Iraq and the International Monetary Fund

07/06/2016 0 Visit

d. Hussein Ahmed Sarhan reading in the government's commitments to the 2016 direction of the Fund under 22 / December / agreement in 2015 because of the difficult economic conditions experienced by Iraq due to the escalation of the level of military spending after the control of the organization of what is known as (the Islamic state "Daash") terrorist nearly one-third of the Iraqi state area since June 2014, and the drop in oil prices late the same year, which caused a shock of revenue for the state budget, which led to the promotion of the budget deficit.

For this purpose, the government began her meetings with international financial institutions, particularly the IMF and the World Bank for financial assistance as provided for in the general budget for the 2016 law, which requires him to issue a "letter of intent" and the memorandum of economic and financial policies.

The Iraqi government has issued a letter of intent and memorandum of economic and financial policies in the 22 / December / 2015 describe the policies that the government will implement as part of a program watched by the International Monetary Fund experts Memorandum of Economic and Financial Policies MEFP)) as part of the program watched by the International Monetary Fund experts Staff-Monitored program (SMP) government to show to impress and practical manner, then moved to the funding program as soon as possible.

The most important of the contents policy note: - Description big correction in fiscal consolidation carried out by the Iraqi government in 2015 and plans to continue to be implemented during 2016.

- reforms in the foreign exchange policy, public financial management and banking supervision, which the Iraqi government is committed to implement during the year 2016.

Moreover, the Iraqi government informed the Fund taking any additional steps may be necessary. The government will consult with the Fund on the approval of any measures of this kind.

And identifies policy note recent economic developments and prospects of economic and fiscal policies in 2015 and 2016. Data political frame-security current political, passing the Iraqi state is very difficult

-walba, particularly inside Iraq and observers abroad stage knows and understands Aavadha- a result of political problems, deferred crises since the political change in 2003, the lack of the necessary legislative frameworks and the resulting lack of vision state-building and attention to all sectarian interests and narrow partisan.

To make matters worse, it is the events of last April and the ensuing vacancies in government positions and are not in session, and as a result the crisis of political reform has turned into a crisis in the management of the highest state institutions,
it has been deteriorating over to turn into a crisis of the rule, especially with the increasing decline of the legitimacy of the current political system by the case of popular rejection of his lack of understanding of the system based on the nature of the phase-sufficiency in view of their interests,

and they have achieved their gains after the change, even become negative political reality reflected on the daily life of citizens, security and economic class basis.
Security, and as well as the decline of the power of legitimate coercion of the state and weak law enforcement institutions in the entire territory of the State of Iraq, the Iraqis are fighting on many fronts to eliminate the organization "Daash" terrorist attacks that put Iraq in a very dangerous situation, and still well in spite of the decline of the organization and crush it big decline; and that the weakness of the security situation in the rest of the areas controlled by the government in central and southern Iraq, and the spread of the manifestations of crime and disorder.

As well as the internal forced displacement and sectarian displacement, which produced more than three million displaced people and away from the residence, and nearly 10 million (or nearly one-third of Iraq's population) to require humanitarian aid.

Also it has been a reliable international community and international institutions on the reform measures, and felt that those in charge of the political system in Iraq, they realized the seriousness of the current stage and began to take the appropriate steps to get out of the dark tunnel and out of danger.

But they ran into the reality of action and passivity and turn it into a complex political crisis, and this point have weak state institutions and a negative performance.

It is important that in this situation, proceeded Iraqi government

- As part of its efforts to reduce the state budget deficit for 2016 and head to external borrowing -aly provide a policy paper and a letter of intent to the International Monetary Fund as a first stage to enter into a credit point, and this ranks on Iraq

-If what has been move toward implementation of the agreement with international financial institutions, particularly the IMF and World Bank Aldoliyn- obligations, particularly the Iraqi government is negotiating with these institutions and with assistance from the US side to engage in credit and loan collection phase.

