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The prospects for economic conditions in Iraq under the global recession - an early vision
1/5/2020 10:24:00
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The appearance of Muhammad Salih
First, preamble:
Looking forward to the country's economic map shows that it is still under the profile of the oil rents isolation and its contraction from the joints of macroeconomic activity and the possibility of this decline continuing for more than a year or years, to drag the country into two different scenes according to the approved economic (financial, monetary and commercial) policies that will be addressed later.
As Standard and Garter International Bank warned, for example, not limited to, according to its recently published studies, predicting that the Iraqi economy will witness a contraction of about 7.5% in 2020 as a result of the agreement (OPEC +) and the repercussions of the price war in the oil markets and the corona wounds that are currently hitting the country. As the aforementioned bank had previously predicted positive growth of Iraq of (+2.1 percent) for the year 2020 at least, and there are other expectations that estimated that growth with more optimistic conditions to reach (+ 4.7 percent) in the current year according to the expectations of Fitch International.
The World Bank has already built its forecasts for the Iraqi economy on the basis of its oil exports, local currency exchange rates against the dollar and non-oil imports.
“Our classification (of the Iraqi economy) was based on both the signing of the (OPEC +) agreement and the trend towards a deeper recession in the non-oil sector in light of the turmoil related to Corona or others.
The aforementioned bank also raised its expectations regarding the budget deficit and the current account of the balance of payments to 13 percent and 11 percent of GDP, respectively, after it had previously expected it to be 10 percent and 8 percent, respectively.
And that bank was more likely to face difficulties in facing the prolonged decline in oil prices without external support, as claimed.
Second, potential economic policy.
There is no doubt that the early caveats of what the macroeconomics will lead to external financial stress tests or the current account deficit of the balance of payments in relation to GDP and the variation of other pessimistic forecasts in this regard in the year 2020, which the maximum (i.e. the current account deficit to GDP) increased by 16 percent Due to the deterioration of oil revenues, and this is linked to the deficit of the public budget and the emergence of twin deficit, that is, the internal deficit in the general budget and the external deficit in the current account of the balance of payments simultaneously. Thus, there are two scenes explaining the possible economic policy of Iraq in the circumstances of the international recession, namely:
: the first scene
Inflationary finance
That is, in its tracks of financial policy in financing the budget deficit and continuously through the continuous liquidation in the usual internal public debt instruments such as treasury transfers and others, the expected economic possibilities will indicate in this scene that hyperinflation occurs in two decimal places, either expressed in the general level of prices or In its upside down, we mean the deterioration of the purchasing power of monetary union and the birth of a parallel price-driven exchange market that takes control of the country's price paths, i.e. market leadership for prices with a highly flexible liberal. The central bank reserves will then decline as a way to defend the constant stability of the exchange rate by being nominally fixed. Then it will lead to the parallel market as we mentioned the price leadership as an alternative to the intervention of the central bank and reappear the dominant forces (trade) generated (for inflationary expectations) and the drivers of price turmoil.
The second scene or the second scenario
Financial dripping method
It is an austrization approach in running the public budget and public spending and rid it of a large deficit that is outside the bands and international practices (which depend on narrow limits to the deficit in the public budget that does not exceed 3% of the gross domestic product) .Also there is limited or codified cooperation for monetary policy within the limits that allow It has the Central Bank Law in force from interference in the money market and secondary markets in the sale and purchase of various financial instruments. We believe that this approach will generate stagflation inevitably stagflation and its beginnings is that unemployment jump to double limits (greater than the ten decimal places for the current levels of unemployment amounting to h The prices of imported or foreign commodities will also become inflamed due to the difficulties of financing foreign trade in foreign exchange, and there is an apparent scarcity of foreign goods and services whose scarce supply will remain highly valued and linked to inflationary expectations (which may be launched by the parallel market) towards a generally weak demand. In spite of this, inflation will witness gradual growth, but it will be slower in its decline than it was diagnosed in the first scene for two reasons. First, the persistent scarcity of domestic liquidity in the majority and fear of the unknown uncertainty among individuals will generate a state of liquidity traps and keep the cash and will be a broad case consistent with stagnation Economic, but accompanied by inflated interest rates that are proportional to the liquidity traps, which are almost real interest. Second, unemployment will take dangerous levels in all its forms that exceed the state of gradual inflation itself, and many marginal economic activities will be generated by services with added values that remain modest. D wealth gap and prevalence in the prosperous rentier economy, and in the short and medium term at least. Some of which are, for example, agricultural activity whose inputs will remain dependent on foreign supplies and are expensive unless they receive wide support from the state ??? .
This necessitates extreme caution towards reviewing the budget structure fundamentally and avoids the country resorting to the risks of excessive financing with a deficit to support the operational budget budget through borrowing or external borrowing or resorting to more flexible internal borrowing. Financial indicators of debt bearing capacity still confirm that the ratio Debt to GDP is about 56%, and what we are calling for is not an invitation to austerity, but there is a call to re-engineer the Iraqi public finances and spare the public budget problems equivalent to the so-called soft budget constraints in which spending has become easy via Help government advances, overdraft and borrowing in the hope of quick possible government revenue.
In conclusion, we see and certainly that even in light of the scenario of distillation or fiscal austerity and the extent of the total economic contraction, the priorities of economic policy will remain constant support, especially for the agricultural sector producing food security, as well as to secure the humanitarian and necessary needs in the minimum through international cooperation and its financial leverages inevitably.
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