Conscious / oil revenues and the options available under the economic policies / researcher Ammar Abdul Wahid / Head of Economic Policy in the Ministry of Finance / c 4 and the last
Conscious / Center for Studies and news agency the Iraqi media
21/2/2010 12:28pm 21/2/2010 12:28 pm
Options :ـ :
ـــــــــــــــ
All the evidence currently available in the Iraqi economy and associated with the high volume of expected shortfall in the budget in 2009 to about (19) trillion dinars, or equivalent (17) billion dollars and the projected shortfall in the budget in 2010 up to (17) trillion dinars, or equivalent (14 - 14.5) billion dollars. With the decline in world oil prices, the deficit would lead directly to increases in the monetary base generates inflationary pressures reflected in a larger deficit in the current account balance of payments as a result of Iraq the apparent rise in the dinar exchange rate in light of the Iraqi Central Bank auction of the U.S. dollar, which led to enhance the value dinar against the dollar and this could encourage increased demand for imports from abroad, especially by the private sector.
In addition to the above, the reduction achieved in the growth rates of world GDP, especially in the United States and the European Community, Japan and the resulting negative effects on the volume of foreign direct investment and other forms of investment other related grants and loans is expected to be a large burden, especially the growth rates of gross domestic product in the Iraqi economy, which we expect them to be weak this year and next year, due to declining rates of investment expected.
According to expectations, the rate of economic growth for the current year 2009 and 2010, could fall up to (4 - 5%) Annually, which will have many adverse effects on the level of employment and high unemployment.
The ability to absorb the shock of the unexpected fluctuations in financial flows depends on the financial position of the Government to enable it to facing the crisis and raise its ability to maneuver during the significant decline in revenue. Fiscal management can mitigate the degree of volatility through a package of corrective actions designed to the dimensions of the local economy fluctuation in oil revenues and that as far as possible from the jaws of the link between current spending and oil revenues and direct the latter as much as possible about investment spending and raise the level of domestic savings, both public and private assets and build foreign exchange sufficient to overcome the crisis when they occur.
It was (the Norwegian experience) is a successful example in that it was able to distribute the benefits of oil wealth over the long term of years to the protection of non-oil sectors of the economy from the negative effects of what is known ((tunnel effect)) resulting from the phenomenon ((Dutch disease)) While you can not other oil-producing countries to rein in public spending when the surge in oil prices and increased oil revenues, with the consequent difficulty of decline and reduce spending on the decline in realized oil prices and declining oil revenues at a time where there is a belief Government bodies that this decline in prices is a temporary situation that will be easily overcome and this is what falls from the Government's intention to take the necessary treatments, leading to expansion of non-fiscal balance and increase the proportion of disability and the prevalence of inflationary pressures, which causes which compel the government to take actions that might seem to be lagging particularly in the postponement or cancellation of a number of investment projects and operational spending squeeze unnecessary at the present time, leading to a decline in economic activity and a decline in economic growth rates and a declining standard of operation.
Processors and the options can not be effective if it is taken after the crisis, but because of these actions must come before the event and after the event and this is including the mitigation of monetary policy bias towards expansion in the tunnels during the large influx of oil revenues and to ensure a balance within a moderate level of financial Of course, by oil revenues and the government must work hard to ensure the accumulation of financial assets during the period of the oil windfall to sustain
Fiscal policy for the period after the crisis . .
That good use of financial resources is one of the important aspects of the management aspects of development in an efficient and prudent and no matter how large and available resources must be managed optimally and correctly routed through investment projects and programs that serve the development objective and the lack of attention to the optimum use of financial resources by means of another non - attention to economic development, balanced and comprehensive.
A look at fiscal policy and monetary policy and how they affect the macro-economic:
Budget is a plan or program of action, the government translate its economic and social objectives of the annual digital, and not just a program of work for the Ministry of Finance shows the efficiency in the management of funds and not determined by the effectiveness of the budget itself, but linked to other financial planning tools such as politics and composting cauterizing tax, insurance and banks and measured results of socio-economic and not just financial results.
And economic and social role of the public budget to be more effective in democracies, compared to systems of dictatorship and bureaucracy, which play a marginal role the public budget and weak, in this sense we can say that the general budget in Iraq could play a key role in supporting the growth of democracy. If they citizens Iraqis that the second largest oil reserves in the world is the property of the people, not the government, they will be more determined to hold the government accountable. can be recognized on the size and nature of what impact the budget on the social and economic life Assembly, through its ability to answer the following questions that reflect the nature of the goals budget that will work to achieve macro-economic level and as follows: --
First - the objectives of the general budget
Can be identified on the objectives of the general budget to the national economy by identifying the role of fiscal policy in achieving economic growth, increase employment and labor productivity, and whether that will raise the level of inflation, or to stabilize prices?
