Iraqi government plans to push parallel dinar rate down to 1,550

BAGHDAD — The government and the Central Bank have a plan to bring the dollar’s parallel-market rate down to 1,550 dinars per dollar in the near term, government spokesperson Haider al-Aboudi said, as the market traded at 1,665 to 1,675 on Wednesday, about 10% above the new official rate.

The Central Bank has enough reserves to back the plan and keep financing foreign trade and imports, Aboudi told the state-run Iraqi News Agency.

He did not say how the plan would work.

Wednesday’s rates were up from 1,630 to 1,640 on Sunday, with Baghdad currency exchange markets recording the highest selling rate, followed by Erbil and Basra. Since Oct. 7, the Central Bank buys dollars from the Finance Ministry at 1,500 dinars, sells to banks at 1,510 and sets the public rate at 1,520. The rate peg was last lowered to 1,300, 1,310 and 1,320 since February 2023.

The target matches the rate in a recording that circulated on Sunday of an Interior Ministry 911 operator telling a caller that exchange companies should sell dollars at 1,550. The ministry disciplined the employee, saying the remarks were personal and outside his authority, and exchange dealers threatened to strike, saying they could not be forced to sell below cost.

The Central Bank’s media director, Haider Ghazi, said last week that proposals to devalue the dinar had gone as far as 1,900 to the dollar before the bank insisted on 1,500, and that government requests for money to pay salaries had been depleting its reserves. “Keeping the exchange rate at its previous level would have meant heading directly toward the abyss,” he told Dijlah TV. He did not say who proposed the higher rates.

Prime Minister Ali al-Zaidi told the parliament speaker and committee chairs on Oct. 8 that devaluation was necessary to keep paying salaries without more borrowing, after the government had weighed compulsory savings deducted from salaries, paying public employees every 45 days and taking on more debt. Economist Ziad al-Hashimi said on Oct. 9 that Zaidi had sidestepped the causes of the financial crisis, accusing the government of taking the easiest option at citizens’ expense rather than tackling waste, corruption and an overstaffed public sector.

Revenues covered only 76% of salaries and welfare in the first seven months of the year, leaving a gap of 29 trillion dinars, economist Nabil al-Marsoumi said on Oct. 4. Oil provides more than 90% of federal revenue, and exports have recovered to about 2.6 million barrels a day after collapsing when shipping through the Strait of Hormuz was disrupted in March, against 3.3 to 3.5 million before.