Samson: Finance: The positive effects of the currency adjustment are starting to appear
24th November, 2021
Finance Minister Ali Allawi announced, on Wednesday, that changing the exchange rate prevented the layoffs of thousands of employees, while noting that the 2022 budget will provide an opportunity to strengthen the social protection network.
Allawi said in a statement that Mawazine News received a copy of it, that "in the past few weeks, there have been statements among senior political figures regarding the appropriate exchange rate," noting that "the Ministry of Finance has addressed this issue several times and in a number of detailed presentations regarding the strategy." and the policy behind the exchange rate adjustment.
He added, "We hope, by presenting our policy in a clear and convincing manner, that the next government will have the correct basic information to interact with this matter," noting that "the International Monetary Fund, the World Bank and all industrialized countries supported the exchange rate change in published documents and reports."
He continued, "The goal of decreasing the exchange rate in December 2020, came after the collapse of oil revenues last year, as the Iraqi government was facing enormous financing pressures while it was struggling to meet its basic internal and external obligations, and the foreign exchange reserves of the Central Bank were on a rapid decline path, and in December 2020, it was expected to be implemented within a year, and Iraq's teetering on the brink of a full-blown crisis was a symptom of prolonged weakness in the face of low oil prices, and the government's efforts to postpone all non-priority spending and focus on timely payment of salaries and pensions were not Pensions and social benefits are sufficient.
And he indicated that "bridging the very large fiscal deficit without devaluation would have required deep and painful cuts in social expenditures and layoffs of thousands of employees, but devaluation is necessary to allow more gradual fiscal adjustment and thus avoid major disruptions in key public services, by encouraging domestic consumption to Staying away from imports," noting that "the devaluation of the dinar also helped protect the Central Bank of Iraq's foreign exchange reserves and gave Iraqi producers an opportunity to create jobs and income through better competition in the local market."
Regarding the possibility of raising the value of the dinar after the rise in oil prices, Allawi said, "Although the devaluation of the currency last year and the restoration of oil prices have helped improve Iraq's financial situation, it is important to bear in mind that the country is still very weak, and it could turn The current surpluses turn into deficits with the return of oil prices to normal in the medium term, and another contraction in the oil market may easily lead the country back to the brink of crisis,”
Explaining that “the Iraqi economy regains its full strength and is sustainable, so economic policies must be directed towards improving Flexibility in the face of oil price fluctuations by building fiscal buffers and diversifying the economy.
And he stated that "the revaluation of the dinar will have the opposite effect, and there are good reasons for the scarcity of revaluation of fixed exchange rates.
For example, in 2005, China revalued its currency in response to intense pressure from the United States, which threatened to impose customs duties on imports, what are the main consequences To raise the value of the currency, and will it help the poor?..
The revaluation will reduce the value of the dinar for oil revenues and thus eliminate a potentially large part of the budget resources, which are employed in reconstruction, health, education, social transfers and other priority areas. It will severely weaken the government's ability to facing current and future challenges," noting that "increasing demand for foreign currencies could destabilize the currency market and lead to widening margins of supply and demand. Importers are the ones who benefit the most from the reassessment."
He continued, "Experiences from other countries indicate that after reassessment, only a small part of their expanded profit margins is passed on to consumers and they acquire the largest part of them themselves, because the commercial objective of lowering prices is not to benefit consumers but rather to drive out competition, especially local producers.
"If domestic producers are already under financial pressure, even a small price cut will be enough to put them out of business." He pointed out that "the benefits to consumers are likely to be minimal, and the main victims of the reassessment will be local entrepreneurs, farmers and private sector workers, and pushing the development of the private sector and building a local production base will become more difficult when imports become cheaper, and for the same reason groups will not feel the poor and the weak, but with a small amount of benefit, if any at all.”
He stressed that "most countries have long realized that the most effective tool to help the poor is direct cash assistance that is provided to the pockets of those who need it most," noting that "the 2022 budget will provide an opportunity to strengthen the social protection network in Iraq."
He stated, "After the government has the means to do so, trying to help the poor by raising the value of the dinar would be like throwing cash bills out of a helicopter in the hope that it would land on the doorstep of its intended beneficiaries, while the exchange rate was adjusted nearly a year ago, it pegged Many irresponsible commentators have commented on the increasing levels of prices over the past year. This is not true," noting that "Iraq is affected, as is the case with the rest of the world, by the collapse of global supply chains due to the Covid-19 epidemic."
He continued, "The costs of shipping and transportation have increased significantly, and foodstuffs and edible oils have increased significantly, as well as the costs of building materials and many manufactured goods, including cars and trucks," explaining that "the agreed opinion among economic experts is that supply chains will be re-established."
In the near future, this will have a dampening effect on prices." He stressed that "the Ministry of Finance believes that the positive effects of the currency adjustment are beginning to appear, and this is reflected in the increasing demands for industrial licenses in Iraq, to take advantage of the most competitive exchange rate," explaining that "many importers and former traders look at the local market differently now, with the aim of Increasing the level of their productive investment, and this will translate into greater and better job opportunities for our people.” LINK