And the nature of these obligations is in several respects:

- political-security - economic policies - the obligations of the availability of legislative frameworks that support these economic policies, such as amending the Investment Law read in the economic indicators and commitments contained in the further economic and financial policies: economic activity - the decline in economic activity is oil contraction 8% for 2015 due to lower capital spending after the decline in oil revenues, after he saw a contraction boat of 9% during the year 2014. in 2016, growth is expected to rise in the gross domestic product to a rate (10.6%) due to the expected increase in production oil ratio (20%) with the survival of gross domestic product, the non-oil steady.

The official reserves of foreign - currency due to lower oil prices, is expected to shift the current account balance from a surplus of 1% of GDP in 2014 to a deficit of 6% of gross domestic product in the year 2016 will total deficit up to $ 11 billion in 2016, and this the expectation is based on the survival of the imposition of oil prices below US $ 40 per barrel.

This deficit will be financed At large part Menh- by withdrawing large sums of official reserves of foreign currency, and this will reduce the total reserves of $ 67 billion in 2014 to $ 43 billion (7 months) of the year 2016.

But the recent rise in oil prices and exceed the threshold of 45 dollars and complete liberation of the territory controlled by "Daash" and reduced military spending, may reduce the decline in reserve.

Therefore, the fund is expected to resume reserves to rise in the year 2017 onwards of $ 48 billion (7 months) from the year 2017 to 88 billion dollars (10 months) of the year 2020, due to the rise in oil prices.

The budget deficit that the decline in oil prices led to a significant deterioration in the financial position of the Fund that is expected deficit in budget year 2016 to 10% of gross domestic product subject to the adoption of the following measures:

- a significant reduction in the overall financial balance of the first non-oil [ 1], ie about 12% of the total non-oil GDP (24 trillion Iraqi dinars, or $ 20 billion), and is expected to be completed by the biggest part of it by the end of 2015. this commitment was met Ptozm political situation and forestry stagnant economic activity.

- A large increase in domestic funding as well as external financing in the short term in line with the sustainability of debt sustainability over the medium term.

To mitigate the impact of fiscal adjustment on the population and the refugees, the government will protect social spending (ie spending on health and education transfers that support social protection network and internally displaced persons and refugees).

Public finance program in 2016 in the 2 / December / 2015 provided the Iraqi government to parliament amendments to the draft budget submitted by the 18 / October 2015, and was aimed at a deficit of initial non-oil fiscal reduce the 77 trillion Iraqi dinars (56% of GDP the total non-oil), and it will be achieved through the implementation of the government to the following procedures:

- collect no less than 8.8 trillion Iraqi dinars (6.5% of the GDP of non-oil) in revenue is oil, and includes (1) trillion Iraqi dinars increase taxes and wages.

- Determine the initial spending of non-oil at $ 86 trillion dinars (63% of gross domestic product, the non-oil), and will once again achieve this emphasis in the initial spending of non-oil mostly on a higher level Bqil of the low level of 2015 by the postponement of investment projects non-oil priority at least for subsequent years.

We believe that to walk in this direction and delivery of this measure will reflect negatively on the overall production activity, and therefore has to be thinking about reducing the unnecessary expenditure of state institutions and rationing spending and this will save big money.

- It is for the first non-oil deficit in public finances financing, and investment spending of oil and debt service, the government will resort to oil revenue (73 trillion dinars), and domestic financing (20 trillion dinars), and external funding (four trillion dinars).

- Will be local funding to cover (20 trillion dinars) through the issuance of remittances treasury, which are re-financed through commercial banks up to (7 trillion dinars) in the discount window at the Central Bank of Iraq, and the issuance of national bonds to the public of $ (5 trillion dinars), reduced government in the banking sector deposits amounting to (four trillion dinars).

- The external financing (4 trillion dinars) will be funded through: (a) the planned release of its Eurobonds ($ 2 billion), (b) the Islamic Development Bank loans ($ 500 million) C- project loans from the World Bank ($ 50 billion) w

- a loan from the Japanese international cooperation Agency JICA (502 million dollars), (c) Italy ($ 40 million) that the government does not resort to the accumulation of arrears as a way to finance the deficit and comply with the ceiling zero for external arrears, and that the government inventory of domestic arrears (domestic debt) to ensure uncle accumulation and make payments if done from audited as required.

