The Central Bank of Iraq devalued the dinar against the US dollar by 18.5% as a measure to counter the financial crisis caused by the coronavirus pandemic, the drop in oil prices in the global market and the increase in Iraqi government spending on salaries.

According to the Iraqi Central Bank, the new exchange rate is 1,460 dinars, down from 1,182.

In an interview with local media on Dec. 19, Finance Minister Ali Allawi explained that the dinar devaluation does not aim to bridge the financial budget but rather to stimulate the economy. This step will support the private productive sectors and create a shift in the economic policy from reliance on import to reliance on production and export. He indicated that the exchange rate of the dollar in Iraq was very high, causing local production great challenges and rendering it unable to compete with foreign products.

Allawi indicated that the vulnerable societal groups will be receiving financial subsidies allocated in the 2021 budget to face the repercussions of devaluation. He warned the Iraqi Central Bank's foreign currency reserves would have been depleted within six months if the dollar exchange rate remained unchanged and state employees' spending not reduced. The budget deficit for 2021 will be 100 trillion dinars, he noted.