A statement issued by CBI regarding the exchange rate adjustment

During the last months of this year, intense deliberations took place with the Prime Minister, the Minister of Finance and the Legislative Authority, regarding the general economic situation, the financial crisis that the public finances are going through due to the decline in oil prices and production, and the economic and health challenges. The Board of Directors of the Central Bank held a number of meetings, some of which hosted the Minister of Finance for the same purpose. The Central Bank of Iraq would like to clear the following:

1.  It is the structural distortions in the Iraqi economy that impoverished public finances and restricted the ability of reform sought by the government and the Ministry of Finance. It is not a coincidence that the financial situation is this bad, nor is it the result of the current or the previous year, but unfortunately it took root more than a decade and a half ago due to the policy leadership of the economy and the preference for political thinking and politicians ’priorities over economic thought and development priorities and the rules of the relationship between economic policy on the one hand and fiscal and monetary policies. On the other hand, ... the fiscal policy lagged behind, and the monetary policy was busy repairing the outputs of the confused fiscal policy.
2.  The subordination of the economic and financial policy to the aspirations and concerns of politicians led to the last acceptable models of financial management in Iraq, and the role of that administration was limited to the distribution of oil resources to life-sustaining requirements such as salaries and operational requirements, and the Ministry of Finance did not address its role and leadership in the economic affairs. In addition to the fact that it lacked many economic and financial information that could facilitate it and the decision-maker in the country to direct short and medium-term goals. This calls for an effective approach to building economic and financial databases that facilitate decision-making and serve forecasts.
3. Because of all these conditions, the Central Bank had no choice but to intervene on more than one occasion, to support public finances and save critical public spending requirements. However, this does not mean that these interventions remain open without restrictions or endings.
4. On the other hand, the Central Bank understands the difficulties facing the reform intentions that the government is moving towards, but this does not prevent any steps that the monetary authority can take with effective steps to carry out reforms that inevitably affect the institutions of the financial authority, especially the effective collection institutions, customs. And taxes, and other public collection institutions, and that spending be rationalized, all of which depends on the political will of the supreme state institutions that support the direction of the financial authority to achieve this. The government needs to support the vulnerable groups that will inevitably be directly affected, especially by any measure to change the exchange rate.
5. The legislative authority will have an important role in supporting the direction of the Central Bank to adjust the foreign currency exchange rate, as failure to take such a decision may make us forced to take difficult decisions that may put Iraq in a situation similar to what happened to neighboring countries. It must also be emphasized here that this change (reduction) in the value of the Iraqi dinar will be one-time only and will not be repeated, and the Central Bank will defend this rate and its stability with the support of its foreign reserves, which are still at solid levels that enable it to do so.
6. The financial crisis that Iraq was exposed to due to the Corona pandemic and the resulting deterioration in oil prices and the decline in oil revenues, this led to a large deficit in the general budget and forcing the Ministry of Finance to borrow from banks and re-deduct them with the Central Bank in large sums, in order to pay salaries and meet the needs Other expenditures related to services provided to citizens, and the continuation of the current exchange rate, which is not in any way proportional to the rates of exchange rates in other countries, and has become a major obstacle to real development and the promotion of competitiveness for local production, which prompted the Central Bank to think seriously about responding to the requirements of financing the budget at exchange rate that allows the provision of adequate resources to cover these needs and ensure the smooth payment of salaries and critical requirements for government spending. The Central bank’s keenness to avoid depleting its foreign reserves, which represent the main financial leverage for monetary stability in Iraq, and its keenness to support public finances, as the government’s advisor and responsible for keeping its accounts.

 

Based on the above, the Central Bank of Iraq decided to amend the foreign currency exchange rate as follows:

1450 dinars per dollar is the purchase price of foreign currency from the Ministry of Finance.

1460 dinars per dollar the selling price of foreign currency to banks.

1470 dinars per dollar is the selling price of foreign currency to the public.

We pray for the Almighty God to lead our country and our people to the goodness.

 

Central Bank of Iraq
     Media Office
     19 Dec 2020