Serious indicators: Iraq is draining its reserves of foreign exchange

Serious indicators: Iraq is draining its reserves of foreign exchange

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The  burden of the war   waged  by Iraq against  the organization of the state “Daesh”,   constitutes  the most important   current challenges  that it casts its  shadow on all political, economic and social aspects and a significant decline in the economy as well as  foreign exchange reserves in  the Iraqi Central Bank, in addition to the displaced bill which is rising every day.

In the past, the Iraqi cash reserves estimated at 80 billion dollars, which is a good level, but many factors have contributed to the collapse of the amount of international reserves and decline to less than half, and here begins the alarm, and with the start of the war against the state regulation over two years ago , the trip of  collapse of reserves has began , which burdened the Iraqi treasury and drained its resources, not to mention the areas seized by the organization of the state, which were considered  an important tributary  to the  state revenue, and  what it includes of  the institutions, companies and banks and agricultural lands and fields and refineries of oil, it all disappeared from the lists of revenue that used by the Iraqi state, it  was cruel blow to the  Iraqi state, which is on the verge of bankruptcy during the past two years, especially in early 2016, when oil prices collapsed worldwide for the lowest price with a $ 27 a barrel,  so   the Iraqi government  rushed  and applied for international loans and grants, which were then.

To come back to talk about the cost of the war against Daesh.  Iraqi sources recently predicted that Iraq’s cash reserves have a big hit during the 2017 plunged it below thirty billion dollars after it was nearly $ 80 billion two years ago, and reports  confirmed that Iraq reserves of foreign  exchange loses 16 billion  dollars per year with percentage of decline   by 23.5% during the year.

The sources add that the cost of the war since the beginning of the battle to liberate Mosul two months ago  amounted  2.3 and $ 2.5 million a day, which is a very large sum if we look at the reality of the collapsed  rentier Iraqi economy , and if we look at the extent of corruption and looting inside the corridors of institutions and government ministries, we will notice overwhelming flood of wastage of public money, let alone  to resort to foreign currency from  Iraqi Central Bank reserves to cover government expenses accompanied by a deficit of 21 trillion dinars in the budget of 2017, so the administration of the prices of  dollar exchange  in the domestic market   are  the corrupt window ho are  living on the difference between the official exchange rate with the parallel markets “. , In contrast to this , the simple  citizen  bears this corruption , disorder, destruction and government mismanagement .

The Prime Minister Haider al-Abadi, had confirmed in October   that the cost of the economic devastation is $35 billion  as a result of the war in Mosul. And he added that “there are other social and human losses.”

According to sources of the reports quoted a senior official at the Iraqi Ministry of Finance in the month of September 2016 as saying “the  Central Bank and the presidency of the Iraqi Council of Ministers are keen  on the non-disclosure of official reports, during the recent period, due to the alarming and significant decrease in Iraq’s reserves of hard currency,” pointing out that it amounting to $ 52 billion only now, after the government’s borrowing large sums of money from the bank without having them back, and the loans were aimed at financing the purchase of weapons and ammunition for the Army deals, and pay staff salaries and members of the armed forces and militias of  popular crowd.

The official added, “that part of the lost money , the central bank  bear the responsibility , there are suspicions of fraud in the sale of daily currency auction, a large disparity between the price at which it sells with a price in the market.”

He added”It is not only foreign currency , but even gold reserves   saw a decline, where Iraq has a reserve of 89 tons of gold  at the end of 2015, and there are currently only about 80 tons of  the total  of public state reserves, we do not know where  the rest  has gone?”.

In economics , the balance of any state of the foreign reserves should cover the needs at least for  6 months, and that if falls below the needs of three months, it means access to the stage of danger, and it  is available for Egypt now  the needs from imports only for 3 months, and any negative developments  of reserves of cash, it means  the country is entering to the stage of danger .

Here we must mention the importance of cash reserves of any state, in addition to the reasons that led to the decline in cash reserves in Iraq and they are as follows:

According to a report issued by the International Monetary Fund at the end of November 2015 that $ 59 billion is not enough, but to the equivalent of nine months of imports of goods and services by the end of this year, due to the decline in the country’s oil revenues, and here we refer to the figure fell in 2016,  and expected to decline significantly in the year 2017 to about $ 30 billion and this is  a danger to the country, as this balance is not enough even for three months.

Experts point out that the continued increase in the value of the import bill, without the corresponding increase in the value of exports, this means high cost of living, offering middle-class for the fall in the higher echelons of the poor class.

The adviser of Iraqi Prime Minister for Financial Affairs , Mudhhar  Mohammed Saleh, said in May of last year, 2016, that Iraq will suffer from the financial gap of $ 50 billion over the next three years, that will expose “Iraqi projects  and the stability of the country  to  a great risk.”

There are many  factors that have contributed  in the decline of the foreign cash reserves, among them, for example not to limit  the war on Daesh, the collapse of oil prices, all forms of corruption, lack of transparency, and the adoption of  an ineffective plans by the government to get out of the economic crisis , and  a lot of the reasons that led to the  State of  Iraq  to stand  at a crossroads, where  it has become  today in the ranks of the most corrupt countries, and more countries a lack of stability and security, and here the government should seriously and diligently seeking to increase its resources and probably had more to resort to international loans, not to mention the pursuit of looted funds inside and outside Iraq, and the fight against corruption It is the most important of all of the above to be able to pull the country out of a furnace of a severe economic crisis in the future.

Amer Al-Omran

Translated by : Mudhaffar al-Kusairi

Rawabet Center for  Research and Strategic Studies