Steps economic reform in Iraq: to see from the outside / d. Haider Hussain Al Tohme

Steps economic reform in Iraq: to see from the outside / d. Haider Hussain Al Tohme

17/03/2016 0:37 PM

Dr.. Haider Hussain Al Tohme / Euphrates Center for Development and Strategic Studies

Increasing the plight of the Iraqi economy with the continuation of the sharp decline in oil prices and the government's inability to find new financing outlets contribute to the financing of the budget and the economy. This coincides with Daash war and the legacy of the losses affected most aspects of infrastructure in the liberated areas, as well as the need to ensure required for the continuation of military progress and absorb the displaced file finance and bring them back to their home areas. These files and other cast doubt on the Iraqi government's ability to contain the political, security and economic shocks vehicle and adapt to chronic decline of oil revenues, especially in the midst of a regional and global scene is complicated further by the government in the face of the challenges of the crisis.

However, IMF experts praises the government in dealing with the current economic situation of the country, despite the difficult circumstances experienced by Iraq, the authorities have succeeded in implementing many of the recommendations made by the Fund for consultations (Article IV of 2013). The Iraqi government is currently trying to get help and support of the International Monetary Fund to support its efforts to address the impact of the conflict with the organization "Daash" The drop in oil prices on the balance of payments.

In this context, we discussed the IMF's Iraq Report (issued late last year) highlighted the consequences of the double shock facing Iraq. The report also reviewed the major features of the financial and economic crisis in the country Marja monetary policy and highlighted the threats to the banking activity in Iraq challenges trends.

The first axis: the reform of public finances

Eighth International Monetary Fund, in a report released late last year on Iraq, the Iraqi government to try, through the budget year 2015, to address the pressures on public finances caused by lower oil revenues and the conflict with al Daash. Last year's budget has introduced wide-ranging measures to enhance revenue and cut expenses, which resulted in reducing the deficit (13% of GDP).

1. on the revenue side, the government has increased the income tax rates and raising customs duties and sales taxes on cars, tobacco and alcohol, mobile phones and Internet usage, and try accumulated on the institutions and citizens for years government debt collection. However, it faced a new trend among other challenges, most notably the weakness of cooperation and coordination between the central government and the provincial government, which a large number of laws malfunction (specifically customs duties).

2. Despite the government's effort of fiscal consolidation, but the government's fiscal deficit continued to increase, due largely to continued sharp to meet the major security and humanitarian needs in the country spending pressures. In addition to the reimbursement of investment contracts and international oil companies. Government authorities and believes that these items of public spending can not easily be reduced at this stage, given the difficulty of the prevailing security environment, economic and social challenges.

3. Government authorities in Iraq stepped up its efforts to find alternative sources of financing. With public financial reserves preventive force in the Development Fund for Iraq by the end of 2014, authorities are being forced to borrow from state-owned banks, which in turn receive support from the Iraqi Central Bank by discounts on government bonds, in order to finance government deficits.

4. The Iraqi government has pursued a strategy of prudent public debt management, it is currently examining the development and deepening of the domestic debt market development of new tools that will diversify its sources of funding. In addition, the government will strengthen the control of local debt maintained at sustainable levels. The authorities are tangible progress in the negotiations with creditor countries not members of the Paris Club, and expects to sign new agreements with some creditor countries this year, consistent with the terms of the Paris Club, the 2004 agreement.

5. The Iraqi government launched an initiative to reform state-owned enterprises to help alleviate the burden on the public sector. Has prepared this particular study envisages a systematic assessment of the cost-benefit in order to assess the ability of each institution to survive and to facilitate decision-making on closed or privatized or maintaining state ownership of them after making the appropriate re-structuring.

6. Authorities working to strengthen public financial management procedures have the support of public finances and the efficient use of oil resources discipline. As it continues to work on developing an integrated information system for financial management support from the World Bank. In addition, the State Council is considering a new law of public financial management would pave the way for the introduction of a single treasury account. The authorities will continue to rely on technical assistance from the International Monetary Fund and the World Bank to strengthen its efforts in those areas.

The second axis: the reform of the monetary policy and the banking system

1. Provides a stable exchange rate nominal head of the foundation of the economy in an environment beset by uncertainties, which makes it imperative for the government authorities to maintain the exchange rate peg to the dollar system in spite of the deterioration of the external position of the country. In an effort to allay concerns about the cash flow of illegal emerging from the country, the Central Bank of Iraq to reduce the sales of coins amounts, imposing in early 2015, pre-filing requirement duration of 15 days for foreign exchange transactions. In addition to that, the government imposed a customs union in advance of 5% tax discretionary income increase of 3% both let loose at the request of foreign exchange to finance imports. However, authorities rushed in the month of June last to the cancellation of these procedures; due to the high difference between the official rate and the parallel market rate significantly. The difference has been shrinking rapidly to about 6% by the end of the same month.