Will these trends will encourage the mobilization of national capabilities, both material and human resources, the highest efficiency possible in the development process, or result in the obliteration of these possibilities or forced to hide, or waste too thinly, or smuggling, or expelled to the outside?
Will these trends to attract potential of existing national and accumulated abroad, and the possibilities of foreign investment, including wishing to serve the objectives of economic and social development or working on turning off the possibilities and thwart those desires?
Can also identify the directions on the general budget and sectoral social level by identifying the role of fiscal policy in raising the level of social welfare, measured by the steady improvement in the level of satisfaction of material needs and morale of the citizens. Will these trends will lead to support and encourage sectors and activities or groups and the elements most closely associated with social progress and scientific ا
Technology, ability to handle the most positive and creative with the world and the rapid developments, or on the contrary these people and defeat the demoralized and suppress the aspirations and forcing them to reintegrate or migrate abroad to develop their abilities and achievements in the service of other countries, and whether the Department of Labor will work to develop the financial expertise Mlakatha, techniques and methods of work and deepen dedication and service to the general objectives set by the material and moral incentives, or driven to work in ways that far behind the times, and contrary to their official duties and the interests of balance, such as bookkeeping and organization of law to allow them to evade tax obligations, or waiver of the rights of treasury to the other, local or foreign, Proceeding with corruption and accountable to the temptations of the material and whether the huge lead fiscal policy, and the general budget, to greater harmony and social peace and individual satisfaction??
Second: the general budget in Iraq
Facing the public budget in Iraq, a complex and interrelated needs of the public waiting saturation, which refers to the weight of economic and social role of the public budget programs in the country.
As far as programs, which announced the budget except for the period 2004 - 2009, it faces the task of increasing domestic production, and increase per capita income and work to reduce the rate of unemployment and under-complete And control the phenomenon of inflation, and work to reduce out of external indebtedness, and the repair and rehabilitation of institutions, enterprises and economic corporations in the public sector and begin running, and the reform of the oil sector through the introduction or use of commercial standards to raise the performance of oil companies and boosting economic activities, financial income and achieve economic balance between various governorates and reduce regional disparities, and develop the administrative system in state institutions to serve the interests of the homeland and the citizen and in line with economic development.
When reviewing the sectoral distribution of budget allocations that we note the following: --
1ـ given that the security budgets of exceptional importance, despite the importance of this aspect, the focus has come at the expense of the PROFILE-oriented sectors of the high degree of importance in the development process, such as the oil sector and the manufacturing sector and agriculture sector.
2ـ heavy reliance on oil for 90% of Iraq's revenues, and this will make the oil production rates and prices are changing the ruling in the process of implementing the objectives of the budget.
3ـ did not mention the details of those budgets to the circular and fiscal surpluses in cash and assets abroad, which will depend on the financing of the deficit and gave importance to the subject of international grants, with the experience of the past six years were not positive in this area.
4 ـ relied on foreign investment in developing the oil sector with the most important specific to attract such investment is still valid and the security aspect, which is characterized Ptdhorh in previous years, which means that the lack of a suitable climate to attract such investments. In addition to the non-issuance of oil and gas law
5ـmay undermine the administrative and financial corruption the main pillars of this budget and prevents them from achieving their economic and social development.
6 ـ should be consolidated financing investment projects within the budget only, the process of adoption of project financing on the multi-channel conflict with the law of the unity of expenditure, the existence of possible projects to be financed through the budget or by donors or by the provinces and territories, could lead to a repetition of the financing of projects through several channels, which lead to the exacerbation of the phenomenon of corruption
Here we must analyze the impact of fiscal policy on output in the traditional analysis of the curve) IS-LM ) Gave me (IS ) Shows the various points of interest rates and gross domestic product, which then checks the balance of the commodities market and tends to curve down, according to the chart (No. 1) because a lower interest rate leads to increased government investment expenditure and private, which means that the market equilibrium is achieved at a higher level of aggregate demand and output, The curve (LM ) Refers to points of interest and the output that is achieved then the balance of the money market and the tendency of the curve positive, increasing interest rates leading to lower demand for real balances, and should increase the level of total income to keep the demand for real balances equal to the display of fixture This implies that maintaining the equilibrium level of market exchange requires a high income when interest rate increase.
If the analysis was expanded to include an open economy, Fsnstain curve (BP) Which shows points of interest rates and output that balance then the balance of payments, which consists of the balance of current account and capital account and current account depends on the level of income, exchange rate, while the capital account depends on the domestic interest rate, if money curve BP )) To the top as in Figure (2) This means increased production, leading to increased imports and to achieve this balance of payments deficit, but rising interest rates lead to capital flows to restore the economy, including balance of payments.
