The role of the financial sector in addressing the budget deficit in 2016 - Part2

2/8/2016 0:00

Of about $ 32 billion

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.

Second - the restructuring of State-owned banks

I must here to point out the beginning of the report was the World Bank has issued sometime in the 2011 time and reaffirmed its content at the end of 2015 on the financial sector of the Iraqi people in which the low performance of the components sector any banks, insurance companies and the stock market went recommendations are very important called in the first is to restore bank restructuring Rafidain and Rasheed to rid their budgets of bad debt as well as other distortions note that the report was supported by both Messrs Finance Minister and Central Bank Governor at that time was to form a committee of specialists to consider the report and put its recommendations into effect, but we did not find the report of the Committee impact on my budget Hiklehma banks and not on any of the recommendations in relation to the interaction of state institutions with banks, particularly the need to treat all banks the same treatment without Tmiasudon favor of the government.

We must and we are in this regard to point out that the Financial and Economic Committee of the Council of Ministers had issued inter decisions direction called for by the World Bank, but I've found incapable of addressing the substance of the case decisions, the current structure of the banking sector and in particular the dominance of state banks on the largest share of the market, and I see that as the state did not stray from the banking activity, there is no way to upgrade the sector and its activity to be a pioneer area and make an effective contribution in the formation of the national income and contributes to a serious contribution to the rebuilding of Iraq.

Perhaps one of the great promise to adopt a ministerial platform for the government to activate the private sector's policy not only this, but he Agheraltuge towards the privatization of some government institutions and we have to include banks Governmental organizations.

There is no doubt that this trend marks a new philosophy for the management of the state's response as dictated by circumstances and imposed necessity, and this sense I think that the time has come to begin today before tomorrow to restructure the government banking sector ie banks Rafidain and Rasheed and Trade Bank of Iraq and the development of the necessary prelude to abandoning all plans banking activity, Having said this, there is absent from a theoretical complexity and enormity of the task but the journey a thousand miles begins with one step, and it would be an honor and loyalty to the country to volunteer to work with the team, which will cost this the mission.

Faced with the urgent need for capital I think that the restructuring is bound to lead to the eventual privatization of the two banks, but I think that the privatization of the institutions of the size of the two banks in the current conditions in Iraq, but introduced by foreign investment, inclusive of the Arab Investment and Lord objector says: Why sell national institutions to banks will not be achieved foreign and my answer is that Iraqi banks do not have the financial means to buy banks the size of the two bodies, if approved the principle of privatization must then study of alternatives to choose the best and hammer out the best formulas propose to assign a specialized committee that includes bankers, experts and jurists to study those alternatives to develop a strategy for this task.

To prevent leakage of corruption to the privatization of state banks project I see that holds the accounting bodies sober foreign Oomhalih evaluation of the two institutions an objective assessment of fair and equitable in accordance with the rules of due diligence to include all assets and liabilities to exit the real value of the two banks and the state after the presentation of banks to sell confidential bid or any other means to ensure preservation of capital year.

If the settled opinion of the State to invite foreign investment in Iraq and in the financial sector in particular capital it must then modify the legislation that prohibited foreigners to own real estate and attributed this to the decision of the Council of Ministers No. (23) for the year 1994 and is still the decision takes effect and this prohibition is one of the obstacles facing branches of foreign banks operating in Iraq as unable to accept the estate a guarantee for loans and banking facilities. If you find the loan and offer the property for sale in accordance with the provisions of paragraph (2) of Article (33) of the banking Law No. (94) for the year 2004, the resolution prevents the foreign bank of annexation on the property and lost his rights as a result and the right, I find no compelling reason to prevent foreigners from owning property in general I did not find him ever seen, except in totalitarian countries and is the result of the secretions of the former totalitarian regime and the time has come to modify it. We have talked many Lebanese banks operating in Iraq officials about their suffering and the problems they face from this prohibition.

It releases statistical CBI information Bmsrvi Rafidain and Rasheed extracted as they are at the end of 2013 and found that the Rafidain Bank 144 branches (8) of them out of Iraq and (57) branches in Baghdad and the remainder of the 79 branches in the provinces of Iraq, the other does not branches in the province, with the local authorities there had taken control of it and its assets and given local names and cut her bank parent, also found that the number of workers in the bank is 8782 people, I did not find information on the number of buildings owned by the bank and it can be said: that the bank owns most of those buildings.

But it may Rasheed Bank 193 branches (62) of them in Baghdad and 131 branches in the provinces and employs (6400), a person is likely that the bank owns most of the buildings is the other branches like the Rafidain Bank.

If we finished the task of privatizing Rafidain and Rasheed Ntafrg then to liquidate the Trade Bank of Iraq, but that the bank may require the privacy of another plan and another context is different. It should be recalled in this regard that the Trade Bank of Iraq was founded in 2003 for the specific order according to the law and has its foundation came at a time when Iraqi banks were not able to foreign trade operations of any documentary credits Fhdt him to open the task of government funds for the monopoly, but the Ministry of Finance It directed the bank in 2005, the time of transfer of credits of less than one million dollars to private banks, then raise the ceiling gradually until he reached the credits of less than ten million dollars and have been to this move a positive impact on private banks to acquire expertise in the field of documentary credits.

