‘We have been suffering from high currency value’, says finance minister as Iraqi dinar devalued

ERBIL, Kurdistan Region — Iraq’s central bank announced on Saturday that it would be devaluing the country’s currency in an effort to combat a national liquidity crisis and bring in much-needed cash to the government’s coffers.

According to a statement published by state media Iraqi News Agency (INA), the Central Bank will sell the dinar to the country’s Finance Ministry at 1,450 IQD per 1 USD. The public will be able to purchase the dollar at 1,470 IQD, and other banks at 1,460 IQD.

The devaluation of the Iraqi dinar is a step taken towards reform and creating a “financial balance” and will revive the economy, said Iraq’s Minister of Finance.

“There are other problems the economy is facing, but correcting the currency value is a part of the solution, and a very important part of improving the economy,” Ali Allawi said at a press conference in Baghdad on Saturday evening, describing the decision as a necessary sacrifice. “There is no magical wand to increase state income by 50% and magically decrease spending.”

The minister also claimed that people are overreacting over the devaluation, because Iraq “has been suffering from a high currency value.”

Allawi said that if the devaluation did not take place, “there is a high chance that the central bank reserves will be completely consumed” after roughly six months.

A draft of the state budget law for 2021 leaked on Thursday sparked fury among Iraqis, revealing plans to devalue the dinar.

On Saturday, riot police were dispatched outside the Central Bank headquarters in central Baghdad prior to the devaluation announcement, fearing an attack and the eruption of protests, reports the Associated Press.

Iraq is facing a financial crisis due to the coronavirus pandemic, the plunging of oil prices and consequent decline in much-needed revenue for the state. The Ministry of Finance has been borrowing from its bank to pay salaries and meet other spending needs.

Devaluing the currency would help the government attain much-needed cash and cope with its responsibilities, but will decrease the purchasing power of ordinary Iraqis.

Influential Shiite cleric Muqtada al-Sadr voiced his skepticism of the measure’s ability to alleviate public suffering.

“The Central Bank and all other banks are prisoners of corruption and corruptors. The government and parliament must seek specialized methods to end this and liberalize it immediately. It is not sufficient (to float the currency),” tweeted the leader.

The federal government announced in October a series of economic reforms titled “the White Paper,” falling in the realms of oil, electricity, agriculture, schools, and limiting waste and corruption - but it has yet to be implemented.

The chairman of Iraq’s Advisory Council, Farhad Alaadin, has on several occasions stated that Iraq’s reform effort will be “problematic,” as it includes many reform measures that will affect the status quo of a number of political parties.

“The political crisis in Iraq is linked to three issues, namely power, money and corruption. We are working to address the crisis from an economic standpoint, and with a bold decision to overcome the obstacles of corruption and money,” said Iraqi Prime Minister Mustafa Kadhimi during a Saturday special cabinet session on the federal budget of 2021, according to the Prime Minister’s media office.

“Either we correct the situation or we laugh at people,” he added.

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