Nihran Bin Omar field north of Basra. The Central Bank of Iraq attributed the devaluation of the dinar to decline in oil prices and the coronavirus pandemic. Image Credit: AP

Abu Dhabi: The Central Bank of Iraq (CBI) said Saturday that it has decided to reduce the value of the Iraqi dinar against the US dollar due to the economic crisis that resulted from the decline in oil prices and the coronavirus pandemic, local media reported.

A CBI statement said that it decided to reduce the value of the Iraqi dinar to be 1,450 dinars per one US dollar in the central bank, instead of its previous price of 1,119 dinars per dollar.

The exchange rate of the dollar will reach 1,470 dinars in the local market, the statement said.

The CBI attributed the decision to the financial crisis that resulted from the decline in oil prices and the coronavirus pandemic, which led to a large deficit in the state budget, forcing the government to borrow money from banks to pay salaries and to cover other expenses, according to the statement.

The new devaluation of the Iraqi dinar will be one-time only and will not be repeated, as the CBI will protect the stability of the new price by using its foreign currency reserves, which are still at solid levels, according to the statement.

Urgent need for reforms

In a separate statement, Iraqi Minister of Finance Ali Abdul Amir Allawi said "it has become clear that urgent reforms are needed in various economic fields, including the currency exchange rate."

"Despite the difficulty of this decision, we are forced to take such a step to address a large part of the crisis, and to ensure the protection of the Iraqi economy by achieving a brave reform step," Allawi said.

Prime Minister Mustafa Al Kadhimi said his government was working to address the crisis from an economic standpoint.

Al Kadhimi added, during a cabinet meeting to discuss the new fiscal budget,: “Since 2003, we have been suffering from the wrong establishment that threatens the political and social system to completely collapse .. Either the system collapses and enters into complete chaos, or we enter a Caesarean section for reform.”

Al Kadhimi, who took office last May, affirmed that "it is unreasonable for us to submit to the previous corruption equation ... either we correct the situation or we laugh at the people."

He continued, "We adopted a white reform paper. All the developed countries of the world, such as South Korea, Singapore and the UAE, made difficult decisions and started with bold steps and a spirit of sacrifice."