Iraq devalued the dinar for the second time since 2020. Both times the government claimed this was a necessary reform but failed to bring about any positive results. Rather this is simply a way to maintain the budget.
On October 7 the government changed the official exchange rate from 1,300 dinars to 1,500 dinars for one U.S. dollar.
Baghdad is currently facing an economic crisis due to the Iran War which has cut its oil exports which finances up to 90% of the budget. That has resulted in a growing debt as the state is borrowing from the Central Bank’s foreign reserves to cover its spending.
The devaluation is supposed to stretch petroleum profits which are paid in dollars. As Iraq Oil Report pointed out the draft 2027 budget estimates $74.1 billion in revenue which would equal 96 trillion dinars under the old exchange rate but 111 trillion with the new one.
This presents two problems however. First, it has already led to speculation as people buy up dollars making the gap between dinars and dollars increase on the unofficial market. The day after the devaluation officials had to halt the sale of dollars because the demand was so high spiking the value of the American currency. Second it cuts into the buying power of Iraqis as their salaries are now worth less.
In 2020 Iraq was again facing a crisis. At that time the oil market had crashed due to COVID. The Kazemi government responded by cutting the value of the dinar by 22% in December. Again, the justification was to ease the strain on spending. Just like today that led to the buying up of dollars and inflation.
Despite being framed in terms of reform this was not the case. Iraq has an unwieldy and constantly expanding budget driven by the ruling parties who always want to add more public employees to hand out to their followers in patronage and to fight unemployment. The draft 2027 budget for instance includes four new deputy prime ministers and around 100,000 government positions. Rather than trying to control spending the state is simply coming up with a way to continue business as usual. That’s because the elite know little of economics nor do they care. Staying in power and robbing the government is far more important to them which always blocks any serious attempt at change.
SOURCES
Abu Omar, Abeer and Al Ansary, Khalid, “Iraq’s Currency Devaluation May Not Be Enough to Salvage Sinking Economy,” Bloomberg, 12/23/20
Al Alam, “A Critical Measure to Patch the Fiscal Deficit: Devaluing the Dinar Covers Government Spending but Ignores Structural Reform,” 10/8/26
- “Following the Central Bank’s Decision: Will the Gap Between Official and Parallel Rates Narrow, or Will Inflation Surge?” 10/8/26
Aldroubi, Mina and Mahmoud, Sinan, “Iraq faces economic shock after currency devaluation,” The National, 2/21/20
Associated Press, “Iraq devalues its currency as Iran-US war disrupts oil shipping routes,” 10/7/26
Iraq Oil Report, “Iraq devalues currency as 2027 budget highlights fiscal squeeze,” 10/8/26
Al-Jaffal, Omar, “Iraqi banks undertake overdue reforms,” Al Monitor, 12/28/20
Jangiz, Khazan, “’We have been suffering from high currency value’, says finance minister as Iraqi dinar devalued,” Rudaw, 12/20/20
Kullab, Samya, “Iraq’s central bank devalues dinar by 22% amid public anger,” Associated Press, 12/19/20
Al Mada, “The government reduces the value of the dinar and takes 50% of employees’ allowances,” 12/19/20
Mahmoud, Sinan, “Four deputies, one son-in-law: Iraqi PMs cabinet deal exposes price of consensus,” The National, 10/7/26
Rudaw, “Iraq central bank defends currency devaluation amid revenue drop,” 10/8/26
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