Iraq's obligations on public finances in order to strengthen fiscal discipline, the government will action the following:

- The Ministry of Finance to submit a new draft of the law of financial management according to observations Monetary Fund and the World Bank which was submitted to the State Council.

It should be noted that the influential Financial Management Act is a financial management and public debt No. 95 Act of 2004

- so far the government by including the amount of 2.4 trillion Iraqi dinars to repay domestic arrears in the 2016 budget, after the government set domestic arrears worth 7.3 trillion dinars including 5 trillion dinars accumulated in 2015.

the government will continue to conduct a survey and audit and pay domestic arrears, and will be the Ministry of planning as a first step, to be completed in February 2016.

- design, implementation and technical assistance from the international Monetary Fund, a system for monitoring compliance with the implementation of the budget is based on a financial plan a comprehensive implementation of the budget.

- An integrated information system for financial management design (IFMIS) and implemented with the help of the World Bank. As a first step to adopt by the end of April 2016 map detailing the basic evidence, including account functional requirements and keep track of expenses over several years and the deportation of resources from one year to another and administration advances and cash management arrangements.

- Reform of the public investment management (PIM) with the help of the World Bank. In fulfillment of this commitment, the Prime Minister issued a decree on October 18, 2015 ratified whereby a part of the process of public investment management based on World Bank recommendations, including this context, investment selection and implementation and subsequent evaluation, that the Ministry of Planning and creation of a unit to manage public investment to sort out projects based on their feasibility, and to establish and manage an integrated bank studies for projects (IBP) to run as a branch of the Iraq development system (IDMS).

[2] - the need to apply the existing procedures for financial disclosure for senior officials in order to improve governance and strengthen anti-corruption efforts, and continues Authority integrity publish the names of those who do not submit financial disclosure.

Commitments regarding banking supervision - about 89% of the banking system's assets are grouped at the three government banks of (7), including banks and one Islamic, and these banks are (Mesopotamia, Al-Rasheed, the Iraqi Trade Bank).

- The government will re-structuring bank Rafidain and Rasheed.

As the first step will be the Ministry of Finance at the end of February 2016 contracted with international auditors to audit the financial statements for the last two banks, in cooperation with the Executive Committee for restructuring these two private banks and the World Bank.

And by the central bank, it will continue to implement reforms to strengthen the stability of the banking sector in Iraq measures, namely:

- start using the system of international bank account number (IBAN) in Iraq. - Raising the capital requirement of banks to 250 billion dinars, equivalent to 214 million dollars.

It has all the private banks of (32), to raise its capital to this level except for one bank.

- Hiring a consultant to help the Iraqi Central Bank in enhancing the special precautionary measures liquidity and capital adequacy ratio.

- A review of precautionary measures by the Central Bank of Iraq with the help of regional technical assistance center for the Middle East (METAC) of the International Monetary Fund.

- Prepare for the deposit insurance system provides for the establishment of a public institution licensed by the Central Bank of Iraq, and made available to the banks an opportunity to contribute to the capital of this institution.

- Issuing bank law for financial institutions that offer Islamic services.

Follow-up Program The program will be a review of quarterly and will be quantitative targets regarding: - the balance of the first non-oil (ie, the difference between the non-oil revenues and expenses preliminary non-oil excluding interest) - the balance of net domestic assets of the Central Bank - foreign exchange reserves with the central bank - spending and social absence external arrears new starting from the month of December 2015 will determine each review of the program a number of benchmarking structural in necessary for the success of the program areas, and must be completed the first review by the end of the month of May 2016. the government plans to submit to impress under this program, which watched by the international Monetary Fund experts to move to a possible financial agreement with the IMF as soon as possible.

The table below contains the contents of the review, which is supposed to be completed by the end of last month:

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