"Raising the value of the Iraqi dinar" is it in favor of the current government?"
Sunday, 06-11-2022, AM 10:56 Karar Asadi 262
Written by: Dr. Bilal Al-Khalifa
The last government reduced the value of the Iraqi dinar against the US dollar from 1182 dinars per dollar to 1460 dinars, which reduced the value of the Iraqi dinar by 22.3%, the same value at which market prices rose because they are imported in dollars.
The operation was an instant solution to fill the deficit in financing government expenses, especially paying the salaries of state employees as a result of the drop in international oil prices, to know that 70% of government expenses are operating expenses and that 60% of operating expenses are salaries for employees and retirees, and therefore the last government proposed to solve this problem with the reform White Paper:
1-maximizing non-oil revenues, which are taxes, customs, duties, corporate profits, donations and subsidies, but the same government carried out the largest theft in Iraq in the tax department.
2-the other issue is to reduce public spending, especially operational, which mostly goes to salaries, by stopping appointments in only two ministries (according to the 2021 budget law) and streamlining ministries and departments by canceling the grades of those who are retired, die or transferred, and this point was also violated by the government by appointing large amounts and in the last two days of a caretaker government.
Thus, the devaluation of the Iraqi dinar is an immediate and not a strategic solution, which was due to the depreciation of a barrel of oil, which reached below 20 dollars,
but now the value of a barrel of oil has exceeded 90 dollars, and salaries are insured with an excess of funds, which went to increase the balance of hard currency, gold bullion and US bonds.
And here we wonder and say, is it good to return the old exchange rate to the dollar
We will address the answer to this question from two points of view, the first is from the point of view of the government and the second from the point of view of the citizen.
1-from the government's point of view: the re-exchange of the dollar at the old rate has two explanations
Firstly, the return of the old exchange rate means a reduction in the value of prices in the market and thus indirectly helping the poor citizen, and this means increasing the popularity of the current government because it took an approach contrary to the previous government, which restricted the citizen.
But in return, the amount allocated for public spending will increase by 7 to 10 billion, which can be used for investment spending and the development of the state.
Secondly, maintaining the exchange rate means that the volume of spending is less and the amount of financial surplus is more, especially at current oil prices.the current government is required to carry out reforms and faces very big challenges in all sectors, including electricity, industry and agriculture.
it noted that the amount that can be spent on public spending in the event of a reduction in the exchange rate, can be used to establish electricity projects and it is possible to solve a significant part of at least 50% of the deficit in generation of more than 10 thousand megawatts.
2-from The Citizen's side: usually, the citizen does not know the secrets of the big challenges facing the government in saving salaries or establishing projects, which are also in direct contact with the market, especially the materials that enter into his daily life such as rice, oil and sugar, and this means that the reduction is on the citizen's side.
The reduction is in the interest of the government because it will reduce spending and increase the surplus, and the return of the exchange rate to the old rate is in the interest of the citizen because prices will be much lower.
But in my opinion, the compromise solution is to be the middle ground between the two, i.e. the exchange rate is reduced to 1350 dinars per dollar, and
therefore the citizen is satisfied by reducing prices, and
the government has preserved a large part of the revenues, which can be used in development and strategic projects.