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The Iraqi government reassured its citizens about the decision to reduce the value of the official currency, emphasizing that it would not affect the classes that depend on local goods, but experts and observers criticized the measure and believed that it would increase the already high rates of poverty. in a country experiencing the worst economic crisis in decades.
After two days of great fluctuation in the Iraqi local currency market, the Central Bank closed the doubt with certainty when it announced on Saturday that the new exchange rate of the currency will rise from 1,190 to 1,450 dinars against the US dollar.
The Iraqi Finance Ministry attributed the decision to the government’s attempts to address the suffocating crisis Iraq is experiencing as a result of low oil prices, to ensure the protection of the economy and to achieve the reforms it promised several months ago.
The devaluation increased the chances of a weak dinar on the street. In fact, the exchange rate rose to 1,400 Iraqi dinars to the dollar on Saturday from 1,300 Iraqi dinars last week at foreign exchange dealers.
Since the collapse in oil prices earlier this year, Iraq has faced an unprecedented liquidity crisis. The oil-exporting country was forced to borrow from the bank’s dollar reserves to pay nearly $ 5 billion a month, representing public sector salaries and pensions.
The decision unleashed a wave of anger on the Iraqi street, but Prime Minister Mustafa Al-Kazemi defended his government’s move, saying he had two options, “either the collapse of the regime and the entry into total chaos, or we enter into a caesarean section to reform “.
Al-Kazemi cited, during a speech at the Iraqi Council of Ministers session held on Saturday, in several countries, including the Emirates, South Korea and Singapore, when they had previously made “difficult decisions” to reform the economy.
A leaked draft of the state budget law for 2021 caused a stir on Iraqi streets last week when plans to devalue the dinar were confirmed.
The new draft also included a proposal to reduce the salaries of public sector employees by imposing a new income tax of 15 percent for middle and senior employees.
The government also plans to increase electricity rates to force citizens to pay more for state-provided electricity, raise gasoline prices, and impose taxes on some non-essential goods.
In this context, economist Abdul Rahman Al-Mashhadani believes that these decisions, in addition to the decision to devalue the currency, will have negative repercussions on both the citizen and the economy.
Al-Mashhadani says in an interview with Al-Hurra that “the devaluation of the currency by 20%, while the local market depends on 85% of its needs for imported goods, which means that prices will rise more than 20% and maybe up to about 30%. “
Al-Mashhadani continues, “On top of all this, increasing deductions on employee salaries, which are the main engine of the economy, will mean that their salaries will be cut in half.”
Al-Mashhadani speaks of “alarming numbers” facing the middle class in Iraq, where the decision to devalue the currency could turn many of them poor in a few months.
Al-Mashhadani says that “according to statistics from the Ministry of Planning, about 40% of the Iraqi population is at or below the poverty line, and if the new measures are applied, this means that the employee who pays 500 thousand dinars or less will be included in this line, and this means that about 60% of the Iraqi population will be poor. “
Not only that, the measures taken by the Iraqi government could lead to a contraction of the economy instead of reviving it.
Financial expert Safwan Qusay says that the decision to devalue the currency will affect both public and private banks, and we may witness the failure of some of these banks.
“The reduction will also affect importers and the movement of economic stability, and we can witness a process of reluctance of investors to go to the local environment due to the devaluation and the level of the currency,” added Qusay in an interview with Al- Hurrah.
Last October, the Iraqi government approved a “white paper” that included new mechanisms for economic reform and included “hundreds of measures to revive the Iraqi economy, as confirmed by the Iraqi Council of Ministers.”
The “white paper” is 100 pages long and its implementation period is assumed to be (3-5) years.
The first axis of the reform document contains proposals to reduce government salaries at rates ranging from 12 to 25 percent, increase government support for some sectors, stop financing the retirement fund from the budget, reduce support from government to public companies, collect electricity wages “in accordance with global prices” and increase customs wages. And taxes. “
