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Central Bank Sales Put Government in a “Bind”.. Is the Dinar Running Low?

The increase in the Central Bank of Iraq’s sales volume in 2024 has revealed many hidden details regarding the country’s financial situation. Perhaps the most significant issue, according to lawmakers and economic experts, is the Central Bank’s attempt, in collaboration with the Ministry of Finance, to sell dollars through its auction in order to provide cash liquidity in dinars. This has been described as a “major crisis,” especially since the data on imports, based on which the Central Bank sells the dollar, is “unclear” to relevant authorities such as customs and border posts.

The surge in the dollar sales volume through the currency auction shines a spotlight on statements made by Prime Minister Mohammed Shiaa al-Sudani when he announced that selling $50 million per day would be sufficient to cover imports. However, the reality is that the Central Bank is selling around $300 million per day, raising many questions. This situation prompted the Financial Committee to emphasize the need to host the Governor of the Central Bank under the parliament’s dome.

Discrepancy in Data and Unclear Financial Practices

Member of the Parliamentary Finance Committee, Mahasen Hamdoun, told Al-Alam Al-Jadeed that, “The Finance Committee hosted the heads of the Customs and Border Authorities, and it became clear that they do not receive accurate data from the Central Bank of Iraq regarding the imports coming into Iraq, which are used as the basis for selling dollars.”

Hamdoun added, “The fact that customs and border posts are unaware of the data points to a lack of clarity and coordination between the parties involved in the sales and imports process.” She explained, “If Central Bank sales increased in 2024 compared to 2023, it confirms the Finance Committee’s earlier concern about a liquidity crisis within the Ministry of Finance to pay employee salaries, pensions, and other monthly obligations. As a result, the Central Bank is selling more dollars to provide dinars to the Ministry.”

She also confirmed, in response to a question about the accuracy of the Ministry of Finance’s request to reduce the budget funding from 216 trillion dinars in 2024 to 165 trillion in 2025, that, “This is correct and is currently under discussion in the committee, but nothing has been finalized yet.”

Hamdoun revealed, “I have submitted a request to the Speaker of Parliament to host Central Bank Governor Ali Al-Alaq to clarify the overall files currently under discussion, including import data and the relationship with the entities involved in the dollar sales process.”

The Scale of Dollar Sales in 2024

Economic expert and President of the Iraq Future Foundation, Manar Al-Obeidi, posted on Facebook yesterday, stating that the Central Bank’s sales for 2024 amounted to $81 billion, distributed as follows: 72% through mechanisms that enhance balances via correspondent banks for foreign currencies; 24% through the Central Bank’s commercial platform, which it announced will be officially suspended at the end of 2024; and only 4% in cash sales to travelers through airports in Iraq.

Economic expert Nabil Al-Marsoumi also called for clarification from the Central Bank of Iraq regarding the data on its dollar sales. He noted that the $81 billion figure for 2024 seemed very high, exceeding the sales of 2023 by about $25 billion. He also highlighted the inability to control the significant gap between the official and parallel exchange rates of the dollar against the dinar, which has reached more than 15%.

Suspicion of Dollar Smuggling and Financial Imbalances

It is worth noting that Prime Minister Mohammed Shiaa al-Sudani, in an interview with Iraqiya TV on January 31, 2023, mentioned that “there are always fake invoices and funds being smuggled abroad, which is a reality.” At the time, Sudani expressed surprise at imports reaching $300 million per day, the same value as the Central Bank’s dollar sales, asserting that “this explains why the currency was being smuggled out of the country. This has been a chronic problem for years.”

Sudani went on to say, “So, what has changed in the market, other than rising prices on some goods, after the Central Bank was selling $30, $40, or $50 million daily? Previously, $200 million and $250 million were sold.”

