Al-Rafidain Center for Dialogue held an economic symposium entitled "Potential Effects of Reevaluating the Exchange Rate for the Dinar: From an Academic Standpoint". A number of professors, specialists and politicians participated in the symposium, along with more than 180 participants who attended it. At the beginning, Prof. Dr. Hassan Latif Al-Zubaidi welcomed the participants and attendees of the symposium. Then it was moderated by Dr. Kamel Allawi Al-Fatlawi.

Dr. Sawsan Al-Jubouri, Dean of the College of Administration and Economics at the University of Al-Qadisiyah, touched upon the exchange rate, its mechanisms and systems, and how it is determined. Then she broached the developments in the Iraqi dinar exchange rate and the effects that resulted from its changes.

Dr. Ammar Khalaf Al-Dulaimi, Deputy Governor of the Central Bank, addressed the Strategic implications of Reevaluating the Exchange Rate through three key areas:

·        The first is the justification for changing the exchange rate. It was represented by the current government's economic and financial reform program, boosting domestic production, and the reduction of imports. The repetition of the shocks that the Iraqi economy has been subjected to since 2014 resulting from the decline in oil prices has resulted in reconsidering the exchange rate change. The continuous increase in public spending and the insufficiency of public revenues resulted in an increase in the domestic public debt from (32) trillion dinars in 2015 to about (64) trillion dinars in 2020 with an increase rate of 50 perent. This increase in public debt threatens the fiscal sustainability of public finances in the face of additional shocks if they occur. It also poses the decrease in the proportion of foreign assets to the total budget of the Central Bank due to the increase in domestic assets resulting from the deduction of treasury transfers, especially in 2020, which amounted to (26) trillion dinars. The foreign reserves of the Central Bank fluctuates due to the decline in oil prices and its purchases from the Ministry of Finance and its sale of foreign currency to banks through the foreign currency sale window.

·        The second was represented by the presentation of the expected positive effects of the exchange rate change on the economy. They were represented by the increase in foreign reserves at the Central Bank of Iraq from $54 billion as in December 2020 to $56 billion as in the month of February 2021, decreased demand for foreign currency, and the expectation of a decrease in imports and an increase in domestic production due to the change in the exchange rate. Despite the expected positive effects, it is expected that there will be negative effects represented by a decrease in the real income of low-income earners and the poor and vulnerable groups. In order to avoid these negative effects and enhance the positive effects, the Central Bank of Iraq has taken several measures, including launching a new initiative amounting to (5) trillion dinars at very low interest rates for small, medium and large projects and the housing sector, and the adoption of a policy of banking reform to advance the banking sector and make it a leader for economic development.

·        The third area included the requirements for consolidating the gains from the exchange rate change, which is the necessity for other ministries to play their natural role in implementing the recommendations of the “White Paper” such as:

-         Providing appropriate support to the agricultural and industrial sector.

-         Control border crossings.

-         Fiscal consolidation by the Ministry of Finance by maximizing revenues and reducing unnecessary spending.

-         The Ministry of Finance repaying part of its debts from the financial surpluses gained due to the change in the exchange rate and the rise in oil prices.

Prof. Dr. Abdul-Hussein Jalil Al-Ghalbi, professor of Monetary Policy at the University of Kufa, addressed trade effects of reevaluating the exchange rate of the Iraqi dinar. He indicated that Iraqi trade was characterized by the concentration of exports on a particular commodity, which is oil, and the high percentage of exports' contribution to the GDP. However, imports witnessed a diversification of imported goods along with a high import-to-GDP ratio. To shed light on Iraqi trade, Turkey and Iran were studied, as trade with them flourished after 2003. The value of imports from Turkey increased, and the Iraqi market ranking in Turkish exports assimilation scale moved from rank (9) in 2004 to rank (2) in 2013. The depreciation of the Turkish lira and the rise in the value of the Iraqi dinar played a role in this, as the total depreciation of the lira and the rise in the value of the dinar became 260 percent. The high inverse correlation coefficient between the dollar / dinar exchange rate and Iraqi imports from Turkey, and the average direct correlation coefficient between the dollar / lira exchange rate and them indicates that the exchange rate movements of the two currencies lead to an important change in the volume of Iraqi imports from Turkey. While trade with Iran in 2018 accounted for 14.5 percent of the total Iraqi imports and amounted to 6.1 percent of the total Iranian exports. The value of the Iranian riyal witnessed a significant decline. The total devaluation of the Iranian riyal at the parallel rate and the rise in the value of the dinar at the parallel rate amounted to 558 percent. The correlation coefficient between the dollar / dinar exchange rate and Iraqi imports from Iran was inverse and strong, and the dollar / riyal exchange rate is strong and direct, indicating that changing the dollar exchange rate leads to an important change in Iraqi imports from Iran.

