Don961: With “lengthy” lines, an economist “detonates” a bomb: Is the salary crisis contrived and there is no deficit?
2020-10-08 Yes Iraq: Baghdad
Economist Imad Abdul Latif, today, Thursday, elaborated on the transmission of a “huge” opinion to what he described as his “professor”, the economist Dr. Ahmad Al-Buraihi about the problem of the government’s inability to pay employees’ salaries, and clarifying the confusion and confusion between the general budget, the cash budget, and the financial management crisis in Iraq”.
Abd al-Latif, in his lengthy explanation followed by Yass Iraq, began by asking: “Is the“ problem ”of the government’s inability to pay employees’ salaries a “fabricated”, “fabricated” and immediate problem that is being exaggerated in the short term .. and it is solvable in the long run Al-Taweel .. and that the monetary and financial institutions (and authorities) in the country know the causes and dimensions of this “problem” well, and know (and this is the important thing) that they are able to develop appropriate solutions for them, with the means and resources available to them?
He added, “About this question, my esteemed professor and the beautiful Iraqi mind, Dr. Ahmad Ibrihi Ali, answer the following:
The problem is not in salaries, as the current crisis can be managed with internal borrowing, and the Central Bank is helping government banks to perform this task, for the remainder of 2020 and 2021.
– The delay in the payment of salaries occurred due to obstacles of a coordination and procedural nature between the government and the parliament. And that it is easy to overcome these obstacles, and it is expected (logically) that salaries will not be late, nor should they.
– There is always fear of intimidation and confusion between medium and long-term goals, that is, between those goals related to development and diversification, on the one hand, and the ongoing management of financial and monetary operations on the other hand.
And here it is no secret for any Iraqi, or those familiar with the economic affairs of Iraq, that the general budget revenues, other than crude oil, appear to be non-existent, and that the financial sector is strange in its underdevelopment .. No taxes are sought, nor are bonds bought by the public .. What remains but borrowing from the banking system, and what remains other than auctions, satirical poems that do not work.
– There is an axiom that the deficit in Iraq is twin, or double, that is, a deficit in the balance of payments, and a deficit in the state’s general budget. This occurs because oil exports are almost the only source of foreign exchange, which when the price collapses below the volume required to finance imports of goods, services and other payments.
– The problem of Iraq and the threat looming in the future is the potential deficit of the balance of payments, not the deficit in the state’s general budget.
Emphasizing the need to prepare the cash budget (or management cash) as a basic element in managing public spending to avoid surprises and sharp changes, as much as possible, and also to regulate borrowing whose close relationship with the monetary policy and international reserves of the Central Bank is not hidden.
– The core issue in the monetary budgets in Iraq is the distinction, without ambiguity, between two systems of funds and inflows and outflows, namely: funds, resources and uses in foreign currency, and another in the national currency.
– Here, we must abandon the approach recognized in the Ministry of Finance, which is that resources and uses are the same, and are expressed in two currencies: a dinar and a dollar. The budget, according to the prevailing and influential perception in decision-making circles, is oil revenues in dollars that are mathematically translated into dinars and spent.
– This understanding was behind a lot of confusion, and was also a major reason for impeding the development proposals. This understanding is the truest expression of the reason for the split between the external balance of payments and the general budget in Iraq, in thinking and economic policy, and it is also one of the causes of theoretical ambiguity and neglecting the realistic difference between the necessities and implications of internal and external borrowing. (For more details, see Professor Ibrihi’s study, the task: “Budgets Cash to the government finance department, ”link is mentioned in the comments).
Hence the necessity to focus on building productive capacities destined for export. (Professor Ibrihi had previously presented (in his latest research) a brief proposal for an investment program for this purpose) .. And now also, here he is repeating his call to everyone who is keen on the future of children and grandchildren, to be a support and aid in order to focus awareness on an investment program to build Productive capacities for export, and that the government immediately commits to it.
The economy, any economy, is limited by two restrictions: the domestic productive capacity restriction, and the balance of payments restriction. As long as the economy does not approach the limits of production capacity, as is the case in Iraq, the explosion of inflationary waves is not afraid, regardless, yes, regardless of how the public budget deficit is financed.
– But the problem here lies in the restriction of the balance of payments, because the foreign exchange inflows into Iraq are less than the annual demand. Until now, the reserves of the central bank are still filling this deficiency between foreign exchange inflows and annual demand, and imports are still funded in the required volume..and this process (with the continuation of the low level of oil price) will reach its maximum limits .. Yes, it will reach its maximum limits if we remain We are unable to find solutions … but not in 2021.
– Everyone (economists, or those concerned with economic affairs) should review the data of the World Bank (WDI) (World Development Indicators | DataBank) data … as it will become clear to them that the percentage (or share) of manufacturing exports to total exports constitutes more than 70% The world level), and in the countries of East Asia and Germany, this percentage reaches 80%, then 90%.
Therefore, Professor Ibrihi suggests that 70% of the non-oil exports targeted in the investment program be from the share of the manufacturing industry, and the remainder from non-oil mining (including gas and agriculture), and that we have no other choice. As for the infrastructure, there are specific proposals for their development.
