9 trillion Iraqi dinars or approximately $153 billion based on the official exchange rate. 1

The Budget's Role in Stabilizing the Iraqi Dinar

A Respite for Fiscal Uncertainty

For a country that has faced challenges in passing budgets, the coverage of the next two years offers some reassurance. 1 This stability is essential as it ensures the government has a budget until the next federal elections in late 2025 and for provincial council elections scheduled for 2024. 1

Investment and Employment Boost

The budget also enables the government to fund local investment projects and hire public sector employees, which can positively impact the prime minister and his coalition's electability in upcoming elections.  1

Oil Dependency and the Dinar's Volatility

Heavy Reliance on Oil

Iraq's economy and budget heavily depend on oil, which introduces significant volatility. While oil sales account for nearly all state revenue, Iraq's lack of control over the global oil market and its limited influence in OPEC leaves its economy and currency vulnerable to market fluctuations. 1

Financial Outlook

According to Prime Minister Mohammad Shia al-Sudani’s advisor, Mazhar Mohammed Salih, the financial outlook for Iraq in 2024 is stable, with oil prices exceeding the budget's threshold. 5  However, the instability in the value of the Iraqi Dinar, mainly due to smuggling, threatens this stability. 5

Strategies to Stabilize the Dinar

De-Dollarization Efforts

Professor Frank Gunter, in a white paper commissioned by the Iraq Britain Business Council (IBBC), discusses de-dollarization as a key strategy for Iraq. He outlines policy initiatives to reduce the gap between the official and parallel exchange rates in the medium term. 6

Anti-Corruption and Banking Modernization

Gunter highlights the government's commitment to tackling corruption and modernizing the banking system as crucial steps. 6 However, these efforts, combined with the 2023-2025 budget, may create challenges for managing the dinar exchange rate. 6

Conclusion

The 2024 budget in Iraq presents a complex picture for the Iraqi Dinar. While the budget promises stability and potential growth, the country's heavy reliance on oil and the volatility of the Dinar's value pose significant challenges. De-dollarization efforts and the government's commitment to anti-corruption and banking modernization are critical steps in stabilizing the currency and ensuring long-term economic health.

2024 Budget: A Sloping Path to Rolling Hopes, 10 SEPT

2024 Budget: A Sloping Path to Rolling Hopes

The draft general budget law is “the legislative authority’s approval of the general budget, i.e. its approval of the government’s expectations for public expenditures and revenues for the coming year and its approval thereof in a manner that authorizes the government to disburse appropriations within the specified limits in terms of quantity, purpose, and time period, in accordance with the financial procedures and accounting principles established in this regard.”

In 2023, the Iraqi government approved a three-year federal general budget called the (2023, 2024 and 2025) budget. It received very large objections, and we had pointed out the problems that hindered its implementation. 

 At the time, but the insistence is great, citing one reason, which is not to delay the approval of the budget for the coming years, meaning the years 2024 and 2025.

Among the reasons that may lead to a delay in approving the general budget:

1- Iraq's total dependence on oil revenues because oil revenues are unstable and difficult to predict.

 2 - Delay in the government’s procedures for preparing the draft general budget law and the large number of discussions, objections and proposals.

3- Political differences between the forces that form governments.

4 - Marathon negotiations between the federal government and the region to determine the quotas and volume of exported oil.

Did the three-year budget achieve its objectives?

Here, what is the appropriate action to take if the approval of the general budget is delayed and the delay continues for several months without it being approved? To answer this question, we say: The Iraqi legislator addressed this matter in accordance with Paragraph (3) of Article (13) of the Federal Financial Administration Law No. (4) of 2020, as amended, as it stated that in the event that the draft federal general budget law for a specific fiscal year is not approved, the final financial statements actually disbursed are considered the basis for the financial statements for the year in which the budget was not approved and are submitted to the Council of Representatives for the purpose of ratification. That is, the government spends on

The basis of the previous year’s budget and within the limits of the amounts and spending rates that occurred in the past, i.e. the old budget is used until the new budget is approved.

This means that spending on operational matters is continuing at the same level as last year, but the problem is realizing in new investment projects that were not previously included in the three-year budget (2023-2024-2025), as these projects require new approval from Parliament and because they are financed from the investment budget, the wheel of development has therefore been delayed for another year as well. 

Knowing that the impact of the delay in approving the budget is not very harmful to the implementation of the budget, especially since the operating budget has been approved and its basic paragraph related to salaries, wages, social protection and retirees, in addition to governing expenses such as the ration card, purchasing wheat and medicines, as well as interest and installments of the public debt, are all valid and payable, even if the schedules have not been approved, as happened in the years 2020 and 2022.”

The Iraqi parliament voted on the 2023 budget in June and it was published, but it did not enter into force due to a lawsuit against it in the Federal Court. As for the 2024 budget tables, they were also in June, i.e. after a full year had passed, but they were not published in the Iraqi Gazette due to differences in them. 

According to Prime Minister Mohammed Shia al-Sudani, the 2024 budget is 211 trillion dinars, and employee salaries for the year 2024 are 62 trillion dinars, while the 2023 budget was 199 trillion dinars and employee salaries were 59 trillion dinars.

