Iraqi Government bonds and the policy of public debt

Iraqi Government bonds and the policy of public debt

02/09/2016 (00:01 pm) 

d. Ahmed Ali Ibrahi

Government debt securities of investment instruments in the financial market, including bonds, and bond as a contract between the borrower, the government, the investor, a lender winning Sindh. And debt securities differ from bank credit at ease circulation and the functioning of the monetary policy through open market operations. As the central bank can expand liquidity acquisition of government debt securities from the secondary market, which is intended Ptnqad religion, or scaled liquidity give them any sold to banks. The size of the government debt is subject to the terms of the sustainability of public finances and debt, including the debt remains within the scope of the ability to achieve future surpluses in the general budget of the stopper. It must be consistent borrowing, by issuing additional debt securities, with the appropriate size of government spending, so that eschews fiscal policy, inflationary pressures on the one hand, and on the other hand, not to expand the deficit balance of external payments to the extent that it does not allow its foreign currency reserves and soft loans from abroad . The issue of government debt securities Bamad different time, for example, from one month to 30 years in Britain the number 17, a period of time, in order to respond to different market preferences. In Switzerland, from day one, which is called investment and night, to 30 years, and in France from one month to 50 years, and issued government Algik, too, bond duration of 50 years. In Egypt, there are lending to the government from day one to ten years, ..., some countries only issued one year or more, such as South Korea, Iraq and the issue of remittances closet three months and six months and a year, and is now in the process of issuing bonds is probably not more than three years standing. Government borrowing in general purpose funding of the budget deficit, and if the duration of borrowing without the three months to the day, this borrowing is linked to, at most, temporary deficit in the cash balance, not necessarily for lack of revenue for the expenses.

Usually called the government debt securities for more than a year bonds, without year remittances, sometimes launches bond at all durations. Government debt instruments does not necessarily take the form of securities, in a literal sense, but also documented the point designated by the applicable regulations, and the central banks and financial markets of the accredited documentation, see this as a trustee between the investor and the paper religion and government, which issued a paper holder. And it invests a large portion of the reserves of the central banks of developing countries, and the money their governments, which modeled on reserves, such as stability funds and future generations, in government debt securities of developed countries.

And charged to interest on the debt short-term, money orders, when payment is called a coupon of zero leaves a discount papers, in the sense what, because Almstmr pay less than the nominal value, the phenomenon of the transfer and receive the nominal value when the term. The bonds Vtervq the coupon interest rate is called the coupon rate, and pay interest every six months, and Hoalgalb, and can shorten payment periods. And government debt securities tradable and therefore may Almstmr buys a bond for a period of thirty years, and abandon him in the market after a period has been lengthened or shortened, and not have to keep him until such term. The value of the bond market may be changed to differ from the nominal value, or the issue price, depending on changes in market interest rates. When interest rates go down, without the price of the coupon, the value of bonds go up in the market and vice versa. The government debt securities risk-free because the government does not fail to pay their debts. And interest on the bond amount remains related to the price of the coupon is calculated on the nominal value of the bond, regardless of the market price. Because the bond's market price, meaning its value, the change depends concept of return on the bond, and intended internal rate of return, which is the discount rate that makes the present value of the payments and future interest with the nominal value of the bond equal to its market value at the present time. And a rate of return on the bond, in most cases, lower than the interest rate on bank lending, and always intended annual interest rate and the rate of annual return and compare with the following interest rate on bank lending with the annual rate of return for guaranteed three-year, because the bond Iraqi anticipated this duration : in Brazil, for example, the interest rate on bank lending 32 percent rate and the rate of return on the bond 15.5 percent, almost; in the United States, the interest rate on bank lending of 3.3 percent and the rate of return on a bond of 0.9 percent, below one-third; and in South Korea, 4.3 percent of bank lending and the rate of return on Sindh almost 1.5 percent, and in India, 10.3 percent of the bank lending interest rate and the yield on the bond is almost 7.5 percent.

