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The role of the financial sector in addressing the budget deficit in 2016

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rocky
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The role of the financial sector in addressing the budget deficit in 2016

Post by rocky on Sun 07 Feb 2016, 3:02 am

The role of the financial sector in addressing the budget deficit in 2016





2/7/2016 0:00

Muwaffaq Hassan Mahmoud *

It is now clear that oil market conditions do not Chiraly imminent breakthrough is not in prices nor in the level of demand, as it is likely that the excess supply remains Glut prevailed for many future years because of shale oil production in the United States and sandy in Canada as well as increasing production in Saudi Arabia, Iran and Iraq that the supply side, the demand side, the market experts do not expect significant increases due to slower growth in China's economy and perhaps India and other parts of the world .osoturk the subject of speculation on oil markets, market experts and reports of research institutions involved in organization of energy international and OPEC, but I Sontaleg in these papers from the premise that the next worst oil markets will be the impact on Iraq's impact seriously.

from the above I see that the scarcity of oil resources will last for years to come to 2020 or beyond which forces initiative to take radical and bold action is aware of the depth of the problem the range does not err appreciated Iraq's need for foreign capital.

as far Alammerbalqtaa banking inclusive of the Central Bank believe that the reform would sector and restructuring in particular could make it important for the national economy hinterland in this complex situation, which passes by the home below are scenarios for discussion of key indicators as a bargaining work of the working paper. I. CBI: - 1 - dinar exchange rate sees some economists to be one of addressing the budget deficit crisis methods is to reduce the Iraqi dinar exchange rate against foreign currencies, since such a reduction would provide the Treasury dinars more for $ Less . We must before taking any decision in this regard from the analysis of this point of view to display the positives and negatives as to help decision-makers to take the path that they deem to address the deficit crisis, which is compounded daily with a decline in the price per barrel of oil should not be forgotten that the compensation for the price fall to increase exports is very limited is in the current conditions in Iraq. the first thing that the resulting reduction of the dinar exchange rate is the high prices of imported goods at a rate exceeding the reduction rate and thus falling purchasing power of the dinar at a time when General incomes in cash is low as a result of austerity measures, which do not find the state inevitably which shall effect a double on family income, we do not need to be reminded that Iraq has become a country that imports most of its needs and even the food which let alone the needs of the various equipment and capital equipment and household list goes on and if we want to count. And we have to show that reducing the currency exchange in countries Ttofferldeha productive capacities and industries export rate policy policy is justified as it aims to support the competitive position of its products in foreign markets as well as the domestic market while the price elasticity is price elasticity high local products are available productive capacities ready to run in the term short leading to increase production and increase exports and achieve the desired result, but the situation in Iraq is completely different after the industry deteriorated and deteriorated agriculture which after Iraq was the biggest exporter in the region of cement, known for its quality at that time, as well as the matter of a number of oil derivatives Kziot engines and other Thus we see that reducing the dinar exchange rate will not result in any increase in exports and reduction of imports, Iraq today does not produce goods for export is oil either we say: the revitalization of industry and agriculture LAN's to compensate for the imports import substitution by lowering the exchange rate making Iraqi products at a competitive site the best locally and abroad is the goal unrealistic, as the problems facing the domestic production of industrial and agricultural Bjanabih multiple aspects of Aihlha action unilaterally as a reduction of the exchange rate. It should not be absent from our deliberations importance of monetary stability on the overall macro-economic activity in the short and long term, and this stability Humen the most important duties of the central bank as defined by law and is not here right place to review the experiences of developed countries from the developing and the implications of sacrifice Bhmalastaqrar. Go back to the issue of the deficit, which was estimated at the beginning of it the equivalent of $ 22 billion, calculated on the basis of $ 45 to the average price of a barrel of oil exported, but the price of oil continues to deteriorate and I doubt Iraq's ability to to rely on increasing exports to compensate for the decline in the price at the current level for the price of oil Vsadarat determinants .uallah the deficit will worsen with the decline in the price of a barrel of oil. Even if Cefhna on the issue of rising imports prices and thus falling purchasing power of the family, it is to result in reducing the rate of the dinar to the desired outcome should be very large and would be a negative impact on the general level of prices is also great and would be a negative impact on the purchasing power of the dinar purchasing power most also tell us the experiences of countries that have resorted to devaluation in the hope of increasing exports and reducing imports due to the recovery of speculation and speculation speculations on the exchange rate. Based on what is stated in the above, I see the need to maintain monetary stability and avoids the lowering of the Iraqi dinar exchange rate to address the budget deficit is the price, as the disadvantages and the most serious price inflation will exceed greatly pros, which is limited to the treasury grant dinars dollars more to meet less hope of addressing the budget deficit was the result of structural abnormalities in the overall economy, and therefore it is not a deficit Gosairalagel but a long-term inability to see that the causes not attributable to a lack of resources but also to the poor in the distribution and it must be Find ways to rethink systems and the philosophy of the income distribution between consumer spending any current expenditure and the investment spending as well as the need to search for sources to maximize revenue on the one hand and the reduction of expenditure on the other hand this will not only be achieved by a bold political decisions the level of the problem is not paying attention to the arguments and slogans are not the saturation of hunger and thirst of Troy. Olabd me and we discuss the subject of Sarsrv dinar that refer to circulate issued by the Central Bank of Iraq has recently under No. 9/1/416 dated 12/27/2015 entitled (foreign exchange rate) and I've attached a picture of the circular anyone who wants to see it. I see that the circular involves many risks to monetary stability, since it gives the impression that the central pave the way for reducing the rate of the dinar and this will be an incentive to convert savings from the dinar to the dollar and then make it difficult to control the exchange rate. Therefore must be clearly announced on all sides to comply with the stability of the exchange rate to avoid rush Atarellhvaz the purchasing value of the cash assets of the citizens. 