This article is write by Windreader1:
A recent article “The Exchange Rate of Foreign Currency in Economic Feasibility Studies” was recently posted.
https://dinaroutcast.forumotion.com/iraq-economy-news-f3/the-exchange-rate-of-foreign-currency-in-economic-feasibility-studies
The last sentence in the article stated:
"Estimate the amended exchange rate of the Iraqi dinar to be used in technical and economical feasibility studies and for (1.134) dollar per dinar. This price should be approved for 3 years until re-appreciation by the competent authorities.
The initial take on this article was that the information was outdated and no longer applicable. The website where the information was found is the Ministry of Planning and Development Cooperation (MoPDC). This agency is responsible for planning and prioritizing development and reconstruction activities in Iraq by providing the technical and management criteria for implementation of the funding. It deals mainly with the donor reconstruction funding and the capital budget. Billions of dollars from the reconstruction fund and other programs have been donated to Iraq for the purpose of reconstruction. In addition, the capital budget has also allocated billions of dollars to be used for capitol projects. To qualify as a major project the cost must be in excess of one million dinar. Examples of major projects are.
Petroleum, gas, mining, energy generation stations and distribution/ transport networks, big irrigation projects, agriculture production, transportation, tourist hotels and resorts, domestic trade such as shopping centers, hospitals, education and universities, etc.
The program that MoPDC now requires for all capitol project planning includes the Criteria for the Assessment of Feasibility Studies and the Central Control Measures for Adjusting Market Prices on Project Inputs and Outputs for all feasibility studies.
Let’s assume that you own a business where you sell a product or service. In calculating your budget you must identify your expenses i.e.: products purchased, utilities, payroll, rents, insurance, taxes etc. The sales price of the products or services is calculated to project an income that provides the revenue to pay the bills as well as provide a profit. I know this is a simplistic version of the process but I am conveying a concept with this example. Let’s further assume that your product or service is now marketed internationally and there is a difference in the value of your money vs. the international currency. If you want to purchase a product that is 100 in international currency, you must spend 300 of your money. What if, however, you knew the value of your money would change? Instead of spending 300 of your money to make that same purchase you would only have to spend 100. Consider also the impact on any contracts that includes payment for purchased products or services or the revenue from the sale of products or services. Any change in the value of your money would make a huge difference in the structure of your budget and contractual agreements.
Adjusting the value of the dinar is exactly what MoPDC has set up in their instructions for capitol project feasibility studies. They have adjusted the value of the dinar for the calculation of the return on investment. They placed that value at one dinar =1.134 dollars. Keep in mind that capitol projects are several years in development starting with the initial feasibility study to the completion of the project. This is not old data, but instructions that are currently being used for capitol project planning.
To quote: “The MoPDC set up central controls for adjusting market prices to assess a project’s inputs and outputs of goods, services and employment, which are used to calculate the net present value and return on investment in the economic analysis. The pricing rule is to evaluate the inputs using the export price FOB (FOB) and convert the foreign currency to its equivalent in dinars using the amended exchange rate.”
This is identified as the shadow price of foreign currency:
To quote: “It is necessary to put central controls to amend the official exchange rate to reflect the shadow price of the foreign currency, and that is considered one of the necessary requirements to implement the net discounted present value standard and the internal return rate on investment in the economic calculation.”
Now this is where this section of the instructions for the feasibility study really gets interesting. Instead of a recommendation to increase the value of the dinar, it actually recommends decreasing the value from 1 dinar=$3.028 dollars to 1 dinar=$1.134 dollars. The document further identifies the official exchange rate as $3.028. In other words, they are under estimating the value of the dinar for planning purposes.
"Justifications for exchange-rate adjustment: there are a number of important and powerful arguments which support the view that the official exchange rate reduces the real value of foreign currency for purposes of calculating the economic national profitability for investment projects and hence the purposes of investment planning. It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, etc."
It is also significant that the programmed rate from the CBI is not mentioned in any document or section of this website.
