By Tala Ramadan and Ahmed Rasheed
Oct 7 (Reuters) – 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.
Economists said the devaluation was a response to the disruption of oil sales, the country’s biggest source of revenue, caused by the US-Israeli war on Iran.
Adopted on Tuesday and effective on Wednesday, the decision set the Finance Ministry’s purchase rate at 1,500 dinars per dollar and the rate for sales by banks and non-bank financial institutions to end beneficiaries at 1,510 dinars per dollar.
“The dinar devaluation is essentially a fiscal response to the shock to Iraq’s oil revenues from the Iran war and disrupted exports,” Mohammed al-Saffar, an Iraqi analyst said.
“It gives the government more dinars for each dollar of oil revenue, but raises import costs and reduces households’ purchasing power.”
Four members of parliament’s finance committee told Reuters on Tuesday the government was considering adjusting the rate.
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. Oil sales account 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 to push international oil prices above $100 a barrel and reduced Iraqi exports to around 2.34 million barrels per day in August, from more than 3.6 million bpd before the war.
(Reporting by Tala Ramadan and Ahmed Rasheed; Editing by Christopher Cushing, Andrew Heavens and Barbara Lewis)
