Al-Alaq: The volume of currency in circulation exceeds 100 trillion dinars.

The Governor of the Central Bank, Ali Al-Alaq, confirmed on Wednesday that the size of the foreign exchange reserves exceeds by 140% the local currency issued, which amounts to 100 trillion dinars. While noting that Iraq has the foundations of monetary stability, he indicated that next year will witness major transformations in the restructuring of government and private banks, revealing at the same time that Iraq's external debt currently amounts to $20 billion.

Al-Alaq said, during his participation in the Middle East Forum 2024 (Miri) session in Erbil, that "this forum is important and constitutes an important platform for exchanging ideas and studying various aspects of the economic, social, political and developmental reality," stressing that "the Central Bank cannot reduce its role to the currency sale window or marginal activities, but rather represents a fundamental pillar of economic and financial stability in the country."

He added, "The basic and first dimension in the work of the Central Bank is to achieve stability, especially monetary stability, and this is translated by the measure of maintaining the general level of prices, controlling inflation, reducing inflation, and managing the monetary mass so that there is no surplus that leads to inflation or a scarcity that leads to deflation," indicating that "after 2003, we inherited an abnormal situation devoid of a real basis for monetary stability in Iraq. All of the Central Bank's reserves in 2003 were $900 million seized by Qusay Saddam Hussein on the eve of the fall of the regime. This means that Iraq started with reserves of "zero" and the size of the monetary mass in circulation was about 4 trillion dinars."

He continued, "Today, we have more than 100 trillion dinars in circulation (issued currency), not all of the money supply, and reserves of more than 100 billion dollars, which means that the Central Bank has achieved an important basis for monetary stability," explaining that "inflation is the basic measure of the Central Bank's ability to perform its mission and basic function. It is less than 3.8%, which is considered a typical percentage that actually achieves stability and prosperity."

"We have foundations to achieve monetary stability in Iraq through inflation indicators first and the sufficiency of foreign currency reserves, which exceed 140% of the issued currency and reserves of 140% of what constitutes a great guarantee of monetary stability, which is considered a very high percentage and is a number that constitutes a guarantee of monetary stability," he said.

Al-Alaq explained that "the Central Bank is moving towards the developmental dimension of the transition to the digital economy and advanced digital payment systems," stressing that "16 electronic payment companies have been granted a license, and we also have companies for electronic wallets, and we are working on licensing digital banks and establishing a national electronic payment company that undertakes the operations of organizing electronic payment," stressing that it has reached advanced stages in partnership with the Central Bank.

Al-Alaq pointed out that there are "two major plans, the first to reform government banks and the second to reform private banks by contracting with international companies that carry out this task, and next year will lead to major transformations in the restructuring of government and private banks," revealing work on relicensing private banks according to new foundations and standards that take into account governance, transparency, reform and ownership structure in harmony with international standards."

Al-Alaq continued, "The Central Bank of Iraq is directly stimulating the economy through the lending initiatives it provides to various sectors," explaining that "the amount of money lent to investment, residential and industrial complexes has reached more than 13 trillion dinars," indicating that "the amount lent exceeds all loans provided throughout the history of the Iraqi state." 

Al-Alaq revealed during his speech about "a trend to stimulate financing small and micro-enterprises according to a large program by establishing Riyada Bank, which will be a center for financing small projects according to an international experience that has proven economic stimulation, employment and growth."

The Central Bank Governor confirmed that "we noticed in 2023 that the inflation rate was 7.5%, so the Central Bank had to take some tools by withdrawing part of the monetary mass from the liquidity to reduce the level of inflation because this is the basic criterion and measure of the Central Bank's ability to achieve its most important goals, and we always ask in the media how much is the exchange rate, but the correct question is how much is the inflation rate. This is the correct question because if the inflation rate is low, this means that the Central Bank was able to provide foreign currency for foreign trade at the official price, and it means that the Central Bank controls the size of the monetary mass correctly."

He added, "We return to point out that in 2023, inflation was 7.5%, and there was a very rapid growth in the money supply compared to 2020, as the volume of currency issued was 46 trillion dinars, while it reached 100 trillion at the end of 2022 and 2023, which means that the growth rate within two years is equivalent to the growth rate in 18 years. This means that the Central Bank must focus on this growth in a way that prevents inflation. When we decided to withdraw part of the liquidity, one of the tools was to raise the interest rate to attract savings, and we used an interest rate of 7.5% and we were able to attract trillions of dinars and control the level and levels of the money supply."

He added, "For the first time in a whole year, the level of the money supply did not rise and remained stable. This indicates that our measures and reliance on this interest rate achieved its goal. The Central Bank is an institution that bases its calculations on achieving goals, which is what we did. We withdrew part of the money supply after we noticed that growth had stopped and we had to implement measures to prevent deflation. When we succeeded in doing so, we returned to an interest rate of 5.5% when we noticed that the goal had been achieved.
" Al-Alaq pointed out that "determining the interest rate between raising or lowering the current rate depends on the indicators monitored by the Central Bank, as we resort to raising the rate when inflation rises in order to reduce it."

Regarding the public debt, Al-Alaq explained that “the state’s general budget sometimes shows a large deficit, and covering this deficit is through debt, which is easier and closer, and is done through borrowing from government banks, which represents an internal debt. The deficit comes from the continuous increase in expenditures, which is not matched by growth in revenues, especially local revenues. Therefore, there are now binding and inflexible expenditures in the state’s general budget, for example salaries, which occupy the largest expenditures, and some necessary expenditures. Iraq relies on oil revenues to cover its expenditures almost entirely, and any fluctuation in oil prices is reflected in covering these expenditures, which have become fixed and cannot be reduced.”

He continued, "The major challenge facing the Iraqi economy and what the government is currently seeking is to try to find new channels to diversify the Iraqi economy, and this is achieved by expanding the local production base, whether agricultural, industrial, service, or various sectors, especially with the existence of huge opportunities in Iraq for investment by taking advantage of the existing natural and human resources that should lead to correcting the current financial equation, by keeping pace with the economic cycle. This requires a policy that maximizes non-oil revenues and at the same time controls the level of expenditures."

Al-Alaq pointed out that "the new thing is that the external debt is at its lowest levels and currently reaches less than $20 billion, and the largest debt is the internal debt."

Regarding the budget file, Al-Alaq said, "Building a three-year budget is an important experience that has created stability in implementation, and it is something that several countries have worked on before Iraq. The budget naturally needs to issue tables every year and perhaps some amendments due to a number of variables, including the price of oil, and estimates related to public finances must be accurate and based on standards, foundations, and systems that can accurately determine the required cash flows, the size of obligations, and the historical data on which the current data is based."

He pointed out that "Iraq needs to provide an accurate and advanced financial data system that can provide the budget with correct and accurate data so that the budget is built for more than one year accurately. These practices are necessary in preparing budgets to discover challenges, weaknesses and strengths."

On the subject of banks, Al-Alaq explained that "the government banking sector constitutes 80% of the banking sector in general, but unfortunately government banks remain burdened with many accumulations of the past and its problems and the passage of many decades without developing their capabilities."