typically the annual rate of return on the bond increases with the length of its duration. And explains the varying states in interest rates and rates of return on bonds of altered rates of inflation, because one of the functions of the interest rate or yield on the bond to prevent inflation. In countries of high financial openness affect exchange rate changes to interest rates lower When the exchange rate of the currency, which was issued by the Sindh investor asks instead at an interest rate higher. But states are sometimes deliberately cut interest rates, and the yield on the government bond, known to lower exchange rates in the hope of increasing its export policies as it did Europe, the euro against the dollar, and other countries. In recent years, rates of return on government bonds in developed countries generally fell because bonds represent a safe haven from risk. The annual negative returns on government bonds in France for the duration of the bonds without seven years, and in Germany and the Netherlands for bonds without eight years, and in Sweden without the seven years. Estimates, according to one report, with negative returns debt by 5.5 trillion dollars in the world. Usually seen as the Sindh government in the financial market as a reference to know the interest rates, measured by the risk margin of difference between the interest rate on the debt, or designate a loan, and the rate of return on a government bond of the same term. But the relationship between the yield on the government bond and interest rates may panic in sovereign debt crises, a crisis you get towards the external debt and internal Ouandma not be the currency independent of religion and state authority, such as the case of Greece. In Iraq, the inflation rate was low in the previous years does not exceed 3 percent in the recent past, and this is a positive feature for the investor and the government. Preferably bond offering to be issued at an auction, especially the new versions in the market, such as the case of Iraq, because it is difficult to leave interest rates of jurisprudence, or at least follow the procedures mimic auction gradual interest rate, ie the price of the coupon, up.

It can take the bond issuance platform for the development of policy and management public debt in Iraq, and by completing the technical infrastructure from the founding of the budget cash management system, in two currencies, tying the open budget accounts with banks the main budget account in the Central Bank. And also the interest rate on Treasury prices remittances coordinate with the interest on the deposit and lending banking and interest rates on the investments of banks at the central bank tools prices, all with the yield on the new bond. The required coordination is not easy, even in developed countries financially, but action is needed to reduce the inconsistencies to the lowest possible. The principle is known coordination which is that interest rates are increasing with length of term and risk, and increase the average interest rate is a direct relationship with inflation. As the financial market in Iraq lacks the depth, as the total volume of credit and government debt instruments and equities held by the private sector a few financial assets relative to GDP. On the other hand, the total deposits of the private sector may not exceed ten percent of the GDP. Therefore, the role of the central bank becomes the key to providing the market with liquidity and to facilitate the commercialization of government debt securities, and the inclusion of bonds purchased by banks and open market operations usability of any deduction at the Central Bank. The remaining sources of funding from the private sector is limited, these years, until the boom of investment activity in Iraq and the deepening of the financial market. Here, too, we do not rule out the return of some of the Iraqi capital from abroad, and they can be to allow foreigners possessing bonds, such as allowing them in the possession of the Iraqi stock. And gradually gaining expertise relevant departments through work, and adaptable controls and procedures with the requirements of the financial market development in Iraq. Some may see the difficulty in determining coupon bond auctions as long as prices are meant for the public to participate in the purchase. But this issue treatable perhaps through the representation of banks to the public in the auction, or other innovative arrangements. It was among the reasons for the reservation to put up bonds for durations of time beyond the fear of handcuffing budget benefit payments for a long time while it may no longer be the need for religion when improved oil prices and Iraq's return to the normal situation. And solutions based in other countries, to this issue, retain the issuer of the bonds early right after the fire fighters are determined by the duration of the passage, and there is no objection to the government's use of this right. It is an investor as well as quite a bit of a bond issue gives him the right to early amortization and determines the auction price of the coupon bonds with these advantages to the government or pregnant investor support. To emphasize the deliberative bonds, to reassure winning their liquidity, it is appropriate to initiate some banks to announce its readiness to buy bonds from the secondary market, with the central bank is prepared to treat the bonds held by banks such as remittances in susceptibility to discount. And government bonds of excellent guarantees in the banking borrowing, another advantage for the investor to these tools.