Iraq central bank defends currency devaluation amid revenue drop

ERBIL, Kurdistan Region - The Central Bank of Iraq (CBI) said Wednesday that the devaluation of the Iraqi dinar is an exceptional precautionary measure designed to sustain budget financing needs and safeguard the financial position of the state, as thousands head to exchange offices across the country to safeguard themselves from the devaluation.

"Iraq is going through exceptional and difficult circumstances due to the closure of the Strait of Hormuz and the decline in oil exports, which has caused a drop in revenues," media director for the CBI Haider Ghazi told the state-run al-Iraqiya News.

The remarks come as the CBI implemented new exchange rates for the Iraqi dinar on Wednesday following a cabinet decision the previous day to devalue the currency, raising the official end-user rate from 1,320 dinars per US dollar to 1,520.

Under the new framework, the CBI will purchase dollars from the Finance Ministry at 1,500 dinars per dollar and sell them to banks at 1,510 dinars, while the cash dollar selling rate to the public will stand at 1,520 dinars.

Ghazi explained that these discounted bills "are debts that could accumulate, necessitating a serious discussion of the financial situation."

"The decision to adjust the exchange rate represents an exceptional precautionary measure aimed at sustaining the financial sector and securing budget financing needs," he said, adding that the move was necessary to avoid greater damage if the situation persisted.

"Adjusting the exchange rate will help stimulate domestic industry and national products, increasing production and reliance on locally made goods rather than imports," Ghazi pointed out regarding the local market impact.

Addressing the gap between the official US dollar exchange rate and the parallel market rate, he noted that "this gap is linked to commercial operations conducted outside official frameworks and regulations."

He clarified that "purchasing dollars from the parallel market is often tied to importing goods that bypass customs, tax procedures, and official inspections," stressing that the government is working to secure borders and regulate the entry of goods.

Iraq relies on the US dollars it earns from oil sales to finance imports and help stabilize the dinar, and the central bank stated the devaluation measures aim to achieve sustainable economic stability and comprehensive development.

However, recent regional disruptions have sharply reduced oil revenues and increased Iraq’s fiscal shortfall, with crude exports falling from more than 99 million barrels in February to around 18.6 million barrels in March.

Although exports had partially recovered to around 73.7 million barrels by August, they remained below pre-war levels, initially forcing the government to rely on discounting bills at the central bank.

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