In the case of an open economy and a fixed exchange rate policies, which apply to the case of Iraq.
III: Challenges facing the implementation of budget programs in Iraq
The process of implementing the general budget programs a number of challenges including: --
1 - large sums needed to rebuild the infrastructure, which is approaching $ 50 billion according to estimates by the World Bank, The amount depends on the criteria that will be adopted in the reconstruction of basic infrastructure of the country.
2- the continuing unstable security situation, and its impact seriously disrupt the process of reconstruction and direct the implementation of the goals approved by the budget.
3 - the urgent need to implement economic reform policies, notably the phasing out of government support and in particular to support public companies, and the ration card, which accounts for a high proportion of public expenditure.
ـ 4 Lack of information on the assets of state-owned enterprises and the responsibilities taken by these companies and the products or services provided by the Government or the public. Therefore impact on future budgets for Iraq to include annual reports on the assets of those companies and the nature of their activities.
5- istribution of investment expenditure of the administrative and economic, in the regions or governorates that are not based on scientific grounds, not based on the orientation statistics, studies, or geography (economic and human). And lack of interest in studies of economic and technical feasibility as well as that of the State budget has not been used so far tab geographical, not to mention the lack of studies that show its effects on rural and urban residents in terms of contributing to the resources or the use of fruit.
6 - The weakness of the technical efficiency of institutions, auditing, accounting and the tax authorities in Iraq.
7 - The problem of unemployment that exceed the percentage (18%) according to official statistics
8- social tensions that accompanied the implementation of programs of liberalization of prices, especially after raising the prices of oil derivatives and other tensions that can occur in the future in the event of future reforms.
9- administrative and financial corruption in state institutions.
10- twice the state's ability to diversify its sources of revenues and increased.
Through the constraints of work that we have mentioned that the government can affect economic activity using the tools of fiscal policy through the successful changes in the tax on the one hand, or in levels of public expenditure on the other hand, as the government can affect the income of individuals using the tools of monetary policy, which affect the size of and the cost of credit and thus affect the ability of individuals and the private sector in the tunnels, and this will affect directly or indirectly on the level of economic activity, as well as the role played by the rules and regulations governing economic affairs, which imposes restrictions on the activities that are not desirable and provide incentives and facilities for activities that serve the development process.
Show the effects of monetary and financial policies in the way the government uses to finance its budget deficit, the existence of the deficit would force the government to borrow to finance this deficit and the effects depend on how the cash will be used to finance the deficit, the government resorted to borrowing from commercial banks or they may resort to the public and non-banking private sector, the government said the choice of any of these methods will depend on the degree of independence of Central Bank
First - If the authority of the central bank or a weak fiscal policy, they can not reject the Government's request, the request loans from the central bank, and if the government has borrowed from the central bank increased the tunnels and the increase in spending will lead to increase the incomes of individuals that is, it will lead to money creation high-strength and thus lead to the increase in deposits from individuals to commercial banks became increasingly reserves of commercial banks and their ability to expand credit and thus increasing the money supply does not vary this method for a way to print money or issue new money because the government loans from the central bank is merely book entries between the two state-owned do not entail any transfer of purchasing power from one side to the other short, both of the two methods are working to increase the money supply by increasing the liquidity of the public and the liquidity of commercial banks.
Second - If the authority of the central bank independent and strong Vstljo the government to borrow from other sources, namely: --
1- commercial banks: - if the government borrowed from commercial banks to finance the deficit in its budget, there are many possible routes and modes: --
A - First case: - either have a surplus of commercial banks in the cash reserve is covering the Government's need of money and without affecting or lead to a reduction of credit to the private sector in this case, the private investment will not be affected by government borrowing, and the money supply will increase as a result of additional expansion in bank credit.
B - the second case: - If you do not have a surplus of commercial banks in the cash reserve, it will meet the request of the Government of the loans in one of these methods
The first way: - is the central bank to reduce the legal cash reserve requirements of commercial banks or the monetization of a large amount of remittances or buying the discounted commercial paper and government bonds at their disposal in order to increase the size of cash reserves with the banks and to allow them to increase their loans to the government and these will process was therefore to increase the money supply.
The second way: that commercial banks are reducing the volume of its loans to the private sector and individuals in order to provide sufficient liquidity to cover the needs of the government any loans that commercial banks in this case be replaced by private loans and public loans under this method will not increase the money supply and as a result will cost wave of loans to individuals and the private sector.
2 public or private non-banking: - if the government has borrowed from the public or private non-banking using the government bonds and treasury transfers, will lead this process to increase the money supply because it is only the transfer of purchasing power of individuals to the government.
