By John Lee.
One possible consequence of the budgetary crisis facing Iraq is a fall in the value of the Iraqi dinar.
As a result of the massive burden of public sector wages and salaries, in addition to subsidies for food and energy, the country faces major expenses in looking after its nearly 2 million internally displaced persons (IDPs).
It must also find the cash to build up its armed forces to fight the continuing threat from the Islamic State.
The Financial Times reports that economists are concerned about 2015, when Iraq will “almost certainly” run a deficit. Baghdad could borrow against its reserves but at the risk increasing inflation and weakening its currency.
According to Luay Khateeb, founder of the Iraq Energy Institute and a fellow at the Brookings Doha Centre, “the moment they do that the Iraqi dinar will devalue.”
(Source: Financial Times)
(Dinar image via Shutterstock)