Prof. Dr. Haider Ali Al-Dulaimi College of Administrative Sciences – Al-Mustaqbal University The issue of depreciating the Iraqi dinar periodically emerges as a potential policy option for increasing public revenues and improving the government's fiscal position. However, accurately estimating the fiscal impact of such a measure requires careful identification of the revenue streams genuinely affected by exchange rate changes, rather than relying on calculations that may overstate the expected fiscal gains. How Should the Fiscal Impact Be Calculated? It would be misleading to calculate the fiscal impact of dinar depreciation simply by multiplying total oil revenues by the new exchange rate. Not all oil revenues are converted into Iraqi dinars within the public budget, as a portion is allocated to external obligations and payments denominated in US dollars. Accordingly, an appropriate calculation should begin by identifying the net oil revenues actually available for conversion into dinars to finance the public budget, after deducting relevant external payments. These payments may include expenditures associated with oil licensing companies, repayments of external debt and related interest, other foreign financial obligations, and payments for certain imported goods and services settled in US dollars. Therefore, the fiscal impact of an exchange rate adjustment should be calculated on the portion of oil revenues that remains effectively available for conversion into Iraqi dinars and the financing of public expenditure. An Illustrative Calculation Assume that annual oil revenues amount to USD 80 billion, while external payments and obligations settled in US dollars total USD 20 billion. Under these assumptions, the amount effectively exposed to exchange rate changes would be: USD 80 billion − USD 20 billion = USD 60 billion. If the exchange rate is IQD 1,300 per US dollar, the dinar value of this amount would be: USD 60 billion × 1,300 = IQD 78 trillion. If the exchange rate changes to IQD 1,500 per US dollar, the new value would become: USD 60 billion × 1,500 = IQD 90 trillion. The resulting difference would therefore be: IQD 90 trillion − IQD 78 trillion = IQD 12 trillion. Thus, under these assumptions, the additional fiscal revenue generated by the exchange rate adjustment would amount to IQD 12 trillion annually. What Does This Figure Mean for the Public Budget? The significance of this result becomes clearer when compared with the overall level of public expenditure. If hypothetical total public expenditure in Iraq's 2027 budget amounts to approximately IQD 217.239 trillion, the additional IQD 12 trillion would represent: 12 ÷ 217.239 × 100 = 5.52% In other words, the estimated additional fiscal revenue would account for only 5.52% of total public expenditure. This demonstrates that depreciating the dinar, even if it generates the estimated fiscal revenue, does not constitute a comprehensive solution to structural fiscal imbalances. Rather, it provides a relatively limited additional source of revenue whose value must be assessed against the economic costs associated with the policy. Additional Fiscal Revenue Does Not Necessarily Mean an Economic Gain It is essential to distinguish between an accounting increase in government revenues denominated in Iraqi dinars and a genuine improvement in economic welfare. On the one hand, dinar depreciation increases the number of dinars the government receives for each US dollar of oil revenue. On the other hand, it may increase the prices of imported goods and services, raise production costs, and weaken the purchasing power of fixed incomes, particularly those of public employees, pensioners, and low-wage earners. Consequently, evaluating exchange rate policy should not be limited to the additional revenues it generates for the government. It must also account for the broader economic and social costs resulting from such an adjustment. Toward a More Sustainable Fiscal Approach Addressing Iraq's budget deficit and structural fiscal imbalances requires solutions that go beyond relying on exchange rate adjustments as a means of increasing public revenues. Fiscal sustainability can be achieved through diversifying revenue sources, strengthening non-oil revenues, improving tax and customs administration, controlling public expenditure, enhancing the efficiency of public investment, reducing financial waste, supporting domestic production, and decreasing dependence on imports. Furthermore, any decision concerning the exchange rate should be based on a comprehensive assessment of its implications for the public budget, price levels, purchasing power, domestic production, the private sector, and overall economic and social stability. Accordingly, the appropriate economic question is not merely: How many trillions of Iraqi dinars could the government generate by depreciating the national currency? Rather, the broader and more meaningful question should be: What is the net economic and social impact of dinar depreciation after accounting for both the additional fiscal revenues it generates and the economic and social costs it imposes? This distinction underscores the importance of moving beyond direct fiscal calculations toward a comprehensive economic assessment when making decisions concerning the exchange rate of the Iraqi dinar.