statement (M of Finance re: revaluation of the currency)
Wednesday November 24, 2021
In the past few weeks, there were statements between senior political figures on the appropriate exchange rate.
The Ministry of Finance has addressed this issue several times and in a number of presentations and detailed terms of strategy and policy underlying the exchange rate adjustment.
We would like to repeat our position and hope that by presenting our policy in a clear and convincing manner, the next government will have the right basic information to interact with this. The international community has supported the exchange rate adjustment.
Where the International Monetary Fund, the World Bank and all industrialized countries are publicly step in the documents and reports published by them.
Why was the exchange rate reduction in December 2020 necessary?
When oil revenues collapsed last year, the government of Iraq was facing enormous pressure funding while struggling to meet its basic obligations internal and external.
For foreign exchange reserves for the central bank in a fast landing path, and in December 2020, were expected to be implemented within a year.
Iraq was a swing on the brink of full-blown crisis is a symptom of weakness in front of the prolonged decline in oil prices.
It was not the government's efforts to postpone all non-priority spending and focus on paying salaries in a timely and adequate pensions and social aid.
The large fiscal deficit without bridging the very currency devaluation would have required deep and painful cuts in social spending and lay off thousands of employees.
The devaluation of the currency is necessary to allow the amendment of Mali more gradually and thus avoid large disturbances in major public services.
By encouraging domestic consumption to stay away from imports, it helped reduce the value of the dinar also to protect the central bank's reserves, the Iraqi foreign exchange and give Iraqi producers the opportunity to create jobs and income through better competition in the local market.
Do you call the favorable oil prices now raise the value of the dinar?
Although the devaluation of the currency in the past year, and the restoration of oil prices has helped to improve the financial situation of Iraq, it is important to keep in mind that the country is still very weak.
Current surpluses could turn into a deficit with oil prices to return to normal in the medium term.
Deflation may lead another in the oil market easily bring the country to the brink of crisis.
In order to regain the full strength of the Iraqi economy and be sustainable, they must be oriented economic policies towards improving flexibility in the face of oil price fluctuations by building a financial and repellants diversify the economy.
Revaluation of the dinar will have the opposite effect. There are good reasons for the dearth of re-evaluation of fixed exchange rates. For example, in 2005, China re-evaluate its currency in response to intense pressure from the United States, which has threatened to impose customs fees on imports.
What are the main consequences of the revaluation of the currency, and does help the poor?
Revaluation will lead to the devaluation of the dinar oil revenues and thus eliminating a potential large part of the budget resources, which are employed in the reconstruction, health, education, social transfers and other priority areas.
Severely weakened the government's ability to meet current and future challenges. Increased demand for foreign currencies could destabilize the currency market and lead to widening margins, supply and demand
Importers are the most benefit from the re-evaluation. Experiences from other countries indicate that after re-evaluation, it passes only a small part of their profit margins extended to consumers and take over the bulk of them themselves.
This is because the business goal of reducing prices does not benefit consumers but directed competition, especially local producers.
If local producers are already suffering from financial pressures, it would be even a simple reduction in price enough to get them out of work.
So it is likely to be benefits accruing to small consumers, and will be the main victims of the re-evaluation are local businesses, farmers and workers of the private sector entrepreneurs.
Payment sector development will become private and build a local production base is more difficult when imports become cheaper.
For the same reason will not feel poor and vulnerable groups, but little of interest, if any at all.
Most countries have long recognized that the most effective tools to help the poor is the direct cash assistance that is offered to the pockets of those who desperately need it.
It will provide a budget for 2022 opportunity to strengthen social protection network in Iraq
Now that the government has the means to do so if an attempt to help the poor by raising the value of the dinar would be like throwing bills in cash from a helicopter in the hope of landing on the threshold of the intended beneficiaries.
While the exchange rate has been adjusted for nearly a year, has been linked to many commentators is responsible levels rising prices over the past year.
this is not true. Iraq is affected, as is the case for the rest of the world, the collapse of the global supply chains because of the epidemic Kovid 19
Shipping and transportation costs have increased significantly, food and food oils increased significantly, as well as the costs of building materials and many manufactured goods, including cars and trucks.
The agreed opinion between economic experts is that supply chains will be established in the near future and that this will have an impact on the price.
The Ministry of Finance believes that the positive effects of the currency amendment began to appear.
This is reflected in increased applications on industrial licenses in Iraq, to take advantage of the most competitive exchange rate.
Many importers and previous traders are considering local market differently, with a view to increasing their productive investment. This will be translated into greater and better job opportunities for our people