Objectives of monetary policy:
There is consensus among economists that the main objective of monetary policy should be is to maintain price stability and the purchasing power of local currency and this means in practice that inflation rates should remain low, ranging between (1% and 4%) in developed countries and about (8% -10%) in developing countries and the Government is committed not to implement the policies of deficit financing by increasing the money supply.
You can specify the objectives of monetary policy the following:
- Economic growth.
- Reduce unemployment.
- The stability of prices of goods and services.
- Stability of exchange rates if the exchange rate floating.
- Improve the balance of payments.
Monetary policy tools
• Tools direct
- Interest rates.
- Credit limits for banks.
- Exchange rate of the currency.
• Indirect tools
- Open market operations (buying and selling permits the government).
- Changes in the discount rate.
- A change in the legal reserve
As far as the monetary effects of fiscal policies in Iraq, could distinguish in this respect between the two stages: --
The first phase (1980-2003)
This phase was characterized by the dominance of fiscal policy actions on the decisions of the Central Bank under the authority of the weakness of the Central Bank and the subordination of fiscal policy, and lack of any personal or independence. In the caudal monetary policy and their full subordination of fiscal policy, fiscal policy is adopted the way of religion Tnkid any direct borrowing from the central bank, the credit tool that is used in printing money to finance the budget deficit, and this policy led to a sharp rise in inflation caused by the continuous increase in the growth of money supply of money high-strength, compared with growth rates in GDP. The trend was exacerbated after the imposition of economic blockade during the period (1990-2003) period witnessed a state of chaos or lack of fiscal and monetary discipline, reaching rates of hyper-inflation to the level that can not be brought under control by using the traditional instruments of monetary policy and fiscal policy, and make matters worse, the These policies have been accompanied by fiscal restraint exercise any administrative imposition of interest rates and fixed rates on loans and deposits, and away from the changes in rates of inflation in the economy, it is normal in these situations to be real interest rates negative, and those policies have led to the phenomenon of flight of deposits from banks and employment in the areas of non-productive which the depth of the economic recession.
The second phase of 2004 and beyond
During this period, the new law of the Central Bank of Iraq, who dedicated the independence of the central bank in managing monetary policy, and it was the most prominent features of this independence on the Bank's decision to stop printing money to finance the budget deficit, the government resorted to the use of alternative methods, a non-inflationary tool of debt financing and credit is used in this version of treasury bills and the use of the Central Bank to be sold to commercial banks and the stock market to provide the funding required to cover the budget deficit
What is known as indirect means of monetary policy, entry of the central bank as a seller of the Bills in the cash market will ensure the provision of liquidity to the financial sector and control of liquid levels and Mnasebha in addressing inflationary monetary phenomenon. Where a Central Bank every two weeks, the auction of treasury remittances which pulls (one hundred) billion dinars, in addition to a quarterly auction is held every three months in which to withdraw (180) billion dinars, and represents a securitization of domestic public debt which amounted to nearly 5.3 trillion dinars, which is Remnants of the former economic system in Iraq.
And the auction treasury transfers (remittances and the Ministry of Finance) which is held every two weeks maturity period is three months.
And this is all lending activities within the framework of the so-called open market operations the central bank began ethnicity for the first time practice in the framework of activating instruments of indirect monetary management of liquidity in the public down to the Twaznip interest rates in the money market interest rates, especially long-term goals, a very stable financial sector and deepen the levels of maturity that feed their effects on price trends and the overall level and at the same time provide a powerful incubator of stability is the necessary logical activity of sustained growth in the country, including making of monetary policy the effects of a strong and influential on the paths of the real sector.
One of the benefits of those policies that they do not lead to higher inflation rates because they do not lead to an increase in money supply growth rates of money high-strength, which works only on the transfer of purchasing power of the public to the government.
However, increased borrowing using the method of auction and as is happening now led to higher real interest rates in banking sector, especially after the release price of this braking action in the wake of the central bank in 2004 to float the interest rates on deposit and lending rates of commercial banks and the granting of freedom to determine prices interest.
But the government had resorted increasingly to debt finance has led to increased pressure on private investment, which is known as pry out has resulted in the tendency to raise interest rates and increase borrowing costs and ultimately lead to the reluctance of the private sector to borrow from commercial banks. The entry of a rival government to the private sector financial resources available. May raise the level of aggregate demand for loans and led to high real interest rates. This will lead to reduction in procurement of consumers, especially of durable goods and other commodities that require borrowing from the banks and in particular sensitive goods such as automobiles interest rates and real estate.
Of the above, has managed monetary policy, despite all the political transition and economic development of the complex past of the country's financial architecture and the achievement of concrete and strong rates of economic stability and to defend the exchange rate stable, strong and attractive national currency, by providing a foster genuine stability and strong growth programs and economic development.
