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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

Many Topics Including The Oldest Dinar Community. Copyright © 2006-2020


    Pros and cons of external borrowing

    Rocky
    Rocky
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    • Post n°1

    Pros and cons of external borrowing Empty Pros and cons of external borrowing

    Post by Rocky Thu 16 May 2019, 2:45 am

    [size=30]Pros and cons of external borrowing[/size]
     16/05/2019 01:34 AM | Number of readings: 205
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    Dr.. Haidar Hussein Al - Tohma
    The double shock that struck Iraq in mid-2014 has forced a series of domestic and foreign loans to bridge the funding gap and keep the economy away from the sharp part of the crisis. The massive drop in oil prices and the occupation of a large part of Iraq's territory have led to a worrying decline in government revenues.
    Despite the relative recovery of oil prices, the liberalization of all Iraqi territory and the reduction of military spending, Iraq continues to borrow (both internally and externally) to finance the government's fiscal deficit.
    This has led to repeated borrowing to the high rate of public debt steadily, leaving the installments and benefits became exhausting the federal budget, as the payments and benefits of public debt is due to pay about 10 trillion dinars in the budget of 2019, a difficult figure will inevitably be at the expense of the efforts of construction and reconstruction and development Economic situation in Iraq. Currently, total public debt exceeds $ 130 billion ($ 41 billion in outstanding debt) and about $ 65 billion in foreign debt, and the remaining $ 36 billion in domestic debt estimated to 2018. To emerge with sound approaches to assessing overall borrowing risk (External in particular) should be broadened on the pros and cons of external borrowing to verify the financial and economic feasibility of the continued borrowing of the Iraqi government to coexist with the decline in oil revenues.
    The advantages of external borrowing
    1. A convenient source of funding for the government's fiscal deficit is the times of economic and financial crises.
    2 - improve the foreign currency reserves at the Central Bank and ensure monetary stability.
    3. Borrowing is a source of injection into the economy and its effects are positive in various economic sectors.
    4 - Achieves economic growth, provided the integrity of the government administration and efficiency in the allocation of funds.
    5. If external loans are granted in the form of public projects such as schools, hospitals, water and electricity, this contributes to improving the infrastructure.
    6. Investment of loan amounts contributes to the establishment of profitable business enterprises (factories and companies) in promoting growth, generating employment and achieving economic stability.
    7. External loans may generally be useful if they are not frequent and regular.
    8. External loans are useful if they are financed by public investment that supports infrastructure.
    It should be noted that all the pros of the financial and economic feasibility of the general (external) loan are linked to the integrity and efficiency of the government administration of funds and the lack of continuity in borrowing.
    The disadvantages of external borrowing
    1. Evidence of poor financial sustainability in the country and failure of the Government to mobilize financial resources in an optimal manner.
    2. Borrowing may be a result of public spending inflation in excess of the country's financial potential, which increases the government's desire to increase spending without paying adequate attention to government revenues.
    3 - Threats to borrow foreign currency reserves of the country when repaying loans in foreign currency, which may affect the stability of the general level of prices and exchange rates.
    4- Represents (premiums and benefits of external debt) a burden on future public budgets (as happened in Iraq's budget in 2019).
    5- The weak repayment of foreign debts leads to the reduction of the credit rating of the country and the resulting increase in interest rates and the increase in the size of the external debt.
    6. Continued external borrowing is pushing the national economy into a deep debt trap that is entering the country in severe economic and financial crises.
    7. In contrast to domestic debt, external borrowing (when repaid) represents an element of leakage from the income and economic cycle, which causes economic contraction when payments and benefits are paid.
    8. The conditional external debt (from IMF and World Bank) leads to the confiscation of the independence of the national economy and the control of economic policy and national sovereignty.
    9. External loans are a constraint on the balance of payments and difficult financial burdens for generations to come.


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