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KTFA:

Clare: IMF Staff Concludes Staff Visit with Iraq

December 19, 2023

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Economic activity is recovering, although oil production cuts are weighing on overall growth, and at the same time inflation has declined.

The large fiscal expansion in the three-year budget law poses significant risks to fiscal and external sustainability over the medium term.

Fiscal prudence and structural reforms are critical to safeguard macroeconomic stability, ensure sustainability, and achieve durable and more inclusive growth.

Washington, DC: A staff team of the International Monetary Fund (IMF) led by Jean-Guillaume Poulain met with the Iraqi authorities in Amman, Jordan during Dec 12-17 to discuss recent economic developments and outlook as well as policy plans.

At the end of the mission, Mr. Poulain issued the following statement:

“Against the background of a large fiscal expansion, non-oil GDP is expected to grow by 5 percent in 2023. Continued budget execution should help sustain strong non-oil growth in 2024. However, lower oil production, following the closure of the Iraq-Turkey pipeline and OPEC+ production cuts, will reduce overall GDP growth in 2023 and 2024. Inflation has declined from its January peak and is projected to stabilize in the coming months—helped by the Central Bank of Iraq’s (CBI) tighter monetary policy, passthrough from the exchange rate revaluation, lower international food prices, and normalization of trade finance as compliance to the new anti-money laundering/combating the financing of terrorism (AML/CFT) [GM1] framework improved.

“The three-year budget approved in June 2023 marked a shift in Iraq’s budgeting practice, envisaged to improve fiscal planning and continue important development projects over the medium term. Despite a late start of budget implementation, the fiscal balance is expected to shift from a large surplus in 2022 to a deficit in 2023. Staff projects that the deficit would widen further in 2024 reflecting the full year impact of recent measures. The large fiscal expansion, including a substantial increase in public hiring and pensions creates permanent spending that will put pressure on public finances over the medium term.

“Ensuring fiscal sustainability, in context of uncertain outlook for oil prices, requires gradually tightening the fiscal policy stance while safeguarding critical infrastructure and social spending needs. This would require mobilizing additional non-oil revenues, containing the large government wage bill, and reforming the pension system. These measures should be supported by moving toward a more targeted social safety net that better protects the vulnerable.

“The mission welcomed the government’s plans to strengthen public financial management including steps towards the establishment of the Treasury Single Account. In this context, the mission reiterated the importance of adhering to the framework for managing government guarantees.

“The CBI has appropriately tightened its monetary policy, including by increasing its policy rate and reserve requirement. The mission welcomed the progress in strengthening the domestic liquidity management framework and encouraged continued efforts to mop up excess liquidity and develop an interbank market to strengthen monetary policy transmission.

“Structural reforms to spur private sector led economic diversification and job creation remains pivotal for sustainable and inclusive growth. Priorities include creating a level playing field for the private sector through banking and electricity sector reforms, reducing distortions in the labor market, and continuing efforts to enhance governance and reduce corruption.

“The IMF staff team stands ready to support the authorities in their reform efforts and would like to thank them for candid and productive discussions during this mission.”

https://www.imf.org/en/News/Articles/2023/12/18/pr23462-iraq-imf-staff-concludes-staff-visit?cid=em-COM-123-47669

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Frank26 [Franklin Tennessee Bank Story] BANK STORY PERSON: I’m a pastor south of Nashville…yesterday I thought I’m gonna do my due diligence and reach out to some of the banks in my area…The Franklin/Brentwood area south of Nashville is the richest county in the United States…The first bank was a Pinnacle Bank…the oldest bank in Nashville…I talked to the branch manager and she knew nothing…She knew zero about it…I walked over to the Wells Fargo…I said I’m curious if you guys verify and exchange foreign currency her eyes lit up. She said, which currency have you got? I said the Iraqi dinar. She said, sir we do not and the reason we do not is because there have been several times Wells Fargo has got burned by bad currency… [Post 1 of 3….stay tuned]

Frank26 [Franklin Tennessee Bank Story continued] I thanked her for her time and I thought ok two strikes let’s try Chase which is 50 yards away. I walk into Chase in Franklin, Tennessee, asked for the branch manager…I said sir do you do anything with foreign currency? He said yes we do. He said which currency have you got. I said the Iraqi dinar. He said absolutely yes. He was very excited about it. We were standing right there in the middle of the lobby and he didn’t try to hold back his facial expression, language or anything. He said, yes, we would love to do business with you. FRANK: Did he say anything else like yeah, we know or we’re in preparation, we’re getting ready? Bank Story Man: I said, how are you aware of that. He said, we’ve been waiting for this to transpire… [Post 2 of 3….stay tuned]

Frank26 [Franklin Tennessee Bank Story continued] I said, depending on the amount dinar our group brings in to you, can you work with us on the transaction fee or even eliminate it? He said sorry sir we are not…The way Chase has got it established…they have it baked in. That was his exact words, baked in transaction fee into the rate…He can’t change it. I said so no matter what outlet…location or the amount of dinar? He said that’s right, it will not change. FRANK: What was that fee did he say? BANK STORY MAN: He said around 4%. FRANK: Wow, I’ve always said a fair rate is anything like 1%, 2% or 3%. I guess they decided to go one more percent. That’s a lot of money. BANK STORY MAN: He said I also I want you to be aware of something. He said when you come in to do your exchange, he said realize we can only do $5,000 increments at a time. [Post 3 of 3]

Andy Schectman: Jerome Powell Falls Short of Paul Volcker

Arcadia Economics: 12-19-2023

Last week the Fed signaled that it is indeed expecting to cut rates next year, and since then, we’ve seen a sharp rally in the gold and silver, as the market begins to price in the inevitable.

In some ways it’s a bit shocking to see the Fed indicate it’s really thinking about cutting rates with inflation still significantly above the its mandate.

Yet in another sense, it’s reflective of what everyone’s known, but didn’t want to say, in that the Fed has long ago been backed into a corner that doesn’t offer any easy exit.

So in today’s show Andy Schectman of Miles Franklin talks about why Jerome Powell has fallen well short of Paul Volcker, and explains the longer-

term implications of the recent news.

To find out more, click to watch the video now!

https://www.youtube.com/watch?v=BgRkCxYQ91E