BAGHDAD: According to Al Jazeera, the Iraqi government has devalued the dinar by almost 15% against the US dollar to pay public-sector salaries and cover a shortfall in oil revenue.
On October 7, the Central Bank of Iraq set a new official rate of 1,520 dinars per dollar for cash sales to the public, up from 1,320. A weaker dinar gives the government more local currency for every dollar of oil revenue it converts, helping it meet spending commitments.
The squeeze follows the US-Israeli war on Iran and disruption of oil exports through the Strait of Hormuz, the report said. Before the war, Iraq shipped around 3.5 million barrels a day through the strait, accounting for 90% of government revenue. Exports have partly recovered in recent weeks but remain below pre-war levels.
"It is my decision and I am responsible for it," Prime Minister Ali al-Zaidi told parliamentary leaders on Thursday. He said the alternatives were cutting salaries by 35%, paying them every 45 days, or turning to foreign loans. Al-Zaidi said his government inherited public debt of more than 208 trillion dinars (about $139bn at the new rate) when it took office in May, and needs roughly 10 trillion dinars ($6.7bn) a month for salaries and other essential spending.
Al Jazeera reported that Mudher Mohammed Salih, the prime minister's financial adviser, said in August that the central bank's foreign currency reserves had fallen from $106bn to about $80bn. The government has also been borrowing from domestic banks to cover salaries.
Hamza al-Rudayni, a food trader at Baghdad's Jameela wholesale market, told Al Jazeera he lost 25 million dinars (about $16,500) overnight, while larger merchants lost billions. Traders buy goods in dollars but must sell in dinars, he said, and many have halted trading until prices settle.
Nabil al-Marsoumi, an economics professor at Al Maaqal University in Basra, said the exchange rate should be adjusted only after all other options are exhausted, and should not be used to cover up failures in economic and fiscal policy.