A recent article “The Exchange Rate of Foreign Currency in Economic Feasibility Studies” was recently posted.
https://dinaroutcast.forumotion.com/iraq-economy-news-f3/the-exchange-rate-of-foreign-currency-in-economic-feasibility-studies
The last sentence in the article stated:
"Estimate the amended exchange rate of the Iraqi dinar to be used in technical and economical feasibility studies and for (1.134) dollar per dinar. This price should be approved for 3 years until re-appreciation by the competent authorities.
The initial take on this article was that the information was outdated and no longer applicable. The website where the information was found is the Ministry of Planning and Development Cooperation (MoPDC). This agency is responsible for planning and prioritizing development and reconstruction activities in Iraq by providing the technical and management criteria for implementation of the funding. It deals mainly with the donor reconstruction funding and the capital budget. Billions of dollars from the reconstruction fund and other programs have been donated to Iraq for the purpose of reconstruction. In addition, the capital budget has also allocated billions of dollars to be used for capitol projects. To qualify as a major project the cost must be in excess of one million dinar. Examples of major projects are.
Petroleum, gas, mining, energy generation stations and distribution/ transport networks, big irrigation projects, agriculture production, transportation, tourist hotels and resorts, domestic trade such as shopping centers, hospitals, education and universities, etc.
The program that MoPDC now requires for all capitol project planning includes the Criteria for the Assessment of Feasibility Studies and the Central Control Measures for Adjusting Market Prices on Project Inputs and Outputs for all feasibility studies.
Let’s assume that you own a business where you sell a product or service. In calculating your budget you must identify your expenses i.e.: products purchased, utilities, payroll, rents, insurance, taxes etc. The sales price of the products or services is calculated to project an income that provides the revenue to pay the bills as well as provide a profit. I know this is a simplistic version of the process but I am conveying a concept with this example. Let’s further assume that your product or service is now marketed internationally and there is a difference in the value of your money vs. the international currency. If you want to purchase a product that is 100 in international currency, you must spend 300 of your money. What if, however, you knew the value of your money would change? Instead of spending 300 of your money to make that same purchase you would only have to spend 100. Consider also the impact on any contracts that includes payment for purchased products or services or the revenue from the sale of products or services. Any change in the value of your money would make a huge difference in the structure of your budget and contractual agreements.
Adjusting the value of the dinar is exactly what MoPDC has set up in their instructions for capitol project feasibility studies. They have adjusted the value of the dinar for the calculation of the return on investment. They placed that value at one dinar =1.134 dollars. Keep in mind that capitol projects are several years in development starting with the initial feasibility study to the completion of the project. This is not old data, but instructions that are currently being used for capitol project planning.
To quote: “The MoPDC set up central controls for adjusting market prices to assess a project’s inputs and outputs of goods, services and employment, which are used to calculate the net present value and return on investment in the economic analysis. The pricing rule is to evaluate the inputs using the export price FOB (FOB) and convert the foreign currency to its equivalent in dinars using the amended exchange rate.”
This is identified as the shadow price of foreign currency:
To quote: “It is necessary to put central controls to amend the official exchange rate to reflect the shadow price of the foreign currency, and that is considered one of the necessary requirements to implement the net discounted present value standard and the internal return rate on investment in the economic calculation.”
Now this is where this section of the instructions for the feasibility study really gets interesting. Instead of a recommendation to increase the value of the dinar, it actually recommends decreasing the value from 1 dinar=$3.028 dollars to 1 dinar=$1.134 dollars. The document further identifies the official exchange rate as $3.028. In other words, they are under estimating the value of the dinar for planning purposes.
"Justifications for exchange-rate adjustment: there are a number of important and powerful arguments which support the view that the official exchange rate reduces the real value of foreign currency for purposes of calculating the economic national profitability for investment projects and hence the purposes of investment planning. It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, etc."
It is also significant that the programmed rate from the CBI is not mentioned in any document or section of this website.
