A Deficit Of 39 Billion Dollars.. A Specialist Comments On International Reports That Warned Of The “Collapse Of The Iraqi Economy”
Economy |12-23-2023, Baghdad today – Baghdad Today, Saturday (December 23, 2023), economic expert Manar Al-Obaidi commented on the international reports issued by the International Monetary Fund and the World Bank regarding the Iraqi economy.
Al-Obaidi told “Baghdad Today” that “there is ambiguity in the reports issued about the Iraqi economy, and there is a statement from the International Monetary Fund that was not positive, but rather wanted to formulate the matter in a diplomatic way that is more positive.”
He added, "The second report was issued by the World Bank, which is an extensive report that talked about the various aspects of the Iraqi economy, pointed out its shortcomings, and mentioned some important information that if it is not taken seriously by the government, we will be facing a major and difficult challenge that may lead to the complete collapse of the Iraqi economy."
The expert in economic affairs stated, “The World Bank report stated that if Iraq wants to spend all sections of the 2024 budget, the average selling price of a barrel of Iraqi oil must not be less than 112 dollars, but if the current price rates continue, it will lead to a deficit of 39 dollars.”
One billion dollars will be covered from the reserves achieved from previous years in which Iraq achieved a surplus, specifically in 2022 and 2023.”
Earlier today, Saturday (December 23, 2023), economic expert Nabil Al-Marsoumi summarized 7 risks facing Iraq that came in the latest report of the International Monetary Fund.
Al-Marsoumi said in a clarification received by “Baghdad Today” that
“despite the positive signals included in the report of the International Monetary Fund experts after their visit to Iraq on December 19, 2023, which included a recovery in economic activity in Iraq and a decline in inflation rates, the report indicated in detail some risks.” Challenging the Iraqi economy.
He explained that the most important of these risks are:
First: The significant expansion of public finances within the framework of the effective three-year budget law imposes significant and important risks on the sustainability of the public finances and the external sector in the medium term.
Second: Exercising caution in public financial conditions and implementing structural reforms are considered extremely important factors in ensuring the protection of macroeconomic stability and sustainability, and achieving lasting and more comprehensive growth.
Third: The decline in oil production after the closure of the oil pipeline linking Iraq and Turkey, and the reduction in production at the request of the OPEC+ group, will work together to reduce the growth of the gross domestic product in the years 2023 and 2024.
Fourth: The public finance balance is expected to transform from a large surplus achieved in 2022 to a budget deficit in 2023. Experts expect the size of the government’s fiscal deficit to expand further in 2024, reflecting the full annual impact of budget measures.
Fifth: The significant expansion of public finances, including a fundamental increase in the numbers of members of the public sector and retirement, creates permanent requirements for public spending that will put pressure on public funds in the medium term.
Sixth: Mobilizing more non-oil revenues, containing the wage bill for government employees, and reforming the government retirement system. These measures must be supported by a move to a more targeted social safety net that works to provide better protection for vulnerable groups.
Seventh: The necessity of creating equal opportunities for the private sector by implementing reforms in banking and the electricity sector, reducing distortions in the labor market, and continuing to make efforts aimed at strengthening governance and reducing the spread of corruption.
Iraq has experienced multiple devaluations and revaluations of the currency...From 1988 to currently where we are these are the major events that affected currency. 1988 the IQD as introduced. This was replacing the IQP (Iraqi pound). This was done at a fixed rate of 1 to 1.
You could exchange your IQP straight across 1 for 1 for the Iraqi dinar (IQD). 1990 when Bush went to war with Iraq of course the gulf war caused significant devaluation of the IQD. The currency lost about 80% of its value against the US dollar. You could exchange 1 Iraqi dinar for $0.31 cents US.
The funny thing is I would take that right about now because I have about four or five million Iraqi dinars. If it jumped up to $0.31, woo, I'd be happy with that because I'd get over a million dollars back. 1995 the IQD was officially pegged to the US dollar at a fixed rate of 1 IQD for $2.85 USD. 2003 we know the US led an invasion of Iraq...
This led to economic instability and currency fluctuations. The Iraqi dinar was devalued to around 1 IQD for $1.30 USD...Got rid of the ones with the faces of Saddam Hussein... 1 new IQD was equivalent to 1,000 old IQDs. In 2012 the central bank...allowed the IQD to float freely. This led to a significant devaluation of the currency with the IQD losing 20% of its value...
2014 IQD experienced another devaluation. This time it was due to the decline in oil prices and conflict with ISIS. The currency lost about 15% of its value against the USD. [Later] the CBI implemented a new exchange regime allowing the IQD to float freely against the basket of currencies. This led to further devaluation of the currency with the IQD losing another 10% of its value against the US dollar and then not even a year later to turn around and...increase the value of the Iraqi dinar exchange rate...So yeah at one time the Iraqi dinar was more valuable than the US dollar. Do I think it can get there again? Of course I believe that absolutely but there are hurdles that Iraq has to get over.
