Is this a GCR signpost? Seriously? IRAQ IS NOT READY TO FLOAT HER CURRENCY. Hence, any rumors of such an IQD RV, without GCR gold and infrastructure, are simply wishful thinking. Our GCR is critical to Iraq’s RV.
Iraq’s Parliament recently approved a 2023 budget of 198.9 trillion Iraqi dinars ($153 billion), allocating record funds for public wage bills and development projects. However, the budget deficit is estimated at a record 64.36 trillion Iraqi dinars, and Iraq’s increasing dependence on oil revenue is a risk to its economic independence.
Here’s my analysis in detail…
IMF warns of mounting deficits and financial pressure
The International Monetary Fund (IMF) warns that the increasing public wage bill would contribute to mounting deficits and financial pressure, barring a big increase in oil prices. To break even, Iraq requires an oil price of $96 bpd, while the price averaged $71.30 bpd in May. The IMF recommends that Iraq implement a significantly tighter fiscal policy to strengthen resilience and reduce the government’s dependence on oil revenues while safeguarding critical social spending needs.
Iraq ignores recommendations to tighten fiscal policy
Despite the IMF’s recommendations, Iraq’s budget adds more than half a million new public sector workers, including contractors, daily employees, and full-time staff. This hiring flies in the face of the recommendations of many observers who say Iraq should tighten fiscal policy. Mohammed Nouri, a member of the Parliament’s finance committee, revealed that more than a million new workers were added, raising the total cost of public wages and pensions to more than $58 billion. Ahmed Tabaqchali, a visiting fellow at the London School of Economics Middle East Center, put the figure of new employees at about 600,000.
Budgets frequently delayed due to instability and political disputes
Iraq’s budgets are supposed to be adopted before the beginning of the year they cover but are frequently delayed or not passed at all due to instability and political disputes. This instability, coupled with Iraq’s increasing dependence on oil revenues, is a recipe for disaster. The country has one of the fastest-growing populations in the world, projected to double from 43 million to about 80 million by 2050. Most of the economy is state-led, with high unemployment and frequent protests over various discontent.
Iraq’s reliance on oil revenue is a risk to its economic independence
Iraq’s increasing dependence on oil revenue is a risk to its economic independence. The budget is based on an oil price of $70 per barrel and projections of oil exports at 3.5 million barrels per day, including 400,000 bpd from the semi-autonomous Kurdistan region. The budget sets the exchange rate for oil revenues in U.S. dollars at 1,300 Iraqi dinars per dollar. It will remain valid through 2025, though it is subject to amendment, including to the oil price it uses given its near-total dependence on oil revenue.
Iraq’s decision to add more public sector workers, coupled with its increasing dependence on oil revenue, is a recipe for disaster. The more the country increases its spending, the more vulnerable it becomes. The budget’s projections of oil exports at 3.5 million barrels per day, including 400,000 bpd from the semi-autonomous Kurdistan region, are not sustainable given Iraq’s near-total dependence on oil revenue.
Kurdistan issue addressed in the budget
The budget takes steps to address long-standing issues between Iraq and the semi-autonomous Kurdistan region, with its oil revenues set to be deposited in an account overseen by the Iraqi central bank.
This move comes after Kurdistan unilaterally exported crude via Türkiye despite Baghdad’s objections. However, the flows have not resumed, and the country is still dependent on oil revenue. Under an agreement signed between Baghdad and Irbil in April, Iraq’s state-run marketing company SOMO will have the authority to market and export crude oil produced from fields controlled by the Kurdish region.
How Could this affect the Iraqi Dinar Exchange Rate Without a GCR?
This hesitancy could lead to a decrease in the demand for the Iraqi dinar, which would result in its value decreasing relative to other currencies. Additionally, if the IMF’s warnings about mounting deficits and financial pressure come to fruition, this could also lead to a decrease in the value of the dinar. Therefore, it is important for Iraq to take steps to address its financial situation and reduce its dependence on oil revenues to maintain the value of its currency on the world exchange rates.
Conclusion
IRAQ IS NOT READY TO FLOAT HER CURRENCY. Hence, any rumors of such an RV without GCR gold and infrastructure are simply wishful thinking.
Iraq must take steps to address its financial situation and reduce its dependence on oil revenues. A significantly tighter fiscal policy is needed to strengthen resilience and reduce the government’s dependence on oil revenues while safeguarding critical social spending needs.
The country’s decision to add more public sector workers, coupled with its increasing dependence on oil revenue, is a recipe for disaster. The IMF has warned that Iraq’s increasing public wage bill would contribute to mounting deficits and financial pressure, barring a big increase in oil prices. Iraq’s budgets are frequently delayed or not passed at all due to instability and political disputes, and the country has one of the fastest-growing populations in the world. Iraq’s reliance on oil revenue is a risk to its economic independence, and it remains to be seen whether the country will take steps to address the situation.
The increasing dependence of Iraq’s economy on oil revenue, coupled with the country’s decision to add more public sector workers, could negatively impact the value of the Iraqi dinar on the world exchange rates. Investors may become hesitant to invest in a country with a growing budget deficit that is heavily reliant on a single commodity.
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