Analysis of trends in monetary policy
Conscious / Center for Studies and news agency the Iraqi media
21/2/2010 12:28pm 21/2/2010 12:28 pm
Options :ـ :
ـــــــــــــــ
All the evidence currently available in the Iraqi economy and associated with the high volume of expected shortfall in the budget in 2009 to about (19) trillion dinars, or equivalent (17) billion dollars and the projected shortfall in the budget in 2010 up to (17) trillion dinars, or equivalent (14 - 14.5) billion dollars. With the decline in world oil prices, the deficit would lead directly to increases in the monetary base generates inflationary pressures reflected in a larger deficit in the current account balance of payments as a result of Iraq the apparent rise in the dinar exchange rate in light of the Iraqi Central Bank auction of the U.S. dollar, which led to enhance the value dinar against the dollar and this could encourage increased demand for imports from abroad, especially by the private sector.
In addition to the above, the reduction achieved in the growth rates of world GDP, especially in the United States and the European Community, Japan and the resulting negative effects on the volume of foreign direct investment and other forms of investment other related grants and loans is expected to be a large burden, especially the growth rates of gross domestic product in the Iraqi economy, which we expect them to be weak this year and next year, due to declining rates of investment expected.
According to expectations, the rate of economic growth for the current year 2009 and 2010, could fall up to (4 - 5%) Annually, which will have many adverse effects on the level of employment and high unemployment.
The ability to absorb the shock of the unexpected fluctuations in financial flows depends on the financial position of the Government to enable it to facing the crisis and raise its ability to maneuver during the significant decline in revenue. Fiscal management can mitigate the degree of volatility through a package of corrective actions designed to the dimensions of the local economy fluctuation in oil revenues and that as far as possible from the jaws of the link between current spending and oil revenues and direct the latter as much as possible about investment spending and raise the level of domestic savings, both public and private assets and build foreign exchange sufficient to overcome the crisis when they occur.
It was (the Norwegian experience) is a successful example in that it was able to distribute the benefits of oil wealth over the long term of years to the protection of non-oil sectors of the economy from the negative effects of what is known ((tunnel effect)) resulting from the phenomenon ((Dutch disease)) While you can not other oil-producing countries to rein in public spending when the surge in oil prices and increased oil revenues, with the consequent difficulty of decline and reduce spending on the decline in realized oil prices and declining oil revenues at a time where there is a belief Government bodies that this decline in prices is a temporary situation that will be easily overcome and this is what falls from the Government's intention to take the necessary treatments, leading to expansion of non-fiscal balance and increase the proportion of disability and the prevalence of inflationary pressures, which causes which compel the government to take actions that might seem to be lagging particularly in the postponement or cancellation of a number of investment projects and operational spending squeeze unnecessary at the present time, leading to a decline in economic activity and a decline in economic growth rates and a declining standard of operation.
Processors and the options can not be effective if it is taken after the crisis, but because of these actions must come before the event and after the event and this is including the mitigation of monetary policy bias towards expansion in the tunnels during the large influx of oil revenues and to ensure a balance within a moderate level of financial Of course, by oil revenues and the government must work hard to ensure the accumulation of financial assets during the period of the oil windfall to sustain
Fiscal policy for the period after the crisis . .
That good use of financial resources is one of the important aspects of the management aspects of development in an efficient and prudent and no matter how large and available resources must be managed optimally and correctly routed through investment projects and programs that serve the development objective and the lack of attention to the optimum use of financial resources by means of another non - attention to economic development, balanced and comprehensive.
A look at fiscal policy and monetary policy and how they affect the macro-economic:
Budget is a plan or program of action, the government translate its economic and social objectives of the annual digital, and not just a program of work for the Ministry of Finance shows the efficiency in the management of funds and not determined by the effectiveness of the budget itself, but linked to other financial planning tools such as politics and composting cauterizing tax, insurance and banks and measured results of socio-economic and not just financial results.
And economic and social role of the public budget to be more effective in democracies, compared to systems of dictatorship and bureaucracy, which play a marginal role the public budget and weak, in this sense we can say that the general budget in Iraq could play a key role in supporting the growth of democracy. If they citizens Iraqis that the second largest oil reserves in the world is the property of the people, not the government, they will be more determined to hold the government accountable. can be recognized on the size and nature of what impact the budget on the social and economic life Assembly, through its ability to answer the following questions that reflect the nature of the goals budget that will work to achieve macro-economic level and as follows: --
First - the objectives of the general budget
Can be identified on the objectives of the general budget to the national economy by identifying the role of fiscal policy in achieving economic growth, increase employment and labor productivity, and whether that will raise the level of inflation, or to stabilize prices?