The Council of Ministers approves the draft economic reform law and issues a number of decisions, 26 DEC
Politicy: Al-Furat News} Prime Minister Mohammed Shia Al-Sudani chaired today, the fifty-second regular session of the Council of Ministers, during which the general situation in the country was discussed, discussed the most prominent economic and service files included within the government program, deliberated on topics related to the agenda, and directions and decisions were taken on them.
In the framework of the government’s support for the sports sector, and in order to support the national team’s trip in the Asian Cup, which will start next month in Qatar, the Prime Minister directed the Ministry of Transport to operate discounted flights for Iraqis wishing to attend the tournament, who have official cards approved by the organizing committee. He also directed the Ministry of Foreign Affairs to communicate with the Qatari side in order to facilitate the obtaining of their entry visas.
In the context of the session, the Council of Ministers approved the ownership of displaced and displaced families from the (Saleen) area in the province of Basra, which number (250) families; the land previously allocated to them outside the borders of the municipality of Basra at the real price, an exception to the public bidding procedures stipulated in the amended Law on the Sale and Rent of State Funds (21 of 2013). On the path of continuous government support for young people, the Council of Ministers approved the amendment of paragraph (29) of the Council of Ministers Resolution (23465 of 2023) on the proposals of youth, to become as follows: – The funding of grants for the winning programs shall be from the amount of 5 billion dinars, allocated to the Department of Non-Governmental Organizations, in the General Secretariat of the Council of Ministers; to support voluntary organizations and teams.
Within the directives of the Prime Minister to proceed with the completion of the projects that have been delayed, including the Baghdad Metro project, the Council agreed to include (preparing designs and supervising the implementation of the Baghdad Metro project) within the investment budget schedules of the Baghdad Secretariat for 2023 at a total cost of (9138040000000) dinars, only nine hundred and thirteen billion, eight hundred and four million dinars, after completing the listing requirements by the Secretariat of Baghdad and later confirming the investor’s bearing the full cost of the project.
In the energy file, the recommendation of the Ministerial Council for Energy (23101 I) for the year 2023 was approved regarding the approval of the recommendation of the opinion body in the Ministry of Electricity, according to the following:
Authorize the Minister of Electricity, or his authorized member, to sign a memorandum of principles of cooperation between the Ministry of Electricity and the company (Toyota Tsusho Corporation) in line with the ministry’s plan and the available financial allocations. Also in the energy file, the recommendation of the Ministerial Council for Energy (23098 C) of 2023 was approved, as follows: 1. The financing of the share of the Ministry of Oil / Basra Oil Company in the West Qurna/1 field in the operation, based on what was stated in the Council of Ministers Decision (2 of 2022) in the amount of (250) million dollars, during the allocation of quantities of crude oil issued by the Oil Marketing Company and deposited in a bank account opened for this purpose (outside Iraq), and this is regulated by a special agreement with the new main operator of the field (Basra Oil Company). 2. The fact that the field is one of the components of the petroleum licensing rounds project included within the investment plan, which is financed in kind by crude oil, so the restriction settlement of the amount indicated in paragraph (1) mentioned above, from the allocations of the project included in the Federal Budget Law (13 of 2023) and the same mechanism followed by the Ministry of Finance, is regulated in conducting settlement restrictions for other oil fields.
3. Profitable wages, administrative charges and benefits resulting from its participation in the service contract for the West Qurna/1 field shall be for the benefit of the Basra Oil Company, similar to the company’s share in the Zubair oil field.
4. The signing of a share sale agreement between ExxonMobil and Basra Oil Company, entailing payment of the price of the sale of the share after the final settlement in kind with crude oil.
The Council of Ministers approved the increase of the capital of the General Company for the Management of Private Transport to become (30301762716) dinars, only thirty billion, three hundred and one million, seven hundred and sixty-two thousand, seven hundred and sixteen dinars, instead of its current capital of (675) million dinars, and by an increase of (29626762716) dinars, only twenty-nine billion, sixty-hundredred and twenty-two million, seven hundred and sixty-two thousand, seven hundred and sixteen dinars, based on the amended Public Companies Law (22 of 1997), and the Ministry of Transport shall take the necessary measures to implement what was mentioned in paragraph (1) mentioned above. As part of the government approach to support antiquities and heritage, the recommendation of the Ministerial Council for Human Development (23037 b) for the year 2023 was approved, including the approval of the referral of the rehabilitation projects of the Nineveh Wall and the Qalaat Kirkuk (within the rehabilitation and maintenance projects of antiquities), to the discreet companies approved by UNESCO specialized, by adopting the direct invitation method, with the exception of the contracting methods described in the instructions for the implementation of government contracts (2 of 2014) for the specialized nature of those projects.
It was also agreed to correct the procedures carried out by the province of Babylon and to prepare a form of a contract, on the project to rehabilitate the road linking the governorate of Baghdad and the holy province of Karbala, to follow the fundamental procedures to disburse the entitlements of the two implementing companies (Babel Sarf Company and Al-Hussam Al-Arabi Company), with the contract to include the responsibility of the executing entity for the executed work and its commitment to maintenance work, provided that the governorate bear the validity and safety of the contracting procedures, and the governorate of Babylon shall be responsible for inventory of the work carried out and review their conformity with the required technical specifications, according to the schedule of pre-prepared quantities and the reality of the status of implementation and the reports of the hidden pretexts, with the support of the concerned technical committees.
