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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


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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    Causes and effects of potential loan of the International Monetary Fund for Iraq

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    Causes and effects of potential loan of the International Monetary Fund for Iraq Empty Causes and effects of potential loan of the International Monetary Fund for Iraq

    Post by Rocky Sun Jun 19, 2016 11:17 am

    Causes and effects of potential loan of the International Monetary Fund for Iraq
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    Public loans is one of the public finance policies resorted to by developed and developing countries alike, to cover public expenditure (current or investment or both) that fail to domestic financial resources for its coverage, these loans are not exempt from the effects of which can be let go, whether positive or negative and the producers or consumers, and the current or future generations ... etc. It's important to leave a clear impact, and this prompted some study and analysis of the causes and potential effects of the IMF loan to Iraq of $ 13 billion which was agreed upon which falls on Thursday 19/05/2016 after negotiations lasted for four days.

    There are reasons why Iraq resort to borrowing from the United Nations, the International Monetary Fund, a low necessary to cover the overhead of local resources, since it is known that the Iraqi economy depends and very significantly in the financing of the general budget on oil resources (which contribute more than 97% of the total public revenues in 2013 and earlier during the recovery of oil prices, but fell with the drop in oil prices to make up more than 83% and 85% of total public revenues in 2015 and 2016,

    respectively) which are to fluctuate as a result of fluctuations that occur on the prices on the one hand, the hand Other oil prices are determined by external factors (global markets), and thus can not be controlled, any fluctuation affects prices quickly reflected in the decline in oil revenues, which represent President supplier to cover overhead, are resorting to borrowing.

    As well as the low volume of tax revenue which is the indicator of how the economy develops or not, as the agricultural and industrial economic activities, construction, electricity, etc., whenever they are more productive and able to compete with foreign goods similar, whenever helped to increase tax revenue further, and this is what helps cover public expenditure without resorting to borrowing, but this did not happen in Iraq,

    as tax revenue accounted for only 2.29% of the total public revenues in 2013 and then improved to constitute approximately 6% and 6.96% of the total public revenues in 2015 and 2016 respectively, and this the improvement was due to lower oil prices, but the result even with the improvement in tax rates has been to resort to borrowing because of the very low contribution taxes in the budget.

    Iraq that also did not work to increase only capital expenditures but also reduce the proportion of 39.81% in 2013 to 34.49% and 27.14% of the total public expenditure in 2015 and 2016 respectively, and continued to increase the size of the operating expenses (current) of 60.18% in in 2013 to 75.68 of the total public expenditure in 2016, particularly military expenditures (Ministry of Interior and Defence) to meet the organization Daash terrorist,

    as contribution from 13.82% in 2013 rose to 16.84% of the total public expenditure in 2016, and this is what leads to an increase domestic demand as a result of inflexibility Iraqi production device, any lack of production growing demand for a response, so it will meet domestic demand from abroad by increasing imports, and this adversely affects the balance of payments situation (ie, for the case of the deficit).

    Iraq is required to further external borrowing to finance the balance of payments deficit on the one hand, the impact of imports on the competitiveness of similar domestic goods that did not bear more taxes because any increase in the size of the tax would have an impact adversely on the level of economic activity on the other.Iraq did not contribute to building the productivity of a variety of active base contribute to the construction of the vessels in order to tax the state can impose taxes in the shadow of the drop in oil prices, exceptional circumstances, so that the face of declining oil revenues, which is funded by the president to meet the needs of public expenditures.

    As well as corruption in all its forms, administrative, financial and economic causing wastage of financial resources, as the annual report is a summary of the Integrity Commission for 2015 indicates that public funds recovered worth (32,528,859,617) Iraqi dinars, through the conduct of investigative actions in a number corruption cases, while the public funds that were sentenced to judicial its response to the state treasury (63,283,302,513) Iraqi dinars.

    The money that prevented the body wastage and stop dispensing preserve public money through investigative procedures have reached (1,068,493,924,006) Iraqi dinars. For example, the oil ministry to prepare a study completed in 03.23.2015 for losses due to waste, neglect and mismanagement in oil production operations, because those losses were estimated Around (14.5) billion US dollars for the period from 2011 to the end of 2014,

    this what was expressed by oil Minister Adel Abdul-Mahdi, "this is the real corruption ... this is the real major losses and waste of funds" and there are an estimated amount of waste trillion dollars from 2006-2015 in the field of energy just how other areas? !!!.

    These figures indicate the extent of corruption in Iraq, which caused a decline in the volume of public revenue and thus increase the deficit in the public budget size and this is what pays about borrowing to meet public spending requirements.

    The economic impact of IMF loan

    Lies diagnosis effects left by external borrowing, $ 13 billion, the Iraqi economy is based on two points: the first point is the conditions attached to the loan in terms of both the benefits and the size necessary to repay the loan principal annual installments or in terms of conditions set by the international institutions of any IMF international as a prelude for borrowing, and these conditions danger lies in the mortgage and subordination of the Iraqi economy to international institutions and loss of independence.

