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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

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    The Iraqi economy and the risks of unsustainability of internal public debt

    Rocky
    Rocky
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    The Iraqi economy and the risks of unsustainability of internal public debt Empty The Iraqi economy and the risks of unsustainability of internal public debt

    Post by Rocky Wed 04 Oct 2023, 3:20 pm

    The Iraqi economy and the risks of unsustainability of internal public debt

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     Dr.. Haitham Hamid Mutlaq Al-Mansour 
    , despite the controversy of economists on the issue of internal public debt, and with the increasing social and political pressure on the public spending policies of the Iraqi government to fill the important gaps in the service reality and the practice of economic activity, and in light of the sharp decline in the elasticity of non-oil output with insufficient oil revenues. Despite its huge size to finance the general budget deficit, the realistic alternative internal public debt practiced by the monetary authority comes through its restriction of this type of financing, including expanding the scope of the money supply with its relevant mechanisms and tools, and based on the economic reality, the size of this debt has become large compared to the sharp decline. In the efficiency of the financial market.

    Therefore, it is not surprising that the Iraqi economy is witnessing an increase in the growth of the size of the internal public debt, as it represents the quantitative balance of the financial deficits accumulated since 2004 until now, at an amount estimated at about 70 trillion dinars, according to the latest official statistics of the Central Bank, to be accompanied by raising the monetary policy interest rate from 4-7.5%. The interest rate on Central Bank of Iraq instruments was raised from 3-4% to 7.5%, in addition to raising the legal reserve ratio from 15-18%.
    Despite what the Financial Sustainability Index for Internal Public Debt reveals, that its ratio to the gross domestic product in Iraq ranges between 30-35%, which is a fairly acceptable ratio economically compared to the international standard ratio of 60%, the specter of the expected risks of unsustainability remains. Internal public debt is not far off if the relevant specialized policies are not prepared and enabled through the following signs:
    1. Risks related to the stability of the relative value of the debt after the growth rate of the real value of the debt is close to or greater than the growth rate of the real GDP, and from there the real value of the government’s financial assets, the debt instrument, will decrease, and with it the government’s ability to repay will decrease.
    2. Deepening the rentier economy due to not following macroeconomic policies that attract strategic investments that enhance the growth of non-oil GDP, which means that the macroeconomy does not depend on the traditional general balance, which implies the existence of a real investment sector for goods and services outside the oil sector, including compensating the values ​​of the oil rent through Generating real values ​​is an original source of financing the deficit.

    3. Weakening the ability of monetary tools to create an overall balance and compensate for the government deficit by attracting and investing funds, instead of central bank funds. Therefore, the continued rise in the volume of public debt with the ineffectiveness of the interest rate tool indicates a real danger to the efficiency of the financial market.
    4. Iraq follows a system targeting a stable exchange rate and low inflation. Accordingly, monetary expansion by restricting public debt by the central bank should be accompanied by coordination between financial and monetary policies to reduce inflation.
    5. One of the risks of public debt growth is that it is considered a negative indicator of the performance of economic activity because the government follows a tax policy aimed at increasing the volume of tax revenues to finance the deficit, which leads to higher interest rates, including the emergence of the crowding-out effect.
    6. Not pumping loans into real investment projects in a way that makes the speed of output growth greater than the speed of public debt growth.
    7. The risks of high levels of government operating spending, most of which is employee salaries, and high levels of government appointments, which burden the general budget and increase the deficit rate, including government debt.
    8. The impact of weak public debt management on the independence of the monetary authority. As the size of the public debt increases and its circle expands, this affects the monetary authority’s tools and their effectiveness.
    Therefore, fiscal and monetary policies must draw up a coordinated strategy for the sustainability of public debt towards containing all its burdens and negative effects on the practice of economic activity and enabling payment, through comprehensive measures to diagnose the determinants and factors of attracting investment that enhances real values ​​and for the productivity of internal public debt to be an important factor in increasing the growth rate in the domestic product. Total.




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    Added 10/04/2023 - 8:42 PM
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