As for the position of the accumulation of reserves and the foreign exchange rate against the dinar, the ratios of the accumulation of reserves were in decline during the studied period, which was divided into three periods. They were in the period (2004 - 2009) 58.1 percent, (2010 - 2013) 14.98 period, and (2014 - 2018) -1.8% period, which refers to the severity and intensity of the use of reserves in defense of the foreign exchange rate against the Iraqi dinar. In conclusion, the ideal period for devaluing the Iraqi dinar was the second period, but the Central Bank did not respond. When the third period came, during which the Iraqi economy was subjected to the double shock, the reduction became obligatory, but the Central Bank did not respond and continued to defend the exchange rate at the expense of the reserves. Finally, the decision came at the end of 2020, which is a correct decision in light of the analysis of trade variables and reserves, albeit late. It will work in the short term to improve the situation of the public budget and in the medium and long term to reduce imports, encourage local product and provide job opportunities. Therefore, it is necessary to maintain the new price and not to retreat from it, as it will entail many problems.

Prof. Dr. Samir Fakhri Nehme, Dean of the Faculty of Administration and Economics at Nowruz University, touched upon the financial implications of reevaluating the Iraqi dinar exchange rate. He focused on the fact that the Iraqi economy faced two types of imbalances after the Covid-19 crisis. The external imbalance has taken a severe and continuous deterioration in the current account to the gross domestic product to reach a maximum deficit of about 20 percent, and is reflected in a severe and continuous deterioration in the parallel real exchange rate through a decrease in foreign currency sales through the currency sale window, as well as a decrease in government sales to the Central Bank of hard currency in addition to the pessimistic forecast towards the local currency. As for the internal imbalance, it is represented by the general budget deficit during 2020, which led to financing through internal borrowing directly, or indirectly by deducting debt securities to finance the deficit, reaching more than 26 trillion, in addition to the cumulative total internal borrowing for the previous years, which constituted a great pressure on the value of the local currency. In view of this situation, the relevant authorities had no choice but to intervene to contain these two imbalances through the devaluation of the local currency, in order to address the double deficit in the current account and related to the general budget deficit, for maintaining foreign reserves within their safe limits relative to the issued currency. He summarized the fiscal impacts as follows:

·        The increase in the adequacy of foreign reserves by 22 percent, which indicates the amount of intervention in the value of the currency, i.e. achieving a return on a new monetary issuance (senorig), which makes the process of internal borrowing from the monetary authorities larger. This is evident in the budget bill for the year 2021, through the funding gap indicator.

·        The improvement of current account position through a decrease in the proportion of imports from domestic consumption as a result of the decrease in real income due to the intervention to devalue the local currency. This depends on the price elasticity of imports, on the one hand, and the decrease in central bank sales through the currency sale window at a minimum, by the extent of intervention at the exchange rate on the other hand.

·        An increase in government revenues by 22 percent as a result of the devaluation of the currency resulting from the conversion of dollar oil revenues into dinars reflected in the reduction of the amount of the budget deficit in addition to the increase in the gross domestic product.

·        An increase in the total government spending as a result of the Government's import in hard currency, and repaying external debt with the benefits and origin of the loan, in addition to paying investment receivables associated with the oil sector.

·        The decline in domestic public debt by the amount of interfering with the value of the local currency, where debts of banks and the central bank to the government reduced as government revenues in foreign currency.

·        The biggest challenge for taking the decision to devalue the currency is to reinvest the revenues generated as a result of the devaluation in order to build a targeted production base outside the oil sector. This makes the demand for the dollar decrease as a result of compensating some of the traded produced goods, which makes the ratio of imports to domestic consumption decline.

·        The financial balance is more sensitive than the external balance to exchange rate changes, due to the movement of money supply associated with public spending on the one hand. On the other hand, we do not have accumulated surpluses, which are called financial stability reserves that make the exchange flexibility unrestricted when a budget deficit occurs.

Prof. Dr. Ahmed Hussein Battal, Professor of Macro and Standard Economics at the College of Administration and Economics at the University of Anbar, spoke about the social effects of reevaluating the Iraqi dinar exchange rate, and summarized those effects as follows:

1.     Increasing inflation rates, as the inflation rate rose to 3.2 percent in December 2020, compared to -0.3 percent in November in the same year.

2.     The expected increase in unemployment rates, as it is expected to reach 17 percent in 2021, compared to 15.8 percent in 2020.

3.     Increasing poverty and vulnerability rates. The Food and Agriculture Organization (FAO) in Iraq of the United Nations revealed that the price of the food basket increased by 14 percent after the devaluation of the local currency against the US dollar.

4.     According to UNICEF, the poverty rate reached 31percent for the year 2020 due to the covid-19 pandemic, compared to 20 percent in 2018, and that 42 percent of the population is classified as a vulnerable group, especially after the devaluation of the dinar against the dollar, as they face higher risks because they suffer from deprivation in many dimensions: Education, health, living conditions and financial security. In addition, about three million people in Iraq, including 731,000 internally displaced persons, did not have enough food.

To avoid these effects, he suggested the following:

·        Expand social welfare and promote equal access to social services for all eligible people, with a focus on education, health and child protection. The directions of the central government should be to respond to the crises caused by the Covid-19 pandemic and the policy of decreasing the exchange rate of the dinar by approving this in the general budget.

·        Strengthening the social welfare network with an electronic database that guarantees access to social welfare for the eligible persons.

At the end of the symposium, the Director of RCD thanked the lecturers and participants.