2 - speculation on the exchange rate: There is no doubt that one of the most important demand for the dollar sources is speculation on the price in order to make a profit from the difference between the purchase price from the central bank and Saralabie in Ousarh market foreign Khawwalat Worse than this that these outrageous profits at the level are not subject to state taxes. From here we see the need to work to bridge the gap between the price of the dollar, and we see that it is possible to achieve this goal if the central bank to set clear instructions to meet the legitimate demand for the dollar ie when demand is enhanced documentation Kalaatmadat documentary or to cover the medical treatment expenses or university study abroad until the Iraqis transfers as a result of the liquidation of their property in Iraq provided that the official documents. We see the central bank to be the guarantor of these arrangements guarantor so as to enhance global banks the confidence of these arrangements and the sector of the Iraqi banking. That would cancel the margin between the two prices that decays demand for dollars for speculative purposes and to achieve profits from the difference between the two prices, and we believe that the best way to unify the price and prevent the illicit enrichment, which we have seen since I work with what is known window of the currency at the Central Bank he began to respond to the request of the project on the dollar within the lines that we have it. 3 - dollar selling window and trade finance is no doubt that the dollar selling window with the central bank represents the bleeding for the balance of foreign currency at a time to suffer the oil prices from a major crisis due to excess supply and falling prices to below the $ 30 a barrel and the worst is that oil experts expect further deterioration in crude prices due to supply and demand factors, as I said, raising serious doubts about Akaddrhaly maintain the balance of the foreign currency cover imports for a number comfortably Months . So I see that the national security forces to return without delay to the manner of letters of credit to finance imports and to stop the style of bank transfers by the commercial banks and the central bank can not find out the sources Dnanerha not to mention follow-up is doomed, while retaining the manner of remittances to pay Okiem some food commodities, perishables such as meat, poultry and vegetables and fruits that export to Iraq periodically agreements with importers on credit to pay more or less (60-90 days) as was the case in the seventies and eighties before Aaharb with Iran. But this does not preclude meet the transfers of personal and family legitimate requests and enhanced documentation supports its legitimacy. As I pray for a return to the style of letters of credit for trade finance is not absent from my difficulties facing the Iraqi banks in dealing with foreign banks as part of installing credits and communicated to the supplier foreign It difficulties due to the low credit rating of Iraq's credit rating, a rating which applies to include Iraqi banks also which pays foreign to the requirement of insurance banks have up to 100 percent of the value of accreditation before agreeing to install accreditation and notification confirming / advising to-equipped foreign boards, this serious issue to be addressed at the state level, as I see and I propose to deal with them a plan of cooperation between the trade Bank of Iraq and the Central Bank of Iraq to find a formula to banking arrangements respond to the conditions of foreign banks on the one hand and the reservation of public money from the misconduct of this or that party in terms of the other. Can be summarized arrangements proposed by the appointed banks covering among correspondents Trade Bank of Iraq in the most important countries that traded with Iraq's main trade partners are deposited has exaggerated the appropriations and authorizing a payment of amounts matching documents complying presentations according to the terms of credit and notice from the bank the amount of the credit or the installer bank advising or confirming bank depending on the situation and see that interfere with the central bank to be the guarantor of these arrangements guarantor Bmayazz foreign banks the confidence of these arrangements and the banking sector and the Iraqi banks and see that this trust can Taatazzkellma committed to the Iraqi side to fulfill what is worth its obligations and will be the impetus for foreign banks to reduce their terms to communicate and install the credits and then proceed whenever this trust has been strengthened to grant credit lines to Iraqi banks lines of credit and as I call for a return to documentary credits, I do not posing as a magic solution to our problem Vosalib circumvent practiced by some people do not stop at the end and remain there supplementary measures indispensable seeking to fill the gaps assigned to the central bank and banks and commercial Perhaps could be the subject dealt with in detail in the appropriate place any with the relevant technical authorities in the two approvals. 4 - the Central Bank of Iraq Law No. (56) of 2004 prohibits the article (26) of the Central Bank Act grant any funds directly directly or to the government or any public body facets owned by the state, and I see the need not to prejudice this article must be alert to the serious negative effects that result from compromised relations with the IMF and other financial institutions fund and the credit rating of Iraq, not only this but it will be authorized economic and financial repercussions are difficult to control. it must Lee pointed out that the former central bank law was to allow the government to borrow no more than 10 percent of the speculative revenue of the general budget, but the current law prohibiting such borrowing aware of the legislator of the seriousness of the economic and financial implications. I must point out that Article 26 is one of the most important pillars of independence of the central bank's independence from those political pressures that have become axioms of science money economies. But this independence should not prevent the bank from carrying out an important developmental role in the field of investment and I'm here to invite him to support the construction industry and construction to urge banks to lend to the sector that the bank bears the interest rate spreads between the interest rates charged by commercial banks and the easy interest rate soft interest including not exceed 3 percent or 4 percent a maximum of him, and I will deal with the subject of investing in a later place of this intervention. But why building and construction sector in particular? The reason I'm seeing clearly being a sector that generates Okpramadaaf investment multiplier through the operation of a large number of manpower labor intensive and stimulate a lot of local industries Calcment for building materials, bricks, plaster and tiles .... etc banker Iraqi *