Will these trends will encourage the mobilization of national capabilities, both material and human resources, the highest efficiency possible in the development process, or result in the obliteration of these possibilities or forced to hide, or waste too thinly, or smuggling, or expelled to the outside?
Will these trends to attract potential of existing national and accumulated abroad, and the possibilities of foreign investment, including wishing to serve the objectives of economic and social development or working on turning off the possibilities and thwart those desires?
Can also identify the directions on the general budget and sectoral social level by identifying the role of fiscal policy in raising the level of social welfare, measured by the steady improvement in the level of satisfaction of material needs and morale of the citizens. Will these trends will lead to support and encourage sectors and activities or groups and the elements most closely associated with social progress and scientific ا
Technology, ability to handle the most positive and creative with the world and the rapid developments, or on the contrary these people and defeat the demoralized and suppress the aspirations and forcing them to reintegrate or migrate abroad to develop their abilities and achievements in the service of other countries, and whether the Department of Labor will work to develop the financial expertise Mlakatha, techniques and methods of work and deepen dedication and service to the general objectives set by the material and moral incentives, or driven to work in ways that far behind the times, and contrary to their official duties and the interests of balance, such as bookkeeping and organization of law to allow them to evade tax obligations, or waiver of the rights of treasury to the other, local or foreign, Proceeding with corruption and accountable to the temptations of the material and whether the huge lead fiscal policy, and the general budget, to greater harmony and social peace and individual satisfaction??
Second: the general budget in Iraq
Facing the public budget in Iraq, a complex and interrelated needs of the public waiting saturation, which refers to the weight of economic and social role of the public budget programs in the country.
As far as programs, which announced the budget except for the period 2004 - 2009, it faces the task of increasing domestic production, and increase per capita income and work to reduce the rate of unemployment and under-complete And control the phenomenon of inflation, and work to reduce out of external indebtedness, and the repair and rehabilitation of institutions, enterprises and economic corporations in the public sector and begin running, and the reform of the oil sector through the introduction or use of commercial standards to raise the performance of oil companies and boosting economic activities, financial income and achieve economic balance between various governorates and reduce regional disparities, and develop the administrative system in state institutions to serve the interests of the homeland and the citizen and in line with economic development.
When reviewing the sectoral distribution of budget allocations that we note the following: --
1ـ given that the security budgets of exceptional importance, despite the importance of this aspect, the focus has come at the expense of the PROFILE-oriented sectors of the high degree of importance in the development process, such as the oil sector and the manufacturing sector and agriculture sector.
2ـ heavy reliance on oil for 90% of Iraq's revenues, and this will make the oil production rates and prices are changing the ruling in the process of implementing the objectives of the budget.
3ـ did not mention the details of those budgets to the circular and fiscal surpluses in cash and assets abroad, which will depend on the financing of the deficit and gave importance to the subject of international grants, with the experience of the past six years were not positive in this area.
4 ـ relied on foreign investment in developing the oil sector with the most important specific to attract such investment is still valid and the security aspect, which is characterized Ptdhorh in previous years, which means that the lack of a suitable climate to attract such investments. In addition to the non-issuance of oil and gas law
5ـmay undermine the administrative and financial corruption the main pillars of this budget and prevents them from achieving their economic and social development.
6 ـ should be consolidated financing investment projects within the budget only, the process of adoption of project financing on the multi-channel conflict with the law of the unity of expenditure, the existence of possible projects to be financed through the budget or by donors or by the provinces and territories, could lead to a repetition of the financing of projects through several channels, which lead to the exacerbation of the phenomenon of corruption
Here we must analyze the impact of fiscal policy on output in the traditional analysis of the curve) IS-LM ) Gave me (IS ) Shows the various points of interest rates and gross domestic product, which then checks the balance of the commodities market and tends to curve down, according to the chart (No. 1) because a lower interest rate leads to increased government investment expenditure and private, which means that the market equilibrium is achieved at a higher level of aggregate demand and output, The curve (LM ) Refers to points of interest and the output that is achieved then the balance of the money market and the tendency of the curve positive, increasing interest rates leading to lower demand for real balances, and should increase the level of total income to keep the demand for real balances equal to the display of fixture This implies that maintaining the equilibrium level of market exchange requires a high income when interest rate increase.
If the analysis was expanded to include an open economy, Fsnstain curve (BP) Which shows points of interest rates and output that balance then the balance of payments, which consists of the balance of current account and capital account and current account depends on the level of income, exchange rate, while the capital account depends on the domestic interest rate, if money curve BP )) To the top as in Figure (2) This means increased production, leading to increased imports and to achieve this balance of payments deficit, but rising interest rates lead to capital flows to restore the economy, including balance of payments.
