Measuring the impact of the federal budget deficit on the exchange rate in Iraq using the Autoregressive Distributed Lag (ARDL) model for the period 2004-2021

Abstract

This research attempts to identify the nature of the impact of the general budget deficit in Iraq on the foreign exchange rate during the period(2004-2021)by using econometrics using the Autoregressive Distributed Lag(ARDL)method. The research found an inverse relationship between the budget deficit to the dollar exchange rate, as an increase in the budget deficit by(1%(will lead to a reduction in the exchange rate by(0.01%)This explains the failure of successive Iraqi governments to use the principle of changing the exchange rate to confront the budget deficit except in a few years of the research period, in addition to the fact that changes in the official exchange rate are related to the type of exchange system, which is a managed system linked to administrative decisions. Increasing the window gap by(1%)will reduce the exchange rate by(0.002%)The researcher also recommended that the general budget deficit should be stabilized at an acceptable level, and this is done by relying on an automatic method represented by the ratio of revenues to the gross domestic product as a dynamic stabilizer, to reduce the adverse effect from the deficit to the foreign exchange rate, in addition to adopting several financial reforms to restructure the general budget and reduce the dependence of budget revenues on the oil sector, and encourage exports by providing a suitable climate for investment and supporting it by raising customs taxes on imported goods.

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