– With great regret, the members of Parliament, the government (including the Ministries of Planning and Finance), as well as economics professors, have insisted on defining the problem as a problem of deficit in the state budget, when in fact it is a problem of deficit in the balance of payments.
Mr. Ibrihi concludes his answer by stressing that the problem is not in salaries, nor in “monetizing debt,” but rather in distracting awareness from the necessity of economic growth through industrialization … that miraculous historical process that made the civilization of this world. link
MilitiaMan: The answer to the headline question is “yes”. Look closely.. The professor is fully aware that going into a market economy is what is needed and supports it. He even implies to do it immediately.. The need to export once at a new rate will be target and with purchase power cost will come down so they can be competitive in world like many other countries he mentions.. industrialize…. or be left out.. imo ~ MM
DeepWoodz: And let’s not forget the reason salaries haven’t been doing well and this RI hasn’t happened is because of the corruption. It would appear that the clean up has settled down recently after all the previous arrests being made. The word has gone from trickling down to a flat out flood so the citizens should be well aware of the situation. Hopefully the people start getting the feel of their dignity and humanity back after being stepped on for so long by the bad guys. The fields are ripe. Imo
Jay: Iraq’s version of the LEFT are fighting this RI tooth and nail. It will end their cash cow and lift the peeps up in class and stature which will affect political party voting lines and sides. Thus ensuring the Shiites power will weaken substantially. Purchasing power increase goes without saying. We are in a great place. The news is outstanding. Best articles I’ve seen in my 8 years. Lol. But more needs to be done. We just disagree on when is all Lol. To be honest I pray for sooner than what my later is. Lol. God’s timing is always on time. Lets see what they do.
MilitiaMan: Interestingly enough, there are more things in my view outside of what we read in the news that supports this is about over sooner than later. When an Iraqi dealer in currency decides to stop selling his currency as his stake in tens of millions realized just how serious this is, thanks to kind people keeping at him that this Time is in fact real, as it gets and that the environment is actually ripe for the re instatement, he picked up the phone and made a call to thank that friend for the tenacity and consistency of what he was hearing on the ground and from family in baggers, is consistent with what we are now seeing in the fine articles we have seen in my 10 and your 8 years… That is one source, there is more with similar views.. The one was very pessimistic, not any more.. As always, we shall see… imo. ~ MM
Don961: An existing scenario will divert the central bank’s vaults to save “paper” instead of money … this is what will happen with regard to commodity prices, the dollar and alternative solutions.
2020-10-08 Yes Iraq: Baghdad
There are multiple and varied solutions that will force Iraq to follow them in order to remedy the imposed financial crisis, while these solutions collide with several obstacles and challenges, but the current and proposed scenario will force the state and the Central Bank to follow some of these solutions.
The starting point of the financial scenario that will be imposed on the country begins with a challenge facing the central bank represented by the decrease in its dollar revenues due to the sale of oil, and its attempts to maintain the exchange rate of the dollar against the dinar and not to increase it.
An economist told “Yes Iraq”, saying: “An average of 2.5 to 3 billion dollars enters into the central bank per month, resulting from the sale of Iraqi oil exported outside the country without others. As for the local sale of oil derivatives, revenues from outlets, taxes, levies and communications, they are levied in the Iraqi currency, so it is not Its effect on increasing foreign currency reserves.
While about $ 3 billion enters the central bank’s treasury per month, about $ 4 billion comes out of the treasury, as the central bank sells it monthly to banks and hawala companies, as a result of the dollar’s capital request for the purpose of importing goods from outside Iraq, and these goods are for sale to citizens according to the capital’s claim. , And submitted by them with identity papers.
As a result of the difference between the dollar coming in and out of the central bank, the bank began to consume dollars from its reserves, for the purpose of covering up the dollar’s demand, fearing that its price would rise if sufficient quantities were not pumped out.
The Iraqi dinar is threatened with disappearing from the bank’s treasury as well!
The Central Bank also bought bonds from government banks worth 19 trillion dinars, as it provided the amount in Iraqi dinars and kept the bonds with it in its vaults, and the banks loaned the amounts to the government, and there is a new loan application submitted by the government to Parliament and awaiting approval.
In the event that the situation continues as mentioned, the dollar will disappear from the central bank or decline to its lowest level, and the dinar will decrease from its coffers and replace it with bonds.
What happens after the disappearance of the dollar from the bank’s treasury?
If the dollar disappears, its value will increase dramatically, and then all the commodities denominated in dollars will rise.
What will the government do?
The government will reduce expenditures for the purpose of reducing internal borrowing from banks and selling bonds to the central bank, as internal borrowing is from government banks, which in turn sell bonds to the central bank, so the central bank prints the currency and gives it to the banks to buy the bonds or use the currency stored in its vaults that was not put up for circulation, as if The process is to print a coin without a cap in gold and dollars.
Another solution is to get money from selling the dollar at a