The deficit in the two budgets is approximately 64 trillion for the two years. The revenues of the 2024 budget are estimated at 144 trillion and 336 billion dinars, while the expenditures amount to 210 trillion and 936 billion dinars, while the deficit is 63 trillion and 599 billion dinars.

The existence of a deficit of more than 60 trillion dinars is a cause for concern. This deficit will depend on the increase in oil prices to be compensated for in one way or another, or it will be compensated for by the state taking measures to contain it, or the state will default on its commitment.

Conclusion: The government failed to overcome the approval of the federal general budgets on time by approving the three-year general budget (2023, 2024 and 2025). Rather, the crises that accompanied this budget (2023) are almost worse than others, which is the existence of a difference in the tables between the one sent by the General Secretariat of the Council of Ministers and the one that came approved by the House of Representatives.

The solution is not to re-legislate the three-year budget because it did not achieve its goals, and to re-sign the tables that were sent by the Prime Minister’s Office.  link

PIMPY CC NOTES HIGHLIGHTS, 10 SEPT

 Summary

Iraq is undergoing economic reforms, particularly in the gas sector, while the Central Bank plans to adjust the exchange rate amid rising dollar values.

Highlights

• 🇮🇶 Iraq is implementing significant reforms in the gas sector.
• 💰 New investments aim to improve oil and gas infrastructure.
• 🔄 Central Bank decisions may raise the dollar exchange rate in the parallel market.
• 📈 Black market values are increasing, indicating currency scarcity.
• ⚖️ Discussions around lowering the dinar’s exchange rate continue.
• 🔍 Monitoring expectations around the Central Bank’s upcoming moves is crucial.
• 📊 Inflation concerns persist as foreign exchange markets fluctuate.

Key Insights

• 💡 Reform Potential: Iraq’s focus on gas investments reflects a strategic move to rectify past losses, enhancing economic stability.
• 🔧 Infrastructure Upgrades: Modernizing outdated oil and gas technology is essential for operational efficiency and attracting foreign investments.
• 📉 Exchange Rate Dynamics: The Central Bank’s potential adjustments could create volatility in the exchange rate, impacting investor sentiment.
• 📉 Parallel Market Growth: The increase in black market rates highlights the challenges the government faces in stabilizing the dinar against the dollar.
• 🤔 Economic Predictions: Speculation around whether the dinar will be devalued or strengthened reflects uncertainty in Iraq’s economic policy.
• 🏦 Central Bank Strategies: The Central Bank’s actions are critical to curbing currency smuggling and ensuring a balanced foreign exchange market.
• 🔍 Ongoing Monitoring: Investors should stay informed about Central Bank decisions and market trends to make sound investment choices.

World Court Greenlights Iraq's RV: What It Means

DINAR REVALUATION REPORT: Iraq's Currency Reinstatement and Dinar Rate Speculation for January 2025, 10 SEPT

 Iraq's Currency Reinstatement and Dinar Rate Speculation for January 2025

As of September 9, 2024, discussions are swirling around Iraq's plan for a currency reinstatement scheduled for January 2025, accompanied by speculation on the possible new rate of the Iraqi Dinar (IQD) around $3.81. 1

Understanding Iraq's Currency Reinstatement

Historical Context and Recent Developments

The Iraqi Dinar's history is riddled with fluctuations due to political instability and economic sanctions. Following the 1991 Persian Gulf War, the dinar's value plummeted from $3 to less than a penny by 1993. 1 After the fall of Saddam Hussein's regime in 2003, the currency underwent a redesign and was exchanged at par value for the old notes. 1

In recent years, Iraq has taken steps to stabilize its economy and currency. The International Monetary Fund (IMF) has acknowledged the Iraqi government's anti-inflation measures and the Central Bank of Iraq's role in controlling inflation rates.  2

The Revaluation in 2023

The Iraqi Dinar underwent a significant revaluation on February 7, 2023. 3 The official exchange rate was adjusted to 1,320 dinars per US dollar, a move aimed at strengthening the dinar against the dollar. This followed a devaluation in December 2020, when the rate was set to 1,460 dinars per dollar, in response to falling oil prices and the economic impact of the global pandemic. 3

Speculation on the Dinar's Future Rate

Market Expectations and Analysts' Views

As Iraq aims for a currency reinstatement in January 2025, market speculation suggests that the new rate could be around $3.81. This anticipated rate is significantly higher than the current official rate and reflects the optimism surrounding Iraq's economic reforms and the potential for the dinar's value to appreciate. 1

Factors Influencing the Rate

Several factors are expected to impact the dinar's value during the reinstatement. These include: 

Economic Stability: Continued economic reforms and fiscal discipline.

 Oil Prices: Fluctuations in global oil prices, as Iraq's economy relies heavily on oil revenues.

 Political Situation: The stability of the Iraqi government and its policies. 

Global Economic Conditions: The strength of the US dollar and global financial markets.

Conclusion

Iraq's planned currency reinstatement in January 2025 has sparked considerable interest among investors and economists, with the speculated rate of $3.81 for the Iraqi Dinar indicating potential for significant appreciation. However, the actual rate will depend on a complex interplay of economic, political, and global factors. 1