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rocky
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The role of the financial sector in addressing the budget deficit in 2016

Post by rocky on Mon 08 Feb 2016, 7:43 am

The role of the financial sector in addressing the budget deficit in 2016






2/8/2016 0:00

Of about $ 32 billion

Muwaffaq Hassan Mahmoud *

It is now clear that oil market conditions do not Chiraly imminent breakthrough is not in prices nor in the level of demand, as it is likely that the excess supply remains Glut prevailed for many future years because of shale oil production in the United States and sandy in Canada as well as increased production in Saudi Arabia, Iran and Iraq that the supply side, the demand side, the market experts do not expect significant increases due to slower growth in China's economy and perhaps India and other parts of the world .osoturk the subject of speculation on oil markets, market experts and reports research institutions concerned such as the international energy and OPEC, but I Sontaleg in these papers from the premise that the next worst oil markets will be the impact on Iraq's impact seriously.

Secondly - the restructuring of State-owned banks to be me here to point out the beginning of the report was the World Bank has issued sometime of 2011 and reaffirmed its content at the end of 2015 on the financial sector of the Iraqi people in which the low performance of the components sector any banks, insurance companies and the stock market went recommendations are very important called in beginning to restore bank restructuring Rafidain and Rasheed to rid their budgets of bad debt as well as other distortions note that the report was supported by both Messrs Finance Minister and Central Bank Governor at that time was to form a committee of specialists to consider the report and put its recommendations into effect, but we did not find the report of the Committee impact on the budgets of the two banks do not Hiklehma nor on any of the recommendations in relation to the interaction of state institutions with banks and more particularly the need to treat all banks the same treatment without Tmiasudon favor of the government. We must and we are in this regard to point out that the financial and economic Committee of the Council of Ministers had issued inter decisions direction called for by the World Bank, but I've found incapable of addressing the substance of the case, the current structure of the sector decisions banking, particularly State-owned banks dominate the largest share of the market, and I see that as the state did not stray from the banking activity, there is no way to upgrade the sector and its activity to be a pioneer area and make an effective contribution in the formation of the national income and contributes to a serious contribution to the rebuilding of Iraq. Perhaps a harbinger good to adopt a ministerial platform for the government to activate the private sector's policy not only this, but he Agheraltuge towards the privatization of some government institutions and we have to include the banks of government. There is no doubt that this trend marks a new philosophy for the management of the state's response as dictated by circumstances and imposed necessity, and this sense I see it's time to start today before tomorrow to restructure the government banking sector ie banks Rafidain and Rasheed and trade bank of Iraq and the development of the necessary prelude to abandon the state for banking activity plans, and as I say this is not absent from my enormity of the task and its complexity, but a journey a thousand miles begins with one step, and it would be honor and loyalty to the country to volunteer to work with the team, which will cost in this task. in the face of the urgent need for capital I think that the restructuring is bound to lead to the eventual privatization of the two banks, but I think that the privatization of the size of the two banks institutions in the current conditions in Iraq, but introduced by the investment will not be realized foreign inclusive of the Arab investment and Lord objector says: Why sell national institutions to foreign banks, and my answer is that Iraqi banks do not have the financial means to buy banks the size of the two bodies, if approved the principle of privatization must then study of alternatives to choose the best and hammer out the best formulas propose to assign a specialized committee includes bankers, experts and jurists to study those alternatives to develop a strategy for this task. to prevent leakage of corruption to project the privatization of state banks and I think that holds accounting destinations solid foreign Oomhalih evaluation of the two institutions an objective assessment of fair and equitable in accordance with the rules of due diligence to include all assets and liabilities to exit the real value of the two banks and the state then Showing banks to sell confidential bid or any other means to ensure the maintenance of public money. if the settled opinion of the State to