Prof. Mahmoud Mohamed Dagher *: easy solutions or build a nation

- POSTED ON 17/02/2016

Iraq is currently undergoing profound economic crisis, everyone agrees that it is the product of earlier inappropriate economic policies, as well as near influencer of lower oil prices.

At a time when the good men of the almettkhssin Economic Affairs attempts to submit proposals for a way out of the crisis, they all agree on the causes of what is happening, because the economic history became known (not sure not last) but differ in their proposals and it is normal, but a delay or error in dumping life jacket has disastrous effects. therefore, in order to understand the crisis really is the accumulated imbalances generated bubble came as oil prices Bubble Bubble Burst monitor the welfare.

It was agreed also that stimulate and restore life to the real sector and the diversification of the structure is the solution to the imbalances and reduce the risk of crisis.

But what about quick fixes possible?, do you speed invites proposals for easy to implement quickly fade (Ofseting), or the mean speed of each entity in the Iraqi economy with his duties, and this is a crucial time to test competence and integrity, as there of one unit.


One of the main targets in this crisis is to stop the depletion of foreign currency reserves of Iraq representative to prolong face fallout from oil prices.

The reason the attrition certainly lies in understanding the balance of payments results reflected Iraqi window selling the currency to the Central Bank.

Further paragraphs creditor (the value of oil exports and the like) for paragraphs (the value of the imports and the like) makes the overall balance Overall balance of payments is positive, and increase reserves as in Iraq before the last quarter of 2014. Converse achieved since overtaken paragraphs city payments to the creditor in whole paragraphs realized balance is negative, the reserves also occurs after the last quarter of 2014.
If we can control the paragraphs being affiliated with credit largely to oil prices, to focus on paragraphs city are realistic treatment that reduces attrition reserve, as well as being a solution less impact on low-lying incomes and relatively high income targets.

So you want to move are as follows:

Push and support alkmarki to apply tariff approved from 2010 and that all unnecessary protest cancels work out?!

The application of tariffs don't take that only financial revenue (and Iraq need to optimize) but more importantly its impact on prices of imports, especially of perishable foodstuffs and the cost of storage and transport of neighbouring countries in price compared to the existing and possible inside Iraq, since they do not impose tariffs to make (dairy, meat, vegetables, fruits and many food items for local origin) I be strong competition, and therefore the imposition of this indirect tax (as does our neighboring countries also) definitely Competitiveness of these types, with the confirmation that Iraq imports much of this material unfortunately supported by dumping policy clear.

But read and hear from other non-preferred such approach, citing corruption sometimes or inability to mask borders, Alice taxation and border duties of keeping a State of primitive, what if needed, Alice ward off high bridge is progressing?

Either invoke that Kurdistan is an alternative port of entry for goods are difficult to control, it also can be resolved, as well as customs do put detachments into trucks from Kurdistan.


As mentioned in a previous article that the loss of complete control to increase public revenues due to the impact of oil prices is not lynching an increase, as will be noted, as well as calls for pressure on public expenditures to the maximum as we shall see.

In particular, the experience of the public budget 2015 we reflected significant deviation estimates budget pledges achieved until 2015/12/31.
If the planned deficit (25 trillion) deficit achieved (14 trillion).

The Minister said that his Ministry had made efforts in 25% compression of expenditures? But don't know why 2016 budget came on the pace of spending is skewed estimates?

Some may say it is discretionary? Both as a source of economic imbalances, and confusion in the Affairs of the public sector which is a locomotive pulling the Iraqi economy.

Poor estimated deficit estimates and including 2015 (2016) creates a Government direction in the search for acceptable coverage and sources are not acceptable in terms of costs, generates confusion.

For simplicity no accuracy estimated general revenue based on the 3.6 million barrels per day at a price of 45 dollars per barrel, but actually the quantity retained close due to the efforts of the oil sector, but fell to half the barrel on the market, and this means that we will be able to cover six months of balancing 2016, but we hear that coverage is missing from the beginning of the year, some officials said.
Again we are about primitive State duties reflect different managed about efficiency.

