Monetary effects of fiscal policy in Iraq

Monetary effects of fiscal policy in Iraq

Date: 2016-01-23

A statement Center for Studies and Planning in cooperation with the Iraqi Institute for Economic Reform (IIER) seminar entitled (monetary effects of fiscal policy in Iraq) on Saturday Moavq23-1-2016, as the symposium included a paper presented by Dr. Bassem Abdul Hadi, head of research center at the National Investment Commission axes several, it represented an introduction on fiscal policy in Iraq of change objectives and the stability mechanisms, and the disruption of public expenditures and revenues in the face of financial sustainability, as well as financial dimension in the evolution of the money supply and prices, and then the independence of the central bank and the potential to achieve in a yield country and cons of daily currency auctions and positives and validity The central bank in shaping financial policy in Iraq, and touched at the end of the seminar to the problem of coordination between fiscal and monetary policies in Iraq.

The session was chaired by Dr. Akram Abdel Aziz, director of the Department of Finance in the National Investment Commission and Dr. Khaled Qahtan Abboud denominated paper researcher, the seminar was attended by a group of academics and specialists and a number of general managers from the relevant authorities, it was at the seminar open door interventions across questions directed to the lecturer and the answer, as Dr. Haitham al-Jubouri, Vice Chairman of the Finance Committee in the House of Representatives pointed to prepare a quick and urgent plans to address the economic crisis as a result of lower oil prices through the support of other sectors of the economy, development and give greater opportunity for the private sector, said Dr. Abdul Jabbar Ahmed al-Obeidi, Dean of the Faculty of Management and Economics at the University of Baghdad to prepare a comprehensive study to reform the various sectors of the economy through the bailout plan to support the current government reforms in the economic and financial fields and straightened, and works in collaboration with the researcher to develop a research paper in order to stand on the points raised during the discussions to be comprehensive and solid study that examines the most prominent of those problems that have been mentioned In the study it axes, and states that this is the first seminar between the statement Center for Studies and Planning and the Iraqi Institute for Economic Reform.

Coordination between fiscal and monetary policies.

Article 24 has been provided (to consult with the government) to hold the governor and other representatives of the Central Bank of regular meetings regularly with government officials to exchange information and views on the possibility of monetary and fiscal policy coordination, while Article 25 (acts on behalf of the government) to allow the government to provide Iraqi Central Bank to carry out maintenance of the accounts of the government and to participate in local and foreign borrowings by the government and managed as a financial agent.

Conclusions:

Despite the high proportion of investment expenditure to GDP, but did not exceed a rate of 9.6%, and in 2010, after falling which indicates policy spending power away from the rationalization of investment spending and the limited role and spur economic growth.

Characterized by investment spending during the period of the study the problems of poor implementation and slumping rates and that in terms of actual spending to the custom in public budgets as much as the average rates of implementation for the period (2003-2013) up to 60%, which reflected negatively on the growth of non-oil sectors of the economy in particular.

Through government investment multiplier study can be seen that there are three years during the period of study has appeared negative numbers signal which indicates the relationship between the dissolution of government investment and national income during these years as well as lower percentage for most other years.

Operating expenses have seen for the period under study relative decline to the total public expenditure and that of about 94% in 2003 to about 67% in 2013 in exchange for improved ratio of capital expenditures to total public expenditure, but it is still dysfunctional structurally as compensation of employees and social benefits formed side the most prominent of these expenses and that up to 62% on average for the period under study note that they have increased about 90% in some of the early years.

I was born the growing increases in operating expenses increasing pressure on imports to meet domestic demand of goods and services, leading to increased economic exposure of about 35% in 2003 to about 98% in 2010 though it recorded a rate of 63% on average for the period under study Moreover, reflected on the Iraqi dinar exchange rate against the dollar, rising from 1936 dinars to the role in 2003 to 1232 in 2013 despite the direct intervention of the Central Bank of Iraq to alleviate these pressures through foreign currency auction.

The period of study witnessed an increase in the growth of money supply in the broad sense rates, and the components of the money supply in the broad sense seen a clear change in the relative importance of cash equivalents which accounted for some favor (19%) in the annual average for the period (2003-2008) in exchange for this percentage decline in period (2009-2013) to about (15%) in the annual average.

The high proportion of monetary stability coefficient, which amounted to about 4.5% means that every increase in the GDP (1%) were offset by an increase in the money supply increased by 4.5% in the annual average for the period under consideration.

The expansionary impact of net foreign assets on the money supply, and of the limits of shows (55.1%) increase in the adoption of public spending on oil revenues, also marks the change monetary impact of fiscal policy paths across the width of cash from financing the deficit (before 2003) to the monetization of surplus Monetization (after a year 2003) in the framework of the disruption of public spending structure and its dependence on oil revenues, which mainly about money supply to an external variable which fiscal policy have a significant impact.

Increasing the volume of deposits with the banking system, which was reflected directly on the improvement of the cash center of government (with the exception of 2003 and 2004), which left the deflationary impact on domestic liquidity for the period in question, it amounted to (-74.6%) in the annual average.

The expansionary impact of the credit to the private sector reflects the limited impact of remittances treasury and government bonds crowd out private credit, as the joint-stock commercial banks in the acquisition of government financial instruments came across surplus reserves.

Recommendations:

Reconsider way trade-off between investment projects through the adoption of economic feasibility studies as well as financial programming method to select the best projects so as to achieve increased yield on the level of national income (multiplier of government spending), and beyond, "the problem of the whole multiplier" in Iraq.

Work to achieve financial sustainability and keep public spending from external shocks to public finances in Iraq as a result of oil revenues, and through the establishment of a sovereign fund absorbs the proportion of oil revenues, particularly in times of external shocks positive and invest these funds in safe windows.

The reorganization of the two paragraphs of compensation of employees and social benefits, including contributing to the reduction of social pressure on the state budget, by limiting the expansion of the public sector, as well as supporting the private sector through the promotion of the business environment to contribute to absorb surplus labor market.

Coordination between fiscal and monetary policies so as to contribute in reducing the inflationary effects of the policy agreement on the one hand and enhance the efficiency of achieving macro-economic objectives on the other hand, by setting clear mechanisms for coordination between them, as well as to maintain the independence of the Central Bank of Iraq.

Reorganization of public spending, especially operating it so as to enhance the productivity of public expense, and reduces the price effects of this type of spending as a result of the lack of flexibility of the production machinery in Iraq.