In the case of an open economy and a fixed exchange rate policies, which apply to the case of Iraq.
III: Challenges facing the implementation of budget programs in Iraq
The process of implementing the general budget programs a number of challenges including: --
1 - large sums needed to rebuild the infrastructure, which is approaching $ 50 billion according to estimates by the World Bank, The amount depends on the criteria that will be adopted in the reconstruction of basic infrastructure of the country.
2- the continuing unstable security situation, and its impact seriously disrupt the process of reconstruction and direct the implementation of the goals approved by the budget.
3 - the urgent need to implement economic reform policies, notably the phasing out of government support and in particular to support public companies, and the ration card, which accounts for a high proportion of public expenditure.
ـ 4 Lack of information on the assets of state-owned enterprises and the responsibilities taken by these companies and the products or services provided by the Government or the public. Therefore impact on future budgets for Iraq to include annual reports on the assets of those companies and the nature of their activities.
5- istribution of investment expenditure of the administrative and economic, in the regions or governorates that are not based on scientific grounds, not based on the orientation statistics, studies, or geography (economic and human). And lack of interest in studies of economic and technical feasibility as well as that of the State budget has not been used so far tab geographical, not to mention the lack of studies that show its effects on rural and urban residents in terms of contributing to the resources or the use of fruit.
6 - The weakness of the technical efficiency of institutions, auditing, accounting and the tax authorities in Iraq.
7 - The problem of unemployment that exceed the percentage (18%) according to official statistics
8- social tensions that accompanied the implementation of programs of liberalization of prices, especially after raising the prices of oil derivatives and other tensions that can occur in the future in the event of future reforms.
9- administrative and financial corruption in state institutions.
10- twice the state's ability to diversify its sources of revenues and increased.
Through the constraints of work that we have mentioned that the government can affect economic activity using the tools of fiscal policy through the successful changes in the tax on the one hand, or in levels of public expenditure on the other hand, as the government can affect the income of individuals using the tools of monetary policy, which affect the size of and the cost of credit and thus affect the ability of individuals and the private sector in the tunnels, and this will affect directly or indirectly on the level of economic activity, as well as the role played by the rules and regulations governing economic affairs, which imposes restrictions on the activities that are not desirable and provide incentives and facilities for activities that serve the development process.
Show the effects of monetary and financial policies in the way the government uses to finance its budget deficit, the existence of the deficit would force the government to borrow to finance this deficit and the effects depend on how the cash will be used to finance the deficit, the government resorted to borrowing from commercial banks or they may resort to the public and non-banking private sector, the government said the choice of any of these methods will depend on the degree of independence of Central Bank
First - If the authority of the central bank or a weak fiscal policy, they can not reject the Government's request, the request loans from the central bank, and if the government has borrowed from the central bank increased the tunnels and the increase in spending will lead to increase the incomes of individuals that is, it will lead to money creation high-strength and thus lead to the increase in deposits from individuals to commercial banks became increasingly reserves of commercial banks and their ability to expand credit and thus increasing the money supply does not vary this method for a way to print money or issue new money because the government loans from the central bank is merely book entries between the two state-owned do not entail any transfer of purchasing power from one side to the other short, both of the two methods are working to increase the money supply by increasing the liquidity of the public and the liquidity of commercial banks.
Second - If the authority of the central bank independent and strong Vstljo the government to borrow from other sources, namely: --
1- commercial banks: - if the government borrowed from commercial banks to finance the deficit in its budget, there are many possible routes and modes: --
A - First case: - either have a surplus of commercial banks in the cash reserve is covering the Government's need of money and without affecting or lead to a reduction of credit to the private sector in this case, the private investment will not be affected by government borrowing, and the money supply will increase as a result of additional expansion in bank credit.
B - the second case: - If you do not have a surplus of commercial banks in the cash reserve, it will meet the request of the Government of the loans in one of these methods
The first way: - is the central bank to reduce the legal cash reserve requirements of commercial banks or the monetization of a large amount of remittances or buying the discounted commercial paper and government bonds at their disposal in order to increase the size of cash reserves with the banks and to allow them to increase their loans to the government and these will process was therefore to increase the money supply.
The second way: that commercial banks are reducing the volume of its loans to the private sector and individuals in order to provide sufficient liquidity to cover the needs of the government any loans that commercial banks in this case be replaced by private loans and public loans under this method will not increase the money supply and as a result will cost wave of loans to individuals and the private sector.
2 public or private non-banking: - if the government has borrowed from the public or private non-banking using the government bonds and treasury transfers, will lead this process to increase the money supply because it is only the transfer of purchasing power of individuals to the government.
