Iraq's cabinet approved a new dinar exchange rate of 1,520 per US dollar, about 14.5% below the previous official level. Economists tied the move to disrupted oil exports from the US-Israeli war on Iran, the country's main revenue source, as the government also finalizes a draft budget built around a lower assumed oil price.
Iraq's cabinet approved a new exchange-rate structure for the dinar, setting a rate of 1,520 dinars per US dollar, roughly 14.5% below the previous official rate, according to a Council of Ministers decision and a Finance Ministry statement.
Adopted on Tuesday and effective on Wednesday, the decision set the Finance Ministry's purchase rate at 1,500 dinars per dollar, with banks and non-bank financial institutions selling to end beneficiaries at 1,510 dinars per dollar.
Oil revenue shock drives the move
Economists said the devaluation was a response to the disruption of oil sales, Iraq's biggest source of revenue, caused by the US-Israeli war on Iran. According to Reuters, Iraqi analyst Mohammed al-Saffar said the move gives the government more dinars for each dollar of oil revenue, but "raises import costs and reduces households' purchasing power."
Draft budget assumes lower oil price
The draft budget assumes an oil price of $58 a barrel, projects spending of 217 trillion dinars, equivalent to about $166 billion, and forecasts a deficit of more than 40 trillion dinars, the lawmakers said. It also envisages crude oil exports of around 4 million barrels per day, including shipments from the Kurdistan region, with oil sales accounting for the bulk of Iraq's state revenue.
Iraq has sought alternative transport routes after disruption to Gulf crude exports during the Iran war. The disruption has helped push international oil prices above $100 a barrel. It also reduced Iraqi exports to around 2.34 million barrels per day in August, down from more than 3.6 million barrels per day before the war.
Source: Investing.com
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