Iraq devalues its currency by 20% against the dollar as oil hits profits

The central bank reduced the official rate to 1,450 dinar per dollar, the first devaluation since 2003. That's from about 1,190 previously. Dollars will be resold to local banks at 1,460 dinar apiece

Iraq devalued its currency by almost 20 per cent against the dollar, the most on record, as the cash-strapped government faces an economic crisis brought about by low crude prices and oil-production cuts.
 

The central bank on Saturday reduced the official rate to 1,450 dinar per dollar, the first devaluation since 2003. That’s from about 1,190 previously. Dollars will be resold to local banks at 1,460 dinar apiece.
 

The devaluation in the world’s third-largest oil exporter threatens to put some goods beyond the means of ordinary Iraqis, and trigger unrest in a country that imports heavily and is still reeling from last year’s deadly anti-government protests.
 

Finance Minister Ali Allawi said one main reason for the move was to activate the private sector and local production while avoiding a severe budget deficit.
 

“What has been done is a preemptive step,” Allawi said in a televised interview on the state-run Iraqiya channel. Without the move, he said, inflation will soar and “we will hit the wall.”
 

Iraq is taking the steps to avoid depleting its foreign-currency reserves after the coronavirus sapped demand for energy and caused prices to decline. Without the devaluation, the reserves would have been drained within six to seven months, and the budget deficit could reach 100 trillion dinars ($84 billion) in 2021, Allawi said.
 

The International Monetary Fund expects Iraq’s economy to shrink 12 per cent this year, more than that of any other OPEC member under a production quota, and that its budget deficit will reach 22 per cent of gross domestic product. The government last month sought upfront payments in exchange for a long-term crude-supply contract to help mitigate its dire financial situation.