The current economic crisis is required in Iraq and Reform [Currency]
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    The current economic crisis is required in Iraq and Reform [Currency]

    The current economic crisis is required in Iraq and Reform

    Dr. Haidar Hussein Al Tohme

    Euphrates Center for Development and Strategic Studies

    Iraq's economy is expected to enter a deep recession at the beginning of next year, especially with the continuing deterioration of the prices of crude oil, and the government's failure to diversify its sources of budget revenues on the one hand and the pressure of government expenditure on the other.

    The difficult challenges facing the Iraqi economy shall be subject to adjustment with the scarcity of oil resources and activation of alternative economic sectors such as industry, agriculture, tourism, not only to finance budget expenditures, but also to absorb unemployment and operation of production capacities broken and reduce total reliance on imports to cover local need goods.

    This paper attempts to discuss the current economic landscape in Iraq and the policies needed to identify the most out of the current financial predicament and advancing development and economic stability in the country.

    The first axis of the current economic scene

    Economic landscape no less complicated from the political scene in Iraq and in this context can be referred to the most prominent features of the deterioration of the country's economy and the nature of the challenges facing the economic reform:

    1. sharp and sustained fall in oil prices in global markets:

    Recent OPEC forecasts indicate a continued decline in oil prices for several years due to the slowdown in global economic growth on the one hand continuing in crude oil production from both inside and outside OPEC and increase the other hand, it will not recover price before the end of the decade to reach the best estimate to $ 80 a barrel in 2020 According to the FAO report.

    2. fierce war with Daash military and civilian and costs:

    Fighting Iraq war fierce with terrorist Daash gangs in the war entered its second year, according to sources in the Parliamentary Finance Committee, the cost of the ongoing war more than 10 million dollars a day, not to mention the armament contracts and the cost of subsidy costs the displaced and housed and the reconstruction of the liberated areas, all need to open financing No austerity budget.

    3. poor infrastructure and the deterioration of the business environment capable of stimulating the private sector:

    The government did not work during more than a decade to achieve a minimum of improving the infrastructure necessary for the start of the private sector, as it is still electricity file a challenge in front of opportunities for the country's progress and stability, as it failed budgets explosive previous years in the provision of self-sufficiency in electric power, and to improve roads and maintaining the water and sewage networks in the country level.

    4. sectarian quotas and crowding Altankoaqrat in economic and service File Management:

    Notes the evolution of the phenomenon of political and sectarian quotas seriously to reach the lower positions in the administrative peace, it was reflected poor economic management's clearly in the performance of the previous governments and the current government. As the increased focus in the oil sector GDP ratio of most sectors of the economy slipped into recession and chronic evaporated billions of oil resources in fake projects.

    5. growing phenomenon of unemployment, particularly among graduates and high poverty rates:

    According to the latest Ministry of Planning statistics, the unemployment rate in the country exceeded 30% recently in the country is one of the richest oil countries in the world and accompanied by a rise in the poverty rate to 25%, which threatens a humanitarian catastrophe, especially with the entry of Iraq demographic gift.

    6. financial and administrative corruption and the dominance of mafias policy on the country's resources:

    Hundreds of billions of petrodollars have melted in fake projects and dedicated to coverage of the ruling political class and the requirements of government expenditure, and there were no completed development achieved at the level of education or health or public services.

    7. Government sag and the magnitude of the administrative system and low productivity:

    Several studies were known for the low productivity of government employee and the proliferation of disguised unemployment in all episodes of the administrative ministries and government institutions in Iraq, coincided with a decline in the level of service provided from the presence of government institutions.

    8. chronic dispute between the center and the region around the oil revenues:

    It is noted that the political consensus recently did not succeed in defusing the crisis between the center and the region around the oil revenues, there is no region still insisting on its right to export oil abroad at the same time demanding full its share in the federal budget.

    9. erosion of central bank reserves from the dollar:

    Central Bank reserves fell to below $ 60 billion recently after that exceeded the threshold of $ 80 billion in 2014, due to excess demand for the dollar because of the increased import and smuggling and money laundering against the size of the falling dollar flow to the country because of low world oil prices.

    10 crisis-displaced people and dependents and the costs of rebuilding the liberated areas:

    The number of displaced continues to increase due to the continued liberalization of the usurped territories operations from the presence of the organization Daash terrorist, the government has allocated huge amounts of money to provide housing, camps and living necessities for these families as well as the reconstruction of the liberated areas, estimated at billions of dollars due to the scale of the destruction is stunning that the right of these areas costs.

    11-flooding the Iraqi market with various imported products:

    It notes Iraq's transition to market absorbs most of the food and industrial goods produced in neighboring countries and coming from Asia, due to stop domestic production and breakdown of imports and weak oversight.

    12. government borrowing huge benefits:

    In light of the government's inability pressure expenses to an acceptable level and air-conditioning with oil prices, the Ministry of Finance began promoting international government bonds at high interest rates in order to cover expenses and filling government fiscal deficit, it is expected that this will lead in the end to Iraq's inability to pay its debts and entry conditional debt rescheduling programs applying IMF prescriptions, especially with double the capacity of the planned investment projects for which lending. The experience of previous years have been were known about the government's inability to carry out investment projects despite the availability of the necessary liquidity, once because of the corruption that is going on most of the administrative loops starting from granting tender until receipt of the project and again because of the weakness of the port side on the delivery of the project in accordance with the schedules and the inability of most companies implementing efficiency for such projects. This means that the problem is not the scarcity of financial resources, but poor management and implementation of investment projects in the country, and that the borrowing will not change this fact, but only Sakpl Iraq's new commitments.

