The role of the financial sector in addressing the budget deficit in 2016

2/7/2016 0:00

Muwaffaq Mahmoud Hassan *
It is now clear that oil market conditions do not Chiraly imminent breakthrough is not in prices nor in the level of demand, as it is likely that the excess supply Glut remains prevalent for many future years because of shale oil production in the United States and sandy in Canada as well as increased production in Saudi Arabia Iran and Iraq that the supply side, the demand side, the market experts do not expect significant increases due to slower growth in China's economy and perhaps India and other parts of the world .osoturk the subject of speculation on oil markets, market experts and research reports concerned institutions such as the international energy and OPEC, but I Sontaleg in these papers from the premise that the next worst oil markets will be the impact on Iraq a grave impact.

I see from the foregoing that the scarcity of oil resources will last for years to come to 2020 or beyond which forces initiative to take radical and bold action is aware of the depth and extent of the problem does not err appreciated the need for Iraq to foreign capital.

As far as the banking Alammerbalqtaa inclusive of the Central Bank we believe that the reform would restructure the sector and specifically could make it important for the national economy in the hinterland of this complex situation, which passes by the home Below are scenarios for discussion of key indicators as a working paper working paper.

I. CBI: -

1 - The dinar exchange rate

Some economists believe that one of the treatment methods of the budget deficit crisis is to reduce the Iraqi dinar exchange rate against foreign currencies, since such a reduction would provide the Treasury dinars more for less dollars. We must before taking any decision in this regard from the analysis of this point of view to display the positives and negatives as to help decision-makers to take the path that they deem to address the deficit crisis, which is compounded daily with a decline in the price per barrel of oil should not be forgotten that the compensation for the price fall to increase exports it is very limited in the current conditions in Iraq.

The first thing that the resulting reduction of the dinar exchange rate is the high prices of imported goods at a rate exceeding the reduction rate and thus falling purchasing power of the dinar at a time when General incomes in cash is low as a result of austerity measures, which do not find the state inevitably which shall effect a double on family income, we do not need to be reminded that Iraq has become a country that imports most of its needs and even the food which let alone the needs of the various equipment and capital equipment and household list goes on and if we want to count. And we have to show that reducing the currency exchange in countries Ttofferldeha productive capacities and industries export rate policy policy is justified as it aims to support the competitive position of its products in foreign markets as well as the domestic market while the price elasticity is price elasticity high local products are available productive capacities ready to run in the term short leading to increase production and increase exports and achieve the desired result, but the situation in Iraq is completely different after the industry deteriorated and deteriorated agriculture which after Iraq was the biggest exporter in the region of cement, known for its quality at that time, as well as the matter of a number of oil derivatives Kziot engines and other Thus we see that reducing the dinar exchange rate will not result in any increase in exports and reduction of imports, Iraq today does not produce goods for export is oil either we say: the revitalization of industry and agriculture LAN's to compensate for the imports import substitution by lowering the exchange rate making Iraqi products at a competitive site the best locally and abroad is the goal unrealistic, as the problems faced by the local industrial and agricultural production Bjanabih multiple aspects of Aihlha unilateral action as a reduction of the exchange rate.

We should not be absent from our deliberations importance of monetary stability on the overall macro-economic activity in the short and long term, and this stability Humen the most important duties of the central bank as defined by law and is not here right place to review the experiences of developed it and developing countries and the repercussions of sacrifice Bhmalastaqrar.

Go back to the issue of the deficit, which was estimated at the beginning of it the equivalent of $ 22 billion, calculated on the basis of $ 45 to the average price of a barrel of oil exported, but the price of oil continues to deteriorate and I doubt Iraq's ability to rely on increasing exports to compensate for the decline in the price at the current level for the price of oil Vsadarat determinants. Thus, the deficit will worsen with the decline in the price of a barrel of oil. Even if Cefhna on the issue of rising imports prices and thus falling purchasing power of the family, it is to result in reducing the rate of the dinar to the desired outcome should be very large and would be a negative impact on the general level of prices is also great and would be a negative impact on the purchasing power of the dinar purchasing power most also tell us the experiences of countries that have resorted to devaluation in the hope of increasing exports and reducing imports due to the recovery of speculation and speculation speculations on the exchange rate.

Based on what is stated in the above, I see the need to maintain monetary stability and avoids the lowering of the Iraqi dinar exchange rate to address the budget deficit is the price, as the disadvantages and the most serious price inflation will exceed greatly pros, which is limited to the treasury grant dinars dollars more to meet less hope of addressing the budget deficit was the result of structural abnormalities in the overall economy, and therefore it is not a deficit Gosairalagel but a long-term inability to see that the causes not attributable to a lack of resources but also to the poor in the distribution and it should seek ways to rethink systems and the philosophy of the income distribution between consumer spending any current expenditure and the investment spending as well as the need to search for sources to maximize revenue on the one hand and the reduction of expenditure on the other hand this will only be achieved by a bold political decisions the level of the problem is not paying attention to the arguments and slogans does not satisfy the hunger and thirst of Troy. Olabd me and we discuss the subject of Sarsrv dinar that refer to circulate issued by the Central Bank of Iraq has recently under No. 9/1/416 dated 12/27/2015 entitled (foreign exchange rate) and I've attached a picture of the circular anyone who wants to see it. I see that the circular involves many risks to monetary stability, since it gives the impression that the central pave the way for reducing the rate of the dinar and this will be an incentive to convert savings from the dinar to the dollar and then make it difficult to control the exchange rate. Therefore must be clearly announced on all sides to comply with the stability of the exchange rate to avoid Atarellhvaz rush to the purchasing value of the cash assets of the citizens.

