Government Spending between the Instability of Returns and Exchange Rate Variables, An Analytical Study in Iraq (2010-2020)

Abstract

The study addresses the most important problems the Iraqi economy faces, the irregularity in the spending process and its irregularity during the fiscal year. Also, government units sought to spend all the public funds allocated to them before the end of the fiscal year regardless of the specific objectives. In the spending process, the public spending is done only to spend and not to achieve specific goals. The exchange rate’s contribution to achieving internal and external balance, and despite the variation of many factors affecting it, there is a broad consensus on the effectiveness of the spending role and the currency window in the Iraqi dinar exchange rate, especially in the Iraqi economy. This is because the increase in government spending increases the supply of cash, domestic demand, prices, and consequently inflation, which negatively affect the exchange rate of the Iraqi dinar. So the central bank intervenes through the currency window to stabilize the exchange rate of the local currency 2010-2020). To establish the roadmap, the researcher clarified the aforementioned relationship. The government spending negatively affects the value of the Iraqi dinar because of the increase in the money supply and inflation from the increase in public spending. This is to sterilize the money supply by absorbing the surplus cash (the Iraqi dinar) by supplying more foreign currency to maintain the value of the Iraqi dinar. The local currency exchange rate rise affected the decrease in inflation significantly.