invite foreign investment in Iraq and in the financial sector in particular capital not then be amended legislation which prohibits foreigners owning property and attributed this to the decision of the Council of Ministers No. (23) for the year 1994 and is still the decision takes effect and this prohibition is one of the obstacles faced by branches of foreign banks operating in Iraq as unable to accept the estate a guarantee for loans and banking facilities. If you find the loan and offer the property for sale in accordance with the provisions of paragraph (2) of Article (33) of the Act banks No. (94) for the year 2004, the resolution prevents the foreign bank of the annexation of the property and lost his rights as a result and the right, I find no compelling reason to prevent foreigners generally own the property I did not find him ever seen, except in totalitarian countries and is the result of the secretions of the former totalitarian regime and have Anne time to modify it. We have talked many Lebanese banks operating in Iraq officials about their suffering and the problems they face from this ban. It releases statistical Iraqi Central Bank extracted information Bmsrvi Rafidain and Rasheed as they are at the end of 2013 and found that the Rafidain Bank 144 branches (8) than outside Iraq and (57) branches in Baghdad and the remainder of the 79 branches in the provinces of Iraq, the other does not branches in the province, with the local authorities there had taken control of it and its assets and given local names and cut her bank parent, also found that the number of workers in the bank is 8782 people I did not find information on the number of buildings owned by the bank and it can be said: that the bank owns most of those buildings. But Rasheed Bank hath (193) branches (62) of them in Baghdad and 131 branches in the provinces and employs (6400), a person is likely that the bank he owns most of the other buildings like the Rafidain Bank branches. if we finished the task of privatizing Rafidain and Rasheed Ntafrg then to liquidate the trade Bank of Iraq, but that the bank may require the privacy of another plan and another context is different. It should be recalled in this regard that the Trade Bank of Iraq was founded in 2003 for the specific order according to the law and has its foundation came at a time when Iraqi banks were not able to foreign trade operations of any documentary credits Fhdt him to open the task of government funds for the monopoly, but the Ministry of Finance It directed the bank in 2005, the time of transfer of credits of less than one million dollars to private banks, then raise the ceiling gradually until he reached the credits of less than ten million dollars and have been to this move a positive impact on private banks to acquire expertise in the field of documentary credits. and I can say that the case today after twelve years and that has changed the Iraqi private banks have evolved to have the experience that you need in the field of documentary credits and from here we see that the reasons for the establishment of trade Bank of Iraq no longer exists as to keep it for long term will be a hindrance to the development of private banks and therefore we need to develop a time frame for the liquidation of the bank and the transfer of its functions to the private banks. Third -tharia chock institutions laws is known that one of the banking sector attributes are small proportion of deposits to both GDP and currency outside the banking system, it is financial stability report issued the central bank, we find that the total deposits in banks at the end of 2013 had reached 49.8 trillion dinars, equivalent to only 18.5 percent of gross domestic product Offer no two differ in that the diminutive deposits attributed to the multiple failures of banks to repay their obligations to depositors on demand and no guarantor for their deposits, as happened to the Bank of Basra and Warka Bank, but that there are seven other banks are currently reluctant to exchange drawn instruments in when you see a bank of Dar es Salaam and the north, the economy and the Islamic country and the Middle East, the Iraqi Investment and Babylon. to restore citizen's confidence and encouragement in order to retain Bmdkharch in banks rather than keep them under Wanger only legislation Corporation Law guarantee deposits that would reassure savers their savings on the one hand first and second hand materialize call for the enactment of another institution dolly is the loan guarantee institution. Fourthly - lost in investment spending is no doubt that the most affected by the the current crisis is the lack of investment projects provide funding for the completion of the general budget will push many of them to stop or she had actually stopped working indefinitely, particularly those below completion rate was fifty percent. There is no doubt that the losses that would result from the work stoppage will surpass all expectations and exceeding all estimates, as well as the loss of what was spent by fully or almost completely there