Iraq has devalued its national currency again, undoing the previous government’s move to strengthen the Iraqi dinar and prompting calls in parliament to reverse the decision. The cabinet approved new exchange rates for the dinar on Tuesday, following an emergency recommendation from Finance Minister Falih al-Sari and the governor of the Central Bank of Iraq (CBI). From Wednesday, banks and exchange companies have been selling dollars to the public at 1,520 dinars each, 200 higher than the previous price.
MPs who opposed the move had the agenda for Wednesday’s session of parliament cancelled in order to debate it instead. The finance minister and the central bank governor are due to appear before parliament on Thursday to discuss the devaluation. Right before instituting the devaluation, Iraq’s government adopted its annual budget for 2027.
It plans to spend 217 trillion dinars (about $166bn) next year, and expects a deficit of more than 40 trillion dinars ($30bn). The massive shortfall reflects the difficult financial situation Iraq faces as a consequence of the US war on Iran. Since fighting began in late February, shipping through the Strait of Hormuz has been severely disrupted.
Iraq’s oil exports – the majority of which must transit Hormuz to reach global markets – have fluctuated throughout the war, at one point falling by 90 percent to a trickle. In August, they were at 2.34 million barrels a day, far lower than their pre-war average of 3.6 million. Last month, Prime Minister Ali al-Zaidi said his country was “facing extraordinary economic challenges”, having lost about $60bn in oil revenue as a result of the disruption.
Oil revenues pay for more than 90 percent of Iraq’s federal budget. The lost income has made it harder to pay state salaries and the CBI’s foreign currency reserves fell from about $106bn before the war to roughly $80bn by late August. Speaking to the news agency, Iraqi analyst Mohammed al-Saffar said the measure “gives the government more dinars for each dollar of oil revenue, but raises import costs and reduces households’ purchasing power”.
Iraq’s Central Bank described the decision as a “strategic step” to steady the country’s finances. But many MPs have urged the government to reverse the change, saying it will raise the cost of living for Iraqis. In a joint statement on Wednesday, dozens of MPs opposed to the move said they had not been told how or why the decision came about – and that the CBI should have explained it to parliament before it was taken.
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