A man holds money at a foreign exchange market in Baghdad, Iraq, December 20 2020. Picture: REUTERS/THAIER AL-SUDANI
A man holds money at a foreign exchange market in Baghdad, Iraq, December 20 2020. Picture: REUTERS/THAIER AL-SUDANI

Iraq devalued its currency by about 20% against the dollar as the cash-strapped government faces an economic crisis brought about by low oil prices and crude-production cuts.

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

The world’s third-largest oil exporter is taking the steps to avoid depleting its foreign-currency reserves after the coronavirus sapped demand for energy and caused prices to collapse. The government in November sought upfront payments in exchange for a long-term crude-supply contract to help mitigate its dire financial situation.

Prime Minister Mustafa Al-Kadhimi, who came to power in May, has warned that the government will struggle to pay public servants without raising more debt. That’s threatening a repeat of the upheaval in 2019 that brought down the government and saw hundreds of protesters killed.

Demonstrators at a rally at Tahrir Square at the end of October bemoaned corrupt politicians, daily power cuts, dilapidated hospitals, crumbling roads and a lack of jobs, and urged the government to ignore Opec output cuts.

The International Monetary Fund expects Iraq’s economy to shrink 12% in 2020, more than that of any other Opec member under a production quota, and that its budget deficit will reach 22% of gross domestic product.

Bloomberg

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.