The Record-Breaking Dollar Sales in 2024

Building on these comments, Financial Committee member Mustafa Sand confirmed in a post that $81 billion in dollar sales in 2024 is the highest ever in Iraq’s history, surpassing the combined sales of the years 2019 and 2020. Referring to the VAR (Value at Risk) technique, Sand pointed out that Prime Minister Sudani previously stated that $12 billion per year would suffice to cover imports, with the rest being smuggled, a problem that has now been “solved.”

The Role of the Central Bank in Liquidity Provision

Banking expert Hamam Al-Shammaa, speaking with Al-Alam Al-Jadeed, explained that “Central Bank sales are supposed to cover the private sector’s imports of various goods and services, as the Prime Minister confirmed, stating that $50 million per day is needed to cover these needs.”

Al-Shammaa further elaborated, “If we consider the Prime Minister’s estimate to be wrong, it is possible to assume that the import need could be $150 million per day, as it was in previous years. However, the massive amounts sold in 2024 have no justification other than that the Iraqi treasury needs liquidity in Iraqi dinars to cover its growing and large expenditures.”

He continued, “It is clear that the Central Bank is continuing to sell huge amounts of dollars to obtain dinars, which are then provided to the Ministry of Finance so it can meet monthly obligations such as salaries.” He added, “The Ministry of Finance has significant commitments, with non-oil revenues from ministries such as taxes and customs, but they only represent a small portion of the funding. This has led the Ministry to implicitly propose a reduction in the budget for 2025 from 216 trillion to 165 trillion dinars due to the liquidity problem and the Central Bank’s sales.”

Al-Shammaa warned, “The Central Bank cannot sell dollars unless oil is exported. If Iraq sells more dollars than it exports in oil, it will be drawing on its dollar reserves, leading to a much larger crisis.”

The U.S. Intervention and the Dollar Crisis

Since the beginning of 2023, the U.S. has intervened to limit the smuggling of dollars from Iraq, leading to a sharp increase in the dollar’s price in the local market, reaching a record high of 170,000 dinars per 100 dollars. This was caused by a reduction in the Central Bank’s dollar sales due to its compliance with the international SWIFT financial system.

The Central Bank issued three sets of measures to control the sale of dollars and ensure they are not smuggled abroad. Initially, it reduced its currency auction sales to about $100 million, but this amount later rose again to around $300 million per day.

New Agreement with JPMorgan to Combat Smuggling

It is also worth noting that the Central Bank previously reached an agreement with the renowned American bank JPMorgan to act as an intermediary, facilitating the transfer of funds from Iraqi traders to China and covering their imports. This was after the Central Bank had previously been working with banks in the UAE and Jordan. According to a report by Al-Alam Al-Jadeed, the new agreement is expected to reduce the use of fake invoices, which had been a loophole for currency smuggling abroad.

Increasing Demand for Dollars

Furthermore, academic and economic researcher Ali Dadoosh, in an interview with Al-Alam Al-Jadeed, pointed out that “Iraq is witnessing a continuous increase in imports, both of consumer goods and raw and intermediate materials, which requires more foreign currency to cover these imports.”

He noted that “there is increasing demand for dollars from individuals, whether for travel or personal remittances, in addition to seasonal increases in demand for dollars during certain times of the year, such as the Hajj season or holidays.” He emphasized that “the global rise in the prices of imported goods has further increased the need for dollars to cover the cost of these imports.”

Dadoosh concluded that “combating smuggling and money laundering is not an easy task and requires time and continuous efforts. There may be some gaps, but that doesn’t mean that the measures as a whole have failed.” He added, “We must also consider the external economic challenges that affect the demand for dollars, such as oil price fluctuations, global inflation, and changes in interest rates—factors that cannot be fully controlled.”

Current Dollar Auction Figures

The Central Bank announces its daily dollar sales at the currency auction, with the latest figures showing that on Wednesday, it sold $287,904,395, covered by an exchange rate of 1,310 dinars per dollar for documentary credits and international card settlements, 1,310 dinars per dollar for external transfers, and 1,305 dinars per dollar for cash sales, with participation from seven banks.

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