Objectives of monetary policy:
There is consensus among economists that the main objective of monetary policy should be is to maintain price stability and the purchasing power of local currency and this means in practice that inflation rates should remain low, ranging between (1% and 4%) in developed countries and about (8% -10%) in developing countries and the Government is committed not to implement the policies of deficit financing by increasing the money supply.
You can specify the objectives of monetary policy the following:
- Economic growth.
- Reduce unemployment.
- The stability of prices of goods and services.
- Stability of exchange rates if the exchange rate floating.
- Improve the balance of payments.
Monetary policy tools
• Tools direct
- Interest rates.
- Credit limits for banks.
- Exchange rate of the currency.
• Indirect tools
- Open market operations (buying and selling permits the government).
- Changes in the discount rate.
- A change in the legal reserve
As far as the monetary effects of fiscal policies in Iraq, could distinguish in this respect between the two stages: --
The first phase (1980-2003)
This phase was characterized by the dominance of fiscal policy actions on the decisions of the Central Bank under the authority of the weakness of the Central Bank and the subordination of fiscal policy, and lack of any personal or independence. In the caudal monetary policy and their full subordination of fiscal policy, fiscal policy is adopted the way of religion Tnkid any direct borrowing from the central bank, the credit tool that is used in printing money to finance the budget deficit, and this policy led to a sharp rise in inflation caused by the continuous increase in the growth of money supply of money high-strength, compared with growth rates in GDP. The trend was exacerbated after the imposition of economic blockade during the period (1990-2003) period witnessed a state of chaos or lack of fiscal and monetary discipline, reaching rates of hyper-inflation to the level that can not be brought under control by using the traditional instruments of monetary policy and fiscal policy, and make matters worse, the These policies have been accompanied by fiscal restraint exercise any administrative imposition of interest rates and fixed rates on loans and deposits, and away from the changes in rates of inflation in the economy, it is normal in these situations to be real interest rates negative, and those policies have led to the phenomenon of flight of deposits from banks and employment in the areas of non-productive which the depth of the economic recession.
The second phase of 2004 and beyond
During this period, the new law of the Central Bank of Iraq, who dedicated the independence of the central bank in managing monetary policy, and it was the most prominent features of this independence on the Bank's decision to stop printing money to finance the budget deficit, the government resorted to the use of alternative methods, a non-inflationary tool of debt financing and credit is used in this version of treasury bills and the use of the Central Bank to be sold to commercial banks and the stock market to provide the funding required to cover the budget deficit
What is known as indirect means of monetary policy, entry of the central bank as a seller of the Bills in the cash market will ensure the provision of liquidity to the financial sector and control of liquid levels and Mnasebha in addressing inflationary monetary phenomenon. Where a Central Bank every two weeks, the auction of treasury remittances which pulls (one hundred) billion dinars, in addition to a quarterly auction is held every three months in which to withdraw (180) billion dinars, and represents a securitization of domestic public debt which amounted to nearly 5.3 trillion dinars, which is Remnants of the former economic system in Iraq.
And the auction treasury transfers (remittances and the Ministry of Finance) which is held every two weeks maturity period is three months.
And this is all lending activities within the framework of the so-called open market operations the central bank began ethnicity for the first time practice in the framework of activating instruments of indirect monetary management of liquidity in the public down to the Twaznip interest rates in the money market interest rates, especially long-term goals, a very stable financial sector and deepen the levels of maturity that feed their effects on price trends and the overall level and at the same time provide a powerful incubator of stability is the necessary logical activity of sustained growth in the country, including making of monetary policy the effects of a strong and influential on the paths of the real sector.
One of the benefits of those policies that they do not lead to higher inflation rates because they do not lead to an increase in money supply growth rates of money high-strength, which works only on the transfer of purchasing power of the public to the government.
However, increased borrowing using the method of auction and as is happening now led to higher real interest rates in banking sector, especially after the release price of this braking action in the wake of the central bank in 2004 to float the interest rates on deposit and lending rates of commercial banks and the granting of freedom to determine prices interest.
But the government had resorted increasingly to debt finance has led to increased pressure on private investment, which is known as pry out has resulted in the tendency to raise interest rates and increase borrowing costs and ultimately lead to the reluctance of the private sector to borrow from commercial banks. The entry of a rival government to the private sector financial resources available. May raise the level of aggregate demand for loans and led to high real interest rates. This will lead to reduction in procurement of consumers, especially of durable goods and other commodities that require borrowing from the banks and in particular sensitive goods such as automobiles interest rates and real estate.
Of the above, has managed monetary policy, despite all the political transition and economic development of the complex past of the country's financial architecture and the achievement of concrete and strong rates of economic stability and to defend the exchange rate stable, strong and attractive national currency, by providing a foster genuine stability and strong growth programs and economic development.
Analysis of trends in monetary policy