Iraq Financial Banking Sector
There are several positive things happening in the banking sector in Iraq. When the Iraqi banking sector eventually becomes stronger, that is when you will start to see an increase in the Iraqi dinar. When you see people have more confidence in the currency, they will deposit their money in the bank.
On Thursday, January 29, 2015, the Iraqi government finally passed the federal budget. In the budget, the Iraqi government has placed taxes on mobile phones, new cars, ticket airlines and tourism. The government is also going to have custom border taxes for goods and services. Iraq has a budget deficit of 25 trillion dinars (23 billion dollars). The Iraqi government thinking is that there will be able to cover the deficit with the taxes and custom border fees. I want to point to a potential problem with collecting taxes at the border entry points. The Islamic State controls the border entry points from Iraq to Jordan, Syria and Turkey. You also have to think about the organize crime and smuggling that often occur at the Iraq border crossings.
One thing for sure is that the Iraqi government will not be collecting any customs taxes at the northern border crossings as long as ISIS are in control. The taxes are supposed to cover 13% of the budget. The Iraq ministries that received 50% of the budget are the Interior, Defense, Oil, and Finance. The remaining Iraq ministries received little or no funds at all. It appears that the government will be unable to finance projects for the year.
Currency Exchange Rate
On February 1, 2015, the exchange rate on the market was 1235 IQD. The rate that the banks and the currency exchange stores are selling the Iraqi dinar to their customers. The next day the market rate increased again to 1250 IQD. Reading reports in the local Iraq media, the market exchange rate increased to 1260 IQD. The Iraqi parliamentary Economic Committee advised the Central Bank to limit the selling of the U.S. Dollars to 75 million. When the Central Bank limited dollars, it decreased the value of the Iraqi dinar. On the world market, the U.S. dollar has increased in value. It now takes more Iraqi dinar to purchase the hard currency (US Dollar) that everyone in Iraq in a time of crisis would like have in his or her pocket.
The Central Bank has recommended limiting the currency exchange auctions to 75 million dollars per day. This action is not a law. Both the Central Bank and the Parliament Economic Committee agreed to the stipulations. The Central Bank realizes that they have a serious problem with the smuggling of hard currency, which is causing capital flight. The hard currency is being smuggled to other regional countries most likely Syria and Iran. Both countries are under sanctions. In order to curtail the smuggling, the Iraqi government instituted a cap on the auction dollar sales.
The Parliament Economic Committee leader Najiba Najib, stated “The Central Bank has taken new measures that would provide cash to cover the shortfall in the budget in light of falling oil prices to below $50.”
Najib continued with: “These measures are working to reduce the value of the Iraqi dinar. And that the bank will maintain the exchange rate. The price of the dollar against the dinar will rise from what it is now.”
You can see that Najib Najiba carries a lot of power within the Parliament Economic Committee. I have told you this in the past, and Najiba will do everything to protect Iraq’s currency. Najiba is in frequent communications with the Central Bank and is following this very closely.
Inside the budget, Paragraph 50 has the instructions for the Central Bank to limit the sales of the dollar auctions. There will be no legal actions against the Parliament committee, and some people are saying.
Dinar fall against the dollar after the Central Bank’s actions and recommendations budget
Dinar Fall against the dollar after the Central Bank’s
Parliament holds budget responsibility rising dollar and banker error confirms dollar exchange rate at 1260 dinars