Iraq devalued its national currency by nearly 15 percent against the US dollar to cover public sector salaries and mounting government debt after oil export disruptions through the Strait of Hormuz. The October 7 currency shift raised the official exchange rate for cash sales from 1,320 dinars to 1,520 dinars per US dollar, immediately contracting local market activity as wholesale traders suspended operations amid sudden financial losses.
Iraqi Government Cuts Dinar Value to Cover Public Salaries
Prime Minister Ali al-Zaidi defended the currency adjustment as a necessary emergency measure to sustain government operations. Taking office in May, his administration inherited a public debt exceeding 208 trillion Iraqi dinars, equivalent to $139 billion at the revised exchange rate. The state requires approximately 10 trillion dinars, or $6.7 billion, each month to cover salaries and other essential expenditure.
I was facing three challenging options to cover salaries and other mandatory expenditures,
al-Zaidi stated during a meeting with parliamentary leaders, noting that the alternatives included cutting public salaries by 35 percent, delaying salary distribution to every 45 days, or seeking foreign loans. The devaluation allows the government to generate more local currency from every dollar of oil revenue converted, helping it cover public spending, including government employee salaries.
Baghdad Wholesalers Suspend Trade Amid Currency Unpredictability
In Baghdad’s Jameela market, one of Baghdad’s main wholesale markets, traders reported immediate financial damage from the sudden policy change. Hamza al-Rudayni, a food trader, said he lost 25 million Iraqi dinars—roughly $16,500 under the new rate—overnight. Because commercial regulations prohibit selling goods in foreign currency while wholesale purchases require US dollars, merchants face severe pricing uncertainty for existing stock.
Market activity has ground to a halt,
al-Rudayni told Al Jazeera, explaining that he and other vendors chose to suspend buying and selling until the situation stabilises. Larger merchants lost billions, while a Finance Ministry official speaking anonymously confirmed that ensuring salaries were paid on time remained the government’s main priority, describing this issue as a matter of domestic economic stability.
Oil Disruptions and Shrinking Foreign Reserves Drive Fiscal Squeeze
The fiscal crisis originated from disruptions in the Strait of Hormuz following the US-Israeli war on Iran. Prior to the war, Iraq exported approximately 3.5 million barrels of oil daily through the strait, generating 90 percent of government revenue. Although export volumes partially recovered, foreign currency reserves at the Central Bank of Iraq dropped from $106 billion to approximately $80 billion by August, according to Mudher Mohammed Salih, the prime minister’s financial adviser.
Economists have cautioned that monetary adjustments fail to resolve systemic fiscal vulnerabilities. Nabil al-Marsoumi, an economics professor at Al Maaqal University in Basra, noted that exchange rates should not serve as a cover for failures in the state’s economic and fiscal policies. To bridge the revenue gap, the government has resorted to borrowing from domestic banks to cover salaries and other expenses.
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