    Because the lower the interest, the size of the annual premium is low, the more increases the ability of the Iraqi economy on the face of external borrowing and service (but after the compatibility with the second point) and vice versa, but what happened in this loan is that the loan interest was very low as it did not exceed 1.5%. were also identified for repayment of the loan within a period of five years,

    but after three years opacity grace, which does not repay the loan as soon get the country on the loan and allowed him to start paying the loan after three years, and the rate represents 7% to GDP and this is what It means that it falls within the optimal size of public debt as the 60% of GDP, is in many countries and economic unions acceptable ratio according to the international Monetary Fund and international standards.

    The head of the Commission of Economy and Parliamentary investment, Jawad al-Bolani, on Tuesday ratified May 17, "The IMF did not impose conditions on Iraq in return for lending, as some believe, but gave a vision to address the significant problems of the national economy, as a result of its dependence on oil only "noting that" the fund wants the Iraqi government to reduce its spending and focus on productive sectors to enhance budgetary resources.

    " The advantages of this loan make Iraq lucky to get it, and should be employed optimally to revive the Iraqi economy and stand on its feet, as it may not get foreign loans possess benefits available under this loan.

    The second point which is the activities that are directed towards foreign borrowing, they are investing activities (capitalism) or consumer (operational)? If the loan was directed towards investment activities will lead to the recovery of the Iraqi economy through the activation of inert such as agriculture, industry, manufacturing, tourism and other sectors, and building tax vessels able to afford the tax burden to cope with continued loan and its benefits,

    but if the loan was about consumer activity guide will lead to inflation, the emergence of even slightly, on the one hand, and on the other hand, the problem lies in the loan geared toward consumer activities is limited to the lack of production base to build reliable in paying back the loan and its benefits at the time of payment solutions.

    The economic impact of foreign borrowing

    Pass the economic effects left by the external loan in three stages:
    The first is to get the $ 13 billion external loan, which could be the Iraqi state used to strengthen the cash reserve Albala $ 54 billion to become the $ 67 billion sum, this will support the strength of the Iraqi dinar and thereby reduce the low purchasing power and not to the general price level to rise.

    But if the use of external loan for the purchase of goods and services, the effects left by the (loan) on the Iraqi economy is depending on the type of imported goods, it was the consumer that will increase the supply of these goods (consumer) and thus prevent inflation, though investment that will lead to expansion in the investment and raise the level of income.

    The second external loan spending phase, if the Iraqi economy to infuse this loan will lead to a state of inflation as a result of competitive individuals in the state to obtain goods and services on the one hand, and lack of flexibility of the production machinery on the other hand. And vice versa in the case of flexible production machine will result in the injection to achieve an increase in real output without for inflation. But even in the absence of the Iraqi flexible production machine will not get inflation, but simple borders, due to the leakage of any element is to meet the increasing domestic demand through imports.

    The third phase of the payment of external loan, the repayment of IMF loan and its benefits, requires a truncated portion of the purchasing power of consumers or producers of Iraqis and transfer to the International Monetary Fund to meet the continued payment of the loan and its benefits.

    Imposing taxes on consumption would reduce the amount of savings and then high interest rates and low investment and low gross national product size rates, and the terms imposed on producers, it is working to increase the production of local commodities costs and thus higher prices and therefore it can not compete with foreign goods at home or abroad

    Vtaatahtm local industries are resorting to outside to fill this local medicine on one hand, are usually repay foreign loans in foreign currency which negatively affects the dinar, Iraq's exchange rate, which leads to the events of a deficit in the balance of Iraq's payments on the other hand, the price, and both standpoints Tathera negatively on Iraqi economy.

    The social effects of foreign borrowing

    The social effects of foreign borrowing on the nature of the tax structure is based, if the tax system is based on indirect taxes, as is the case in developed countries, the Stoic true to the loan principal and interest are layered with high incomes and especially if coincided with the imposition of progressive taxation and this leads to a redistribution of income toward classes limited income, and vice versa, as is the case in developing countries and Iraq, including,

    any are re-distribution of national income towards high-income classes when the tax system is based on indirect taxes becomes then a real Stoic to the loan principal and interest are the low-income classes, the fact that the marginal propensity consumption is high among these classes, especially if it coincided with the imposition of top-down taxes.

    For example, the direct tax rate represents 32.81% of the tax revenue in 2015, while indirect taxes make up 67.18% of the tax revenue for the same year, this means that the repayment of the loan value and benefits in Iraq be borne by low-income classes as well as higher propensity marginal consumption, which is approaching the right one.

    Hamid al-Jubouri / Euphrates Center for Development and Strategic Studies

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