Among the important solutions that collect fees for electricity, although modest, can bring (5-4) trillion Iraqi dinars, but owners of easy solutions they say corruption, the difficulty of collection? Agricultural land converted into housing without taxes? State land use and housing without income, homes and lands are divided into and beyond the sidewalks without licenses and frightening.

Isn't all this and other revenue-getter and is one of the core duties of the departments that reflect (efficiency + integrity), isn't possible solutions even in the very short term? Having failed to apply today and in these times when applied? I believe that citizens will reject it because they often don't affect low-income segments, unlike the easy solutions.

Conclusion: the import reduction reduces the balance-of-payments deficit and reduce the demand for foreign currency under the impact of the tariff imposed relatively custom, superfluous expenditures and possible additional revenues, reduces a deficit budget, so with foreign reserves owned by Iraq and the potential shortfall (bonds, transfers) can reduce the pressure on the foreign exchange.


What easy solutions? Why stand face?

It's procedures and instructions and adjustments not utilised or activity sectors but confined to their impact on the financial side, who don't stay in that evaporated with the continuing economic fragility and the length of time crisis, and easy solution leaving him fallout for further fiscal measures ineffective.

To illustrate this, the solutions proposed were:

Tax (3%) (6%) And others on all salaries.
Modify salary scale.
Release by provinces and certain organs in charge even without the law.
Claim for depreciation of the Iraqi dinar.

We agree that there is nothing sacred is adjustable, but the Bible really is life of the low-income majority and which to scrap home without it, and that harm would be affected if the beginning or first step these solutions without the drain voltage with economic solutions too fast but poignant in the face of the crisis, as Pena.

And even these easy solutions or ask firmly and consistently and try to dramatize the consequences be repelled by rejection of the social part of it back and Hefei was the largest.

Decisions touching salaries for low income earners or even delay disbursement received great resistance, despite the still low proportions. Therefore keep the consequences of ill-considered cuts salaries, before going to the State and adopted by influential support policy marks an imbalance in the priorities to address the crisis.

Also, the persistence of some organs and provincial taxation haphazardly, in time it cannot collect fees for water and electricity construction and is a cause for resentment is not desirable.

Or see the published statistics confirm the existence of time deposits Saving Deposits of the public sector in General banks at such a time?

The claim by reducing the dinar exchange rate against the dollar under the pretext of attributing or maintaining public revenue, it also reflects the way the surrendering confrontation, to go to the last solution difficult to effect easy application, before the completion of the absolute priority solutions mentioned.

Although we recognize that to change the exchange rate impact depends on the flexibility of the application of the foreign currency it could discuss the entrance to reduce exchange rate as follows:

2016 deficit that reverse him approximately 25 trillion dinars, and thus deem the devaluation of the dinar up sizable little help (and can be verified by audit houssian Atwan's article published in the Economist on network 31.1.2016).

Payroll pressure resulted in continuous reactions is low and high salary reduction targeted basis, lower taxes, what happens if a tax cut is implied through the exchange rate, this procedure cannot avoid its effects by low incomes, and the prices obtained are all imported, but actually rises with the expectations generated by the possibility of subsequent reduction is inevitable for proposals looking for easy solutions and has exhausted effort, as well as the Critical history (prior to 2003) is still in memory.

Either the social side the lower national currency exchange similar to chemotherapy are resorted to in the last options are not primarily being an easy implementation.

That collection and cannot protect the pavement and the Division of agricultural land and other, how will face reaction caused by harmful tax content of purchasing power utilities to reduce exchange.

Humbled that of sientific foundations across government agencies exercising its role in such a crisis is the solution-surface for safe for the Iraqi economy, either the impossibility of corruption or inefficiency of important measures and pay by not yet time is like the refugee of Charybdis.

(*), Professor of Economics at the University of Baghdad

Copyright economic network. Allow republish provided indicate the source. 17 February 2016