The Council of Ministers approved the recommendations of the Ministry of Higher Education and Scientific Research, on the return of the headquarters of the Union of Arab Scientific Research Councils to Iraq, as follows: 1. The Ministry of Higher Education and Scientific Research prepares the headquarters of the Union of Arab Scientific Research Councils in Iraq, by conducting the restoration and rehabilitation of the building, completing the furnishing requirements, allowing the exercise of its activity, and from the revenues of the Higher Education Fund in the Ministry’s Center. 2. Instructing the Ministry of Finance to Iraq’s contributions be 50% of the Union’s annual budget, as of fiscal year 2025. 3. Instructing the Ministry of Foreign Affairs to facilitate the procedures of the employees of the Union of Arab Scientific Research Councils. 4. Private universities provide the necessary support to the Union in accordance with the Private Higher Education Law No. 25 of 2016.
The Council of Ministers continued to discuss other topics on the agenda, and the following decisions were taken:
First / Approve the draft economic reform law, and send it to the Council of State; for fundamentally scrutiny, and then return it to the General Secretariat of the Council of Ministers; to refer it directly to the House of Representatives, based on the provisions of the Constitution, taking into account the notes presented during the hearing.
Second / Amending the name (Baghdad International Film Festival / First Session), indicated in the Council of Ministers Resolution (23098 of 2023), to be the name (the first youth cinema festival for the year 2023). Third / Approval of what came from the Ministry of Interior, regarding the project of establishing, equipping and installing an integrated camera system, and the cost of cameras is secured from the revenues of border ports (50%) the share of Baghdad Governorate, under the contract concluded between the implementing company and the Ministry of Interior. Fourth: Reallocation of an amount to the Ministry of Health; to finance contracts of medicines, medical devices and medical supplies, based on the provisions of the Federal Budget Law (13 of 2023), recovered from the International Convention on Vaccines (GAVI).
NEW STATEMENTS FROM THE GOVERNOR OF THE CENTRAL BANK OF IRAQ
The Governor of the Central Bank, Ali Al-Alaq, confirmed today, Friday, the continuation of financing foreign trade in several foreign currencies in addition to the dollar. While he pointed out that the banking sector’s implementation of compliance rules strengthens Iraq’s financial position globally, he pointed out that there is international welcome from the US State Department and the International Monetary Fund for what the bank implemented measures that strengthened the banking sector’s commitment to these rules.
Al-Alaq said, “The Central Bank followed a plan that included mobilizing all requests for the dollar within the proper and proper channels, while attracting all merchants, importers, and those in need of external transfers within these frameworks and channels.”
(Oh… gee whiz there’s the mention of the “plan” again.)
He added, “The more the size of these channels and the number of participants expand in them, the more it affects two things positively. The first is the exchange rate and its stability, and the second is providing the correct compliance rules, which strengthens the reputation of the country and the banking sector externally and strengthens Iraq’s financial position globally. This matter is currently being done with an exceptional and great effort, as for the first time it is witnessing Iraq: Reorganizing the external transfer process through correspondent banks instead of the central bank or the Federal Bank being the executive interface for this process.
He continued, “In fact, this process is not the best practice in the world. Rather, it is better for all transfers to be through a relationship between the local Iraqi bank. The external correspondent bank and the Central Bank undertake the process of monitoring, supervising and enhancing foreign currency balances abroad to cover these needs.”
Al-Alaq stressed, “This matter was achieved by introducing a series of currencies into foreign trade, including the Chinese yuan, the Indian rupee, the euro, the Turkish lira, and the Emirati dirham, in addition to the dollar. Wherever there is a need that depends on the weight of trade between us and the country with which there is trade activity, we will use those currencies.”
He pointed out that “the US Department of the Treasury and the Federal Bank very much welcomed the central bank’s steps related to the use of correspondent banking channels, and also the application of compliance procedures and rules followed by the central bank. This also appeared in the recent International Monetary Fund report, which praised the central bank’s efforts within the framework of the banking sector’s compliance with anti-corruption rules.” Money laundering and terrorist financing,” according to the official agency.
{Economic: Al-Furat News} The media adviser to Prime Minister Hisham Al-Rikabi announced that the government is committed to the implementation of the electronic payment decision in various ministries.
“In the coming days, we have an ambition to reach the end of the parallel market for the dollar,” Al-Rikabi said in a tweet on {X}. It is noteworthy that local markets have been witnessing for days a noticeable decline in the exchange rate of the dollar, as it fell for the first time in months to below 1500 dinars per dollar. Al-Rikabi said yesterday that “the battle with the dollar is nearing its end,” referring to government measures in limiting the rise of the currency in the parallel market and making it close to the official price of the Central Bank of 1320 dinars to the dollar.