Baghdad traders are struggling with sudden losses after the Iraqi government devalued the dinar against the US dollar. Food trader Hamza al-Rudayni, who works from a small office in Jameela market, one of the city’s main wholesale markets, said he does not know how to set prices for his goods in the coming days.
The decision, which the government introduced on October 7, has left many merchants uncertain about what to charge customers. The move was aimed at easing a financial crisis that officials have tied to the disruption of oil exports, which followed the US-Israeli war on Iran.
Traders in Baghdad face losses and frozen trade
Al-Rudayni told the interview that the devaluation reduced the dollar value of his dinar savings. He said he had lost 25 million Iraqi dinars, roughly $16,500 at the new exchange rate, while larger merchants had lost billions.
He entered the wholesale trade last year after losing his job at a private Iraqi bank, which he says was sanctioned by the US Treasury. He sold his car and used his savings to begin trading with a larger merchant, before recently launching his own business.
Because exchange rates are shifting so quickly, al-Rudayni said he and many other traders have paused buying and selling until the situation settles. “Market activity has ground to a halt,” he said.
The core problem, traders say, lies in the gap between how they buy and sell. Merchants pay for imported goods in dollars but must sell them in dinars, because regulations bar them from selling in dollars. A weaker dinar means they pay more local currency for stock they have already bought, while making it harder to judge what their existing goods should sell for.
Oil revenue slump drove the currency decision
The Central Bank of Iraq set the new official rate at 1,520 dinars to the dollar for cash sales to the public. The previous rate was 1,320 dinars per dollar, which means the dinar was devalued by almost 15 percent.
The move is designed to let the government receive more dinars for each dollar of oil revenue it converts. That extra local currency is intended to help cover public spending, including the salaries of government employees.
Oil income is the main pillar of state finances. Before the war, Iraq exported about 3.5 million barrels of oil per day through the Strait of Hormuz, which accounted for 90 percent of government revenue. Although exports have partly recovered in recent weeks, they have not returned to pre-war levels.
Other figures highlight the strain. In August, Mudher Mohammed Salih, the prime minister’s financial adviser, said the Central Bank’s foreign currency reserves had fallen from $106bn to about $80bn. To make up the shortfall, the government has also borrowed from domestic banks to meet salaries and other expenses.
Government defends decision as economists urge caution
Iraqi Prime Minister Ali al-Zaidi defended the decision at a meeting with parliamentary leaders on Thursday. “It is my decision and I am responsible for it,” he said.
Al-Zaidi said he had faced three options to cover salaries and other mandatory spending. “The first is to cut salaries by 35 percent … the second is to pay the salaries every 45 days … while the third is to resort to foreign loans,” he added.
The prime minister, a former banker, also said his government had inherited public debt above 208 trillion Iraqi dinars, or $139bn at the new rate, when it took office in May. He said the government needs about 10 trillion dinars, or $6.7bn, each month for salaries and other essential costs.
A Finance Ministry official said that paying salaries on time remains the government’s main priority, which he described as a matter of domestic economic stability. The official, who asked not to be named because he was not authorised to speak publicly, said the government’s room to manoeuvre on revenue was limited.
Economists, however, have warned that the adjustment may ease some immediate fiscal pressure but will not fix deeper weaknesses in the economy. Nabil al-Marsoumi, a professor of economics at Al Maaqal University in Basra, said: “Nothing in economics is sacred, including the exchange rate.” He added that the rate “can be adjusted, but only after all other options have been exhausted,” and warned that it “shouldn’t be used as a cover-up for failures in the state’s economic and fiscal policies.”
