Financial sustainability in oil countries


Behind the collapse of crude oil prices is a marked increase in fiscal deficits and public government debt after the decline of oil resources from the rates of public spending on oil economies, which generated a great interest in financial sustainability, which refers to the ability of the state to bear debt without the need for major changes in financial policies To strike a balance between revenues and overhead.

All countries seek financial sustainability by ensuring long-term fiscal and public spending policies without compromising financial solvency or exposure to bankruptcy risks or non-performance of future financial obligations. The loss of state financial sustainability or the decline of financial market confidence in its ability to meet its obligations to stop creditors from lending, raise interest rates on loans to high levels, and set strict controls and conditions.

The rate of increase in the ratio of public debt to GDP is one of the most important factors affecting the sustainability of the country's financial situation. There are many other factors affecting the sustainability of public finances, as the growth rates of government spending are higher than the growth of public revenues, In the future to the expectation of a rise in the ratio of public debt to GDP and the high possibility of losing the solvency of the country, which is achieved when the current discount rate of current and future spending is lower than the current discount rate of current and future income Yeh less public debt dues.

Oil and deteriorating financial situation

The sluggish path of oil prices is a serious challenge facing most oil countries for decades because economic development efforts are linked to oil resource flows, mainly linked to several external factors governing the direction of crude oil markets. Various economic policies have been adopted to deal with oil price shocks in these countries, but they have not come out of reaction rather than creating sustainable economic policies designed to prevent shocks and are designed primarily to anticipate crises. In this context, the chronic decline of oil prices to below the levels of the budgets of the oil states to restructure and design the public finances to isolate the fluctuations of oil prices from the financial and economic landscape in favor of harmony and harmony with national economic needs and development plans and economic stability.

In the Iraqi economy, and with the shock of crude oil prices in its third year, the accumulated fiscal deficits and the worsening of public debt to dangerous levels (about $ 110 billion, $ 68 billion in foreign debt and $ 43 billion in domestic debt) raise the question of the ability of the national economy to withstand and cope with the price Low oil. Especially as it depends on the oil resource in the development of the economy and funding of the budget and the war against Dahed on the one hand, and weak expectations about the return of prices to previous levels on the other hand. Thus pushing financial sustainability to the forefront of the challenges to Iraq's economic prospects.

Requirements for financial sustainability

The world oil markets have imposed severe financial pressures on most of the oil-exporting economies. Despite the varied financial and economic impact, the new oil reality requires all oil countries, including Iraq, to ​​follow a series of steps aimed at achieving financial sustainability and the disengagement between the elements of the budget and fluctuations in prices of crude oil.

The most prominent of these steps:

1. Targeting the initial non-oil deficit in the assessment of financial performance, as it isolates spending decisions from the continuous fluctuations of crude oil revenues, and thus ensure the compatibility of long-term financial sustainability with justice among generations in the utilization of oil wealth.

2. The fiscal policy framework must accommodate the economic characteristics of the country from the economic structure, oil reserves and exchange rate systems.

3 - The use of financial rules to achieve economic and financial stability in oil countries through the use of economic models developed specifically for this purpose towards the hypothesis of permanent income and the method of structural balance and the rule of general equilibrium random, which depend on the economic characteristics of each country.

4. The persistence of sharp fluctuations in crude oil prices is critical to the design of new financial frameworks that rely on financial fenders to absorb and mitigate sharp fluctuations and price volatility to maintain stable levels of government spending and to avoid a slide towards new economic and financial crises.

5. Enhancing the efficiency of public expenditure policies, activating tax reform programs and mobilizing domestic revenues is a necessary condition for achieving long-term fiscal sustainability in oil countries and achieving justice among generations in benefiting from depleted natural resources.

6 - Activate the role of financial markets as a prime minister to finance the needs of the emergency government and market public bond issues at the lowest possible cost for short and medium terms.

7. Financial sustainability in Iraq requires tight coordination between central bank policies (monetary instruments), government policies and the Ministry of Finance (financial instruments), given the interdependence and correlation between the fiscal deficits and foreign reserve rates of the Central Bank under the adoption of the managed exchange system.

https://annabaa.org/arabic/economicarticles/12682