2. The CBI has intensified its efforts to strengthen the international reserves, which are still managing - despite a recent decline - beyond traditional indicators of the adequacy of reserves. As well as the Central Bank, with the support of technical assistance from the International Monetary Fund, to update the guidelines for 2008 on the management of reserves to bring them into line with the Central Bank of Iraq Law and fulfill quantify all the major strategic objectives of reserve management, including strategic asset allocation, and the limits of credit risk, and liquidity requirements. Central Bank of Iraq and works to achieve long-term goal for the transfer of international reserves to active management to Baghdad.

3. Because of the financial sector negatively affected by shocks that afflict the Iraqi economy, expects the authorities to increase non-performing loans as a result of declining confidence among business circles, and low private sector activity, and physical destruction and robberies on some banking institutions. So, the authorities have intensified surveillance and supervision of the banking business and cooperate with the International Monetary Fund to improve the financial soundness indicators have even comparable to internationally accepted standards.

4. The Central Bank of Iraq recently to renew his contract with the company (Ernst & Young), which works to improve the office and field control practices and participates in the training of observers. As well as the Central Bank of Iraq to appoint 35 new employees in the banking supervision department, which also intensify monitoring a bank Rafidain and Rasheed state-owned and influencers of the financial system.

5. What the Iraqi Central Bank still has important safeguards, including annual external audits conducted by audit firms with a good reputation as well as publication of the audited financial disclosures. Since the authorities require to take advantage of the resources of the Fund under the "rapid financing instrument", it is committed to completing the updated evaluation of safeguards with the CBI.

6. Government authorities intensify their efforts for the development of the banking sector, a key element in the long-term strategy to strengthen the non-oil economy and promote private sector activity. In order to achieve equal opportunities between private banks and state-owned banks, the authorities allowed public bodies to accept letters of credit and checks issued by the approved private banks. Can the Ministry of Finance to open letters of credit to the private banks by up to $ 10 million instead of $ 6 million previously. It was raising the limit for private banks to collect state fees. The government now allows for state-owned enterprises to open accounts, and retain deposits, and payment of salaries by the private banks. It is hoped that these initiatives will lead to new opportunities for private banks to provide services and compete with the state-owned banking sector. And works CBI Currently, the support of the United States Agency for International Development, to finalize regulations for the development of credit bureau information and consider establishing a system of deposit insurance.

IMF collar dependency or lifeline

Iraq is a very difficult historical period, where Tzafart political and security challenges with the economic to form a gasket hamper Iraq's chances of progress and well-being, and increase the risk of the country sliding in deep recession. In this context, the Iraqi government has recently sought to use the efforts of the International Monetary Fund in providing external financing, as well as to provide advice and consultation in order to maintain macroeconomic stability. Despite the caveats of the danger of dealing with the IMF and the threat that the loss of economic independence, most of the proposed policies (currently) consistent national and visions about economic reform.

On the other hand, past experience has proved, and unequivocally, the weakness and corruption of the Iraqi government in the country's economy management without supervision and accountability, especially after swallowing most of the economic, financial and monetary institutions from the presence of parties in power, and the dominance of mafias policy on the country's resources and wealth. Thus, the longer the Iraqi government's efforts to use international institutions to monitor and opinion, and advice for a long step toward the economic and financial reform at the moment, and establish sustainable economic development, with accuracy and caution in maintaining national principles and freedom of economic decision and taking into account the social situation.

And it requires the weakness of the state and the law on Iraq to deal cautiously with the international economic institutions and what they offer recipes ready-peer loans and financial facilities. In this context it should be noted a number of recommendations including:

1. valuing the role of government in the implementation of economic reforms and the support of the Central Bank and Ministry of Finance policies to achieve fiscal and monetary stability of the country should not be a prelude to a package ready by exporting policies to Iraq (such as raising support and salary cuts and layoffs ... etc.), And tied for the continuation of funding and providing advice.

2. incumbent on the Iraqi government if it was serious in maintaining the sovereignty of the economic and financial country, prepare a cadre of a national high of experts and specialists and a high degree of national experience in the Iraqi economy to achieve the greatest gains of rounds of negotiations with the International Monetary Fund and the adaptation of the proposed policies with the reality of the economic and social country.

3. Adoption of the principle of transparency and disclosure of all agreements between the Iraqi government and the International Monetary Fund agreements in order to examine and discuss all the reports and studies agreed upon between the parties, and opinion, and advice from the presence of researchers and specialists in the Iraqi economic affairs.

4. The use of the International Monetary Fund in the field of training and rehabilitation of the economic and financial cadres, and the adoption of the latest methods in the preparation of public budgets, reports and financial statements to reduce wastage and financial corruption outlets in the country, especially since the International Monetary Fund's long sold in this area.

5. Cooperation with the International Monetary Fund for a statistical database configured to accommodate all economic, financial and monetary sectors, and be a tool of researchers to discuss economic problems and to find appropriate solutions and the reduction of the discrepancy in the accuracy and reliability of the data at the moment.

* Euphrates Center for Development and Strategic Studies / 2004- Ⓒ 2016