2 - Speculation on the exchange rate:

There is no doubt that one of the most important demand for the dollar sources is speculation on the price in order to make a profit from the difference between the purchase price from the central bank and Saralabie in Ousarh external Khawwalat market Worse from this that these profits outrageous level are not subject to state taxes. From here we see the need to work to bridge the gap between the price of the dollar, and we see that it is possible to achieve this goal if the central bank to set clear instructions to meet the legitimate demand for the dollar ie when demand is enhanced documentation Kalaatmadat documentary or to cover the medical treatment expenses or university study abroad until the Iraqis transfers as a result of the liquidation of their property in Iraq provided that the official documents. We believe the central bank will be a guarantor of the guarantor of these arrangements so as to enhance the confidence of international banks such arrangements and the Iraqi banking sector.

That removing the margin between the two prices that decays demand for dollars for speculative purposes and to achieve profits from the difference between the two prices, and we believe that the best way to unify the price and prevent illicit enrichment that we have seen since we work with what is known window of the currency at the Central Bank he began to respond to the request of the project on the dollar within lines that we have mentioned.

3 - Sell the dollar and trade financing window

There is no doubt that the dollar selling window with the central bank represents the bleeding for the balance of foreign currency at a time when oil prices are suffering from a major crisis due to excess supply and falling prices to below the $ 30 a barrel and the worst is that oil experts expect further deterioration in crude prices due to supply and demand factors as She said, raising serious doubts about Akaddrhaly maintain the balance of foreign currencies covers imports uncomfortable for a number of months. So I see that the national security forces to return without delay to the manner of letters of credit to finance imports and to stop the style of bank transfers by the commercial banks and the central bank can not find out the sources Dnanerha not to mention follow-up is doomed, while retaining the manner of remittances to pay Okiem some food commodities, perishables such as meat, poultry and vegetables and fruits that export to Iraq periodically agreements with importers on credit to pay more or less (60-90 days) as was the case in the seventies and eighties before Aaharb with Iran. But this does not preclude meet personal and family remittances legitimate requests for documents and supports enhanced legitimacy.

As I pray for a return to the style of letters of credit for trade finance is not absent from my difficulties facing the Iraqi banks in dealing with foreign banks as part of installing credits and communicated to the supplier foreign They difficulties due to the low credit rating of Iraq's credit rating, a rating which applies to include Iraqi banks also, which pays foreign to the requirement of insurance banks have up to 100 percent of the value of accreditation before agreeing to install accreditation and notification confirming / advising to-equipped foreign. This serious issue needs to be addressed at the state level, as I see and I propose to deal with them a plan of cooperation between the trade Bank of Iraq Central Bank Iraq to find a formula for the banking arrangements respond to the conditions of foreign banks on the one hand and the reservation of public money from the misconduct of this or that party in terms of other.

Can be summarized arrangements proposed by the appointed banks covering among correspondents Trade Bank of Iraq in the most important countries that traded with Iraq's main trade partners are deposited has exaggerated the appropriations and authorizing a payment of amounts matching documents complying presentations according to the terms of credit and notice from the bank the amount of the credit or the installer bank advising or confirming bank depending on the situation and see that interfere with the central bank to be the guarantor of these arrangements guarantor Bmayazz foreign banks the confidence of these arrangements and the banking sector and the Iraqi banks and see that this trust can Taatazzkellma committed to the Iraqi side to fulfill what is worth its obligations and will be the impetus for foreign banks to reduce their terms to communicate and install the credits and then proceed whenever this trust has been strengthened to grant credit lines to Iraqi banks lines of credit
And as I call for a return to documentary credits, I do not posing as a magic solution to our problem Vosalib circumvent practiced by some people do not stop at the end and remain there supplementary measures indispensable seeking to fill the gaps assigned to the central bank and banks and business could perhaps be dealt with this subject in detail in the right place ie with authorities art related to the two mentioned.

4 - The Central Bank of Iraq Law No. (56) for the year 2004

Article prohibits (26) of the Central Bank Act grant any funds directly or indirectly to the government or any public body facets owned by the state, and I see the need not to prejudice this article must be alert to the serious negative effects that result from compromised relations with the International Monetary and Financial Institutions Fund and the other on the credit rating of Iraq, not only this but it will be authorized economic and financial repercussions are difficult to control.

I must point out that former central bank law was to allow the government to borrow no more than 10 percent of the speculative revenue of the general budget, but the current law prohibiting such borrowing aware of the legislator of the seriousness of the economic and financial implications. I must point out that Article 26 is one of the most important pillars of independence of the central bank's independence from those political pressures that have become axioms of science money economies. But this independence should not prevent the bank from carrying out an important developmental role in the field of investment and I'm here to invite him to support the construction industry and construction to urge banks to lend to the sector that the bank bears the interest rate spreads between the interest rates charged by commercial banks and the easy interest rate soft interest not to exceed 3 percent or 4 percent a maximum of him, and I will deal with the subject of investing in a later place of this intervention. But why building and construction sector in particular? The reason I'm seeing clearly being a sector that generates Okpramadaaf investment multiplier through the operation of a large number of manpower labor intensive and stimulate a lot of local industries Calcment for building materials, bricks, plaster and tiles etc ....

Iraqi bank *