    The second axis: the policies of reform required

    Unfortunately the economies of underdeveloped countries to resort always to reform in times of crisis and do not think much to the prevention of these times of crisis prosperous financial and convenience .. because the View and economic decision is often, however, the ruling political class does not, however, economists, and this case exactly the Iraqi economy.

    And by reference to the required reform policies it must be stressed that the success of any of the economic reforms depends on the will and the seriousness of the political parties in the country, it represents the government in various institutions, and this requires sacrificing the interests of the party in favor of helping Iraq out of the current ordeal, and the most prominent solutions in this Context:

    1. feminine expenses:

    Of the leading causes of the current crisis, excessive public expenditure during the previous years due to high oil prices and the absence of control, and it was economically more worthy establishment of a sovereign wealth fund, similar to the Gulf States ready oil shocks faced by all oil countries. But because the government is not serious in its reform program on Petrhik government expenditure, most of the measures that have been announced recently it was shy and formality will not change the reality of inflated costs in the country.

    2. diversify government revenue:

    Discloses experience that the government is able to diversify its budget does not tax nor the public sector companies and across government departments revenue and that the weakness of the rule of law and not to the central government's ability to apply the law in force over the territory, prompting central and southern governorates to failure to comply with laws on taxes and government legislation Tariffs and what did not abide by the province first, this situation has been repeated in 2015 for several times.

    3. encourage the private sector:

    Efforts are being made in order to stimulate the private sector starting because of its pivotal role in the absorption of manpower and moving all the stagnant economic sectors, and the Council of Ministers announced more than once his quest to overcome all the obstacles that hinder the launch of the private sector and taking the leading role in achieving development and the absorption of manpower and diversify Iraqi economy, but without proper security and the development of a stable and favorable tax legislation and the effective protection of customs infrastructure, these measures will not only be the letters of construction is far from the reality in Iraq.

    4. The 2016 budget programs are not balancing the budget items:

    One of the main causes of faltering Iraqi economy during the previous years, the absence of the economic program for the expenditure sections and government revenues included in the budgets of previous years, so it is necessary to include the budget 2016 economic program simulates the economic crisis in the country and establishes a new pattern in the economic file management tends to diversify resources and stimulate sectors agricultural, industrial and tourism economic and reduces gradually from unilateral Iraqi economy and chronic Talh on the oil supplier.

    5. stimulate the industrial sector

    Iraq has a large number of factories and public facilities that have stopped completely after the occupation of Iraq in 2003 and still constitute a burden on the state because of the salaries and wages of its employees exchange without mention of charge, and if the sale and leasing of the property to the private sector or foreign companies can provide good financial resources and reduce the burden on the government, as the government can enter into partnerships with the private sector in order to exploit the experience and resources of the latter in the management of this sector successfully.

    6. revive the agricultural sector:

    The agricultural sector played an important role in absorbing labor on the one hand and food security of the country on the other hand, and the government can stimulate this sector by addressing the energy file and water scarcity and import uncontrolled agricultural products and the provision of soft loans to encourage this sector to the starting again due to the availability of necessary domestic demand to absorb the various products Agricultural terms of quantity and quality.

    7. not to engage in international loan programs

    Most of the experiences of developing countries were not in borrowing encouraging and ended in the end to the debt restructuring and the sale of public sector and national wealth to foreign companies, and believes that there is a conspiracy to seize Iraqi oil by giant companies, especially after they have suffered from difficulty with the Iraqi negotiator. So be careful of international borrowing and the benefits high for fear of falling into the trap of debt.

    8. Develop a fair tax system aimed at heavy tax bases only with the application of a customs tax system affects all luxury goods and luxury cars. With the development of material in the new budget law obliges the province to implement the tax laws in force in exchange for the receipt of the region's share of the budget.

    9. use of the institutions of international scrutiny and control away from the political parties in order to detect corrupt files and organize exchange operations expenses and the awarding of contracts in a transparent manner.

    10. re-evaluation of the Iraqi dinar:

    The central bank spent $ 5 billion a month in defense of the exchange rate (123 000 versus $ 100) This means with a reserve of 50 billion by the steadfastness of the dinar against the dollar will continue to be at best to the middle of next year. Especially with the scarcity of oil revenues, and they went to the oil companies operating in Iraq and finance the purchase of heavy and light weapons and aircraft operations. What makes it imperative for the government re-evaluation of the Iraqi dinar is reasonable and the fight against financial and political corruption that is going on the auction of foreign currency for years.

    11. reform of the banking system and enact deterrent laws to reform the banking system in the country and conversion of private banks to bridges for development and funding is not the offices of money laundering and the smuggling of the dollar.

    12. economic dimensions of the upper positions in the country from quotas and favoritism notably the Iraqi Central Bank and Ministry of Finance and the Ministry of Planning and the High Authority for Investment, and that it could not be at the ministerial level there is nothing wrong to be on the level of general directors and advisers.

    13. full coordination with the Ministry of Higher Education and Scientific Research Institutions in supporting and assign the work of all ministries through the joint cooperation of the order to give the scientific aspect in the management of state institutions and supplying them with the conclusion reached by the latest science and technology.

    * Researcher at the center of the Euphrates Development and Strategic Studies

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    Oct 2014
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    Re: The current economic crisis is required in Iraq and Reform [Currency]

    Great article. Thanks for posting it BGG.

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