loss of employment opportunities in the construction and operation phases and the loss of expected production, including after the completion of whether this production for domestic consumption or for export or both, as well as losses and other serious hard-counted in this quick, I hardly need to point out the future devastating effects on the national economy caused by the interruption or diminution spending investment. With that in mind we see that it is vital to pushing the operating banks in Iraq to save can be salvaged from endangered to stop projects, but it is necessary to examine the potential for banks to compensate for the investment industry for dwindling investment spending from the general budget, it is statistical bulletin of the Central Bank and its report on financial stability for 2013 we note the following: retention banks highly liquid reached 68 percent in 2013 the banks do not find viable opportunities to invest its funds. diminutive credit ratio awarded by banks to GDP compared Bnsptha in Jordan, Lebanon, Kuwait, Bahrain, and to a number of reasons, including high interest rates as well as the faltering recovery and repayment of the reasons we are not in question here. diminutive banks' capital and reserves and deposits as indicate the central bank reports referred to above that the overall money and sound capital reserves for banks operating including government banks and branches of foreign banks 9.07 trillion dinars has reached, or about 3.4 percent of all of the gross domestic product. The private sector deposits has reached 49.8 trillion dinars, just as I said. High interest on loans General banking facilities, prices, ranging that between 10-14 percent annually on the dinar and the dollar is clear that the interest rates these hamper borrowing for investment purposes and that there is a disparity range between interest income and interest the city and see not exceed the interest to fund projects 4 percent a year. Operating in Iraq banks and credit shall not be granted is still only in exchange for real estate guarantees in the first place or land or other assets as shares in companies in the sense that the feasibility and cash flow studies for projects that do not accept as collateral for the granting of credit. Foregoing clear that for the banks, the promotion of a serious contribution in the reconstruction and compensation for decreased appropriations from the general budget by finding solutions to the three obstacles: trust placed the limited capital available Secondly interest on loans and credit facilities rate the third is loans and other banking facilities guarantees. the obstacle little capital there is a single solution is to enter the banks in loans Post syndicated loans and in accordance with this style the one bank can be involved a certain percentage of the loan amount determined by the administration according to their available liquidity. It is the common benefits of these loans it guarantees for banks to reduce risks risk mitigation bank is a very important principle. There is no doubt that the creation of a secondary market to handle this portfolio will be a factor Sanda and encouraging banks to invest in. The obstacle differences in interest rates on credit between commercial rates required by banks and those that keep the economic project feasibility economic ie no more than 4 percent a year, as I said can processed by one of two methods, or both, and the first of these two modes lies in the willingness of the central bank to reduce the percentage of legal reserve legal reserve requirement on the amount of the loan to offset the bank or lender for the interest rate differential. It is known that the central bank instructed banks are obliged to keep reserves for legal deposit 15 percent of the amount of deposits in the bank keeps 5 percent in its vaults with the 10 percent deposit with the central bank. The second is the federal government or the province involved in the project to bear the interest rate differential. The two modes can be combined with any burden-sharing between the three parties of any central bank and the federal government and the province involved in the project. The safeguards around the loan can be the Ministry of Finance can play a complementary to be the foster loans, including responding to the conditions of the banks and encourage them to participate in the financing plan role investment. It remains to be asking the provinces that are not affiliated province that suggests the most important projects that are not allocations have to be presented to the banks in order to arrange funding for one or more of them depending on the availability of financial resources from the banking sector. It should also be selecting a banker, who commands the joint arrangers Lead manager in accordance with well-known within the syndicated loan practices and we can discuss this aspect of the plan with the technical services in the Ministry of Finance and the Central Bank and working in banks and Iraq. Banker Iraqi *


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