And I can say that the case today after twelve years and that has changed the Iraqi private banks have evolved to have the experience that you need in the field of documentary credits and from here we see that the reasons for the establishment of Trade Bank of Iraq no longer exists as to keep it for long term will be a hindrance to the development of private banks and therefore we need to develop a time frame for the liquidation of the bank and the transfer of its functions to the private banks.

Third -tharia chock institutions laws

It is known that one of the banking sector attributes are small proportion of deposits to both GDP and currency outside the banking system, it is financial stability report issued by the Central Bank, we find that the total deposits in banks at the end of 2013 had reached 49.8 trillion dinars, equivalent to 18.5 percent only of GDP Offer no two differ in that the diminutive deposits attributed to the multiple failures of banks to repay their obligations to depositors on demand and no guarantor of deposits, as happened to the Bank of Basra and Warka Bank, but that there are seven other banks are currently reluctant to exchange instruments drawn upon when viewed It Dar es Salaam and the north and the Islamic economy and the country of Iraq and the Middle East for investment banks and Babylon.

To restore citizen's confidence and encouragement in order to retain Bmdkharch in banks rather than keep it under the pillow can only be achieved by legislation Deposit Insurance Corporation Act that would reassure savers their savings on the one hand a first hand a second call for the enactment of another institution Dolly is the loan guarantee institution.

Fourth - lost in investment spending

There is no doubt that the main victims of the current crisis is investment projects, failure to provide the necessary funding for the completion of the general budget will push many of them to stop or she had actually stopped working indefinitely, particularly those below completion rate was fifty percent. There is no doubt that the losses that would result from the work stoppage will surpass all expectations and exceeding all estimates, as well as the loss of what was spent by fully or almost completely there loss of employment opportunities in the construction and operation phases and the loss of expected production, including after the completion of whether this production for domestic consumption or for export or both, as well as other grave losses are difficult to be counted in this quick, you hardly need to point out the future devastating effects on the national economy caused by the interruption or diminution spending Investment.

With that in mind we see that it is vital to pushing the operating banks in Iraq to salvage what can be salvaged from the endangered projects to stop, but it is necessary to examine the potential for banks to compensate for the investment industry for dwindling investment spending from the general budget, it is statistical bulletin of the Central Bank and its report on Financial Stability for 2013 we note the following:

Retain high liquidity of banks amounted to 68 percent in 2013. This means that the banks do not find viable opportunities to invest its funds.

The low proportion of credit granted by banks to GDP compared Bnsptha in Jordan, Lebanon, Kuwait, Bahrain, and to a number of reasons, including high interest rates as well as the faltering recovery and repayment of the reasons we are not in question over here .

Diminutive banks' capital and reserves and deposits as the central bank reports referred to indicate the above that the overall funds and reserves, sound capital of operating banks, including State-owned banks and branches of foreign banks 9.07 trillion dinars has reached, or about 3.4 percent only of GDP. The private sector deposits has reached 49.8 trillion dinars, just as I said. High interest on loans General banking facilities, prices, ranging that between 10-14 percent annually on the dinar and the dollar is clear that the interest rates these hamper borrowing for investment purposes and that there is a disparity range between interest income and interest the city and see not exceed the interest to fund projects 4 percent a year. Operating in Iraq banks and credit shall not be granted, but still guarantees in exchange for real estate in the first place or land or other assets as shares in companies in the sense that feasibility studies and cash flows of the projects are not accepted as collateral for granted Credit.

From the above it is clear that for the banks, the promotion of a serious contribution in the reconstruction and compensation for declining allocations from the general budget by finding solutions to the three obstacles: trust placed the limited capital available Secondly interest on loans and credit facilities Rate The third is loans and other banking facilities guarantees.

The obstacle little capital there is a single solution is to enter the banks in loans syndicated loans and participation under this technique, the one bank can be involved a certain percentage of the loan amount determined by the administration according to their available liquidity. It is the common benefits of these loans it guarantees for banks to reduce risks risk mitigation bank is a very important principle. There is no doubt that the creation of a secondary market to handle this portfolio will be a factor Sanda and encouraging banks to invest in.

The obstacle differences in interest rates on credit between commercial rates required by banks and those that keep the economic project feasibility economic ie no more than 4 percent a year, as I said can be processed by one of two methods, or both, and the first of these two modes lies in the willingness of the central bank to reduce the percentage of legal reserve legal reserve requirement on the amount of the loan to offset the bank or lender for the interest rate differential banks. It is known that the central bank instructed banks are obliged to keep reserves for legal deposit 15 percent of the amount of deposits in the bank keeps 5 percent in its vaults with the 10 percent deposit with the central bank. The second is the federal government or the province involved in the project to bear the interest rate differential. The two modes can be combined with any burden-sharing between the three parties of any central bank and the federal government and the province involved in the project. The foster collateral for the loan could be the Ministry of Finance can play a complementary body to be foster loans as banks respond to the conditions and encourages them to participate in the financing plan role Investment.

It remains to be asking the provinces that are not affiliated to the province suggests that the most important projects that the allocations do not have to be presented to the banks in order to arrange financing for one or more of them depending on the availability of financial resources from the banking sector. It should also be selecting a banker, who commands the joint arrangers Lead manager in accordance with well-known within the syndicated loan practices and we can discuss this aspect of the plan with the technical services in the Ministry of Finance and the Central Bank and banks operating in the

Iraqi bank *