Thread by @Xy5Z89

-THREADE-

#Iraq #Bagdad #ECONOMY #Collaps

Iraq's currency devaluation news spread rapidly last week when a copy of the budget draft for next year was leaked to the local media. The news sent the unofficial rate skyrocketing at exchange houses,

upsetting local businesses and panicking Iraqis. The unofficial exchange rate before the news varied from 1,200 to 1,240 dinars against the dollar. That rate reached as much as 1,400 soon.

Iraqi Prime Minister Mustafa Al Kadhimi said that because of the inevitable public reaction, he will be the 'first hurt' by the devaluation and austerity measures in the 2021 budget.

But Iraq is also draining its currency reserves and, according to Minister of Finance Ali Allawi, faces a record-breaking $40 billion deficit next year. As a result, Iraqi lawmakers are struggling with what promises to be the most divisive budget since 2005,

when, after Saddam Hussein's fall in 2003, Iraq drafted its first budget. In Baghdad and other towns, wholesale and retail markets were almost deserted on Sunday as sellers used the higher exchange rate as security, while buyers chose to wait until things settled down.

The devaluation has seriously hit the wallets of public servants, raising worries that the public sector would be expanded by a burgeoning youth protest movement, formerly largely limited to the unemployed.

Such a trend is becoming more possible. According to Mr Allawi, Iraq's foreign currency reserves could be exhausted in as little as six months without urgent austerity measures. Currency devaluation is, in other words, an essential but bitter medicine.

Mr. Allawi called for the creation of an international body to supervise the dollar auctions conducted by the Central Bank, which has long been accused of being a major source of corruption for shell companies. Many parliamentary MPs said they would reject cuts in salaries,

calling them a "red line." Besides re-energizing Iraq's protest movement, Iraq's sharp economic downturn may, if the situation is not reversed, give rise to the troubling specter of security turbulence next year.

Recently, Iraqi authorities deployed anti-riot troops in Baghdad around the Central Bank as activists were called on to protest on Monday afternoon. The question was whether fighter salaries could be raised by the cash-strapped Iraqi government as oil prices fell below $ 30,

or whether the number of fighters on the payroll could be increased. Some groups have accused Iran-backed groups of stealing money, including a strong militia run by the volatile cleric Moqtada Al Sadr.

But now the situation is much worse, with little indication of a recovery in oil prices, at least not at the level needed to pay salaries by the Iraqi government. The danger now is that groups in the PMF that have clashed in the past will again be able to come into conflict.

As long as funds are available, this will not be a problem, according to Sajad Jiyad, an Iraqi analyst and fellow at The Century Foundation. But that could change next year, especially if Finance Minister

Allawi's warning of a rapid decrease in available currency reserves holds are true. Iraqi policymakers are now facing an impossible choice, risking next year the development of a new, national protest movement, whether or not to introduce sharp austerity measures.

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