The government and the central bank restore the world’s confidence in the Iraqi economy

The government and the central bank restore the world’s confidence in the Iraqi economy

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Iraq is currently going through an economic crisis, big and difficult challenges, the causes are the control of the organization of terrorist “Daesh” on the vast tracts of it; and the decline in oil prices globally, affecting the budget for the years 2014 – 2017, as the current year amounted to about $ 95 billion, and a deficit of about $ 20.5 billion , and cause damage to the non – oil economy through the destruction of infrastructure and assets, disrupting the movement of trade and the deterioration of the confidence of investors, and the external sector and the possibility of growth in the medium term.
And to face all the political and economic challenges experienced by Iraq , central bank has taken a number of measures to correct public financial conditions and financing , while continuing commitment to the system of link of exchange rate , while the Iraqi government is moving at the same time after the completion of the war against “Daesh”, towards planning and economic development ; thus contributing to a qualitative shift of the Iraqi economy.

The central bank governor, Alo al-Allaq said , that an international group to monitor money move confirms the world ‘s confidence in Iraq financially, and plans to remove Iraq from the gray list to the white, indicating that the Bank is working to activate the Anti -Money Laundering Office and give it the administrative and financial powers of the governor and full independence , and conduct operations of rehabilitation of its capabilities with international support, and coordinate with international organizations, and the financial action group , which is an intergovernmental body undertake to study technique of money laundering and its trends , and preparing policies for combating it , and the financing of terrorism locally and internationally.

Al-Alaq noted that this step will increase the confidence of the world in Iraq financially and economically ,as a result of the reforms undertaken by the government and the Central Bank of Iraq, which contributed to the reduction of the gap of fiscal deficit .

The issuance of the Central Bank of Iraq, the currency of the category of 50 thousand Iraqi dinars , a successful step in strengthening the performance of the Iraqi dinar, without affecting the exchange rate against the US dollar, as carrying a the sophisticated security mark of high protection , such as the transparent window and a sign of Spark , which limit the operations of counterfeiting of currency .

Al-Alaq stressed that “issuing high categories improved the performance of the Iraqi dinar and reduced dependence on the dollar in large transactions, as the performance of large transactions was carried out in Iraqi dinars, and there is no policy to raise the value of the dollar against the Iraqi dinar, noting that” the central bank has a foreign currency double of the local currency existing in the local market “; which is reassuring.

And the application of working practices compatible with the best international standards , the Central Bank of Iraq cooperated with “Global Foundation for International Professional Services” Talal Abu – Ghazaleh Group, which developed a plan for the training of human resources for the Bank and development it in the field of information technology, as part of the Bank ‘s plan and its extensive efforts to obtain certificates in the axes related to the application of international standards for information technology.

Al-Alaq added that the general approach of the Central Bank, is the development of banking services and the introduction of new banking products and electronic payment systems; based on advanced technologies to meet the challenges facing the banking sector, and the establishment of an advanced control system for all electronic banking activities and services.

TalalAbu –Ghazaleh presented an offer to the Governor of the Central Bank on the mechanism of the work of auditing and evaluation of information and training of Association of Iraqi special Banks to train all employees of risk management departments in Iraqi banks during a specialized course in the field of risk management,. The Association of Iraqi special bank made a workshop under the title ( the development of information technology) based on the instructions of the Central Bank of Iraq with the participation of 90 employees in Iraqi banks and focus on the importance of governance and management of information technology and risk management based on international standards .

The adviser of Central Bank of Iraq , Walid Idi stressed , that Iraq ‘s reserves of hard currency will reach $ 62 billion in 2018, indicating that there are no danger for the decline in reserves to $ 49 billion, and added that the “reserve of the currency according to international standards, should be enough for six months as a requirement or an international scale, stressing that the reserves of hard currency in Iraq enough to pay off the debt and taking into account the geographical diversification and is sufficient to the need of the domestic market of goods and services and economic and social requirements and paying salaries of retirees abroad and for the purposes of study and treatment , travel and religious tourism . ”

And the “International Monetary Fund pointed out in a study : there are Arab countries that their reserves exceed real spending, including Iraq, Saudi Arabia, Algeria, Lebanon, Kuwait, Bahrain, and this is a proof of the stability of Iraq ‘s reserves of hard currency.”

