An Iraqi salesman sells Iranian currency on a street in Najaf.
Photographer: Haidar Hamdani / AFP / Getty Images
Photographer: Haidar Hamdani / AFP / Getty Images
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Iraq devalued its currency by about 20% against the dollar, the largest cut on record as the government faces a cash-strapped economic crisis caused by low oil prices and cuts in crude oil production.
The central bank lowered the official rate to 1,450 dinars per dollar, the first devaluation since 2003, she said in a statement. That’s from about 1,190 earlier. Dollars will be resold to local banks at 1,460 dinars each.
Iraq with a lot of money is asking for upfront payment of $ 2 billion for oil
The world’s third-largest oil exporter is taking steps to prevent its foreign exchange reserves from running out after the coronavirus has undermined energy demand and caused prices to collapse. The government last month sought upfront payments in exchange for a long-term crude oil supply contract to help mitigate its dire financial situation.
What Bloomberg Economics Says …
“The devaluation was inevitable given the fall in oil prices and the budgetary pressures Iraq is facing. The government says this is one one-off and will not be repeated, but we will see if that will be the case. It is also important to consider the response of the population to the resulting rise in the cost of living and the government’s austerity program. “
– Ziad Daoud, chief emerging markets economist
Prime Minister Mustafa Al-Kadhimi, who came to power in May, has warned that the government will struggle to pay officials without accumulating more debt. That threatens a repeat of the unrest that toppled the government last year, killing hundreds of protesters.
Iraq’s crumbling economy is becoming a threat to OPEC
Protesters at a rally in Tahrir Square in late October complained about corrupt politicians, daily power cuts, dilapidated hospitals, crumbling roads and a lack of jobs, and urged the government to ignore OPEC’s production restrictions.
The International Monetary Fund expects Iraq’s economy to shrink by 12% this year, more than any other OPEC member under a production quota, and that its budget deficit will be 22% of gross domestic product.
The Prime Minister of Iraq is committed to economic reform: Bobby Ghosh
(Updates with comments from Bloomberg’s chief emerging markets economist starting with the fourth paragraph.)