And the Fund predicted that “Iraq ‘s reserves to reach in 2018 to $ 62 billion, and then rise to $ 91 billion in 2020; as a result of improvement in the conditions of the Iraqi economy and oil exports and its derivatives and sufficiency of imported electricity for some provinces and gas export and promotion of tourism, industry, and all of which are promising economic resources ” .

Al-Allaq also stressed that Iraq has overcome the greatest financial challenges faced in the past year, noting that Iraq also managed to maintain an acceptable level of cash reserves, noting that ” the central bank , and despite the decline in dollar revenues coming from the sale of crude oil to 70% managed to keep on an acceptable level of cash reserves which is estimated at a total of hard currency and gold at $ 49 billion. ”

According to economists , the Iraqi government has put in place 2017 a plan to the Central Bank for financial and economic reform in cooperation with the International Monetary Fund in line with the emergency conditions experienced by the country related to the drop in oil prices by 70% compared to the beginning of 2017 and the plan took into account the Availability of non-oil resources .

In spite of all critical conditions plaguing the country, but the Iraqi government, headed by Haider al-Abadi and the governor of central bank , succeeded in developing an accurate economic plan this year to cope with the economic crisis in cooperation with the International Monetary Fund, and the indicators of the recovery of the Iraqi economy began to appear significantly after the relative rise in global oil prices; after the implementation of the OPEC agreement to cut production and reduce the supply in the oil market in the world.

In the light of the correct monetary policy, followed by the Central Bank of Iraq in the development of new applications and mechanisms in line with its strategy for the years of “2016 2020”, with economic and financial reform program , which was agreed upon with the International Monetary Fund and in particular the first and second revision , which took place between the Iraqi delegation and the delegation of the World Bank in Washington, which was reflected in the rise in the value of the Iraqi dinar.

The tight monetary policy adopted by the Central Bank of Iraq in the framework of the strategy aimed at achieving stability showed that the financial dollar system is directed towards gradual decline ,and the phenomenon of partial dollarization is now less than the previous one due to the launch of freedom of foreign transfer and the adoption of monetary policy to promote the external value of the Iraqi dinar , which rose during the last five years .

The monetary policy in Iraq started to establish a framework to strengthen confidence in Iraqi dinars, which help to create a strong and deep conditions in the stability of the financial system, ie the transfer of the impact of the operational objectives of monetary policy to achieve the immediate objectives of the same policy, stressing that the power to address the dollarization, is a measure of the effectiveness of the monetary policy in providing an impressive signal to make the Iraqi dinar more attractive, which is usually reflected in the stability of the monetary demand on it , or decline the speed in money circulation and stability of it , ie , due to the effect of the exchange rate and interest as the effective positive variables in stabilizing the monetary demand and strengthen the mechanism of monetary transfer at the same time.
Those who are interested in the affairs of the monetary policy of the country noted that the gradual decline in the inflationary phenomenon has positive effects on the Iraqi Central Bank ‘s policy in strengthening the Iraqi dinar exchange rate , which gave strong effects on the stability of commodity tradable prices, which the annual inflation referred to it at the same time , expressed by the Index of consumer price .

The International Monetary Fund said that the activity of the Iraqi economy will remain limited in the current year, due to reduced oil production by 1.5% under the agreement with (OPEC), and the modest recovery of the non – oil sector.

The Fund said that the real growth of the GDP of Iraq reached 11% last year, supported by a substantial increase in oil production , which benefited from previous oil investments, it was agreed to the credit readiness with Iraq, which led to correct the public fiscal balance and the balance of the external position, and improve public financial management , while protecting of social spending.

The head of the IMF mission to Iraq Christiaan Coconut, said that the sharp decline in oil prices caused the lower of the total international reserves of Iraq , from 53.7 billion US dollars at the end of 2015 to the level which is still comfortable, of $ 46.5 billion, at the end of December / December 2016.

He added in order to support the economic growth and diversification in the economy, more reforms are needed to create fiscal space for overall growth, strengthen the business environment, and being guard against corruption and reform the banking sector, Iraqi authorities and IMF experts begin discussions on the second revision of the credit readiness Agreement

Here we come to the conclusion: that the policy adopted by the Central Bank of Iraq as the first responsible body as stated in the law (56 of 2004) for the supervision and control of the banking system and run it according to its means in monetary policy applications and its impact on the overall economy on the grounds that it is the financial and monetary adviser to the government and in addition to its core functions in maintaining the Iraqi dinar exchange rate against foreign currencies and to build foreign cash reserves and reducing inflation, all that needs government support and study and analysis of the reality of the rentier Iraqi economy , which relies on a single resource which is the oil and accounts for about (54. 60%) of the Domestic product output, and needs the coordination between the fiscal and monetary policies and the difference of economic policies, according to the new building of the economy “market economy” to reach the definite central objectives in addition to the organization of work in the legislation of economic laws governing the development process.

One of the challenges faced by the banking business in Iraq, creating an executive means for the application of what is stated in the government program with respect to the banking sector, and set a time ceiling for it with a program to monitor the work and evaluate it and strengthen the role of proactive measures to curb laundering and the smuggling of money, in order to address the financial collapses that some banks of private sector experienced because of the current circumstances until overcome it after the improvement of the financial situation of the country, and the stability of world oil prices.

Among the means of implementing what is stated in the government program is the preparation of programs and policies for continued cooperation between the government and private banks with the unification of the transaction for both parties, and to develop criteria for the classification and evaluation of banks in the light of the financial indicators and measure the efficiency of its performance and its role in economic development ,and support and activation and development of the Iraqi Central Bank ‘s initiative to allocate the amount of ( 5) trillion Iraqi dinars for specialized banks (housing, agricultural, Industria) and trillion Iraqi dinars to finance small and medium enterprises and creating new job opportunities and contribute to the plans of economic and social development .

The main objective of the Iraqi Central Bank is the application of the government program properly and in particular the statement’s axis by encouraging the transformation of the private sector and paragraph (d) of it , which define general paths and mechanisms for the development of banking , which is definitely needed to make great efforts of the relevant government agencies with government and private banking sector to overcome the challenges and obstacles facing the reform of the Iraqi banking sector and development of it, and to propose effective strategies and the foundations of building introductions and features of the transition from the banking to the developmental role through the process of addressing all the mistakes and lapses in economic construction in the coming years, with the drawing paths of success and achievement of goals.

Governor of the Central Bank of Iraq , Ali al-Allaq also announced to set up the proper foundations to upgrade the reality of applications of monetary policy and the development of the Iraqi banking sector and support it in a way that achieves the stated government program; the central bank is an independent organization abide by state government to manage key financial functions, such as a country ‘s currency issue, maintain cash value, and contribute to regulate the amount of money supply, and follow up on all operations of commercial banks , the central bank is defined as the National Bank of the States, and contribute to providing a range of banking and financial services to the Government of the States in which it belongs , and is interested in following up the commercial banking system, and the implementation of government fiscal and monetary policies, and is also interested in development of financial plans of the state government, and contributes to its implementation, and controls the funds within the economic sector.

Central Bank is a publicly owned monetary institution ; the Governments of the States undertake its administration and supervision on it through a set of laws under which the duties and objectives of its own are defined , as the central bank is at the forefront of the banking system; it has the authority to control the commercial banks, and its goal is non-profit, but its existence depends on the achievement of the general interests of the state, and the central bank is characterized by its ability to transform the assets of true nature or fixed ones , such as estates into cash assets .

The central bank is a financial institution that has a monopoly of money issuance process, and is linked to a strong relationship with commercial banks, and has different methods and the power to influence events and activities of these banks; thus contributing to the achievement of economic policy of the state , and has an independent management for monetary policy , and the executive authority does not interfere to the nature of its work.

Many economists called for the independence of the central bank legally, financially, and in administrative aspect , with some linkage between it and the state, as the role that the state lead is very important; in building a strategy for the development of small and medium – sized enterprises, and is an important element in the success, the fact that the government has the financial potential in the rentier economy, the role of the private sector in it which is weak to a large degree that can not be promoted in this sector without having a plan for the development of this sector and build a clear and declared mechanisms in which the private sector is actively involved so that it can be transformed from a small follower to the government sector to Prime partner, then to the leader of the investment and construction operations.

Shatha Khalil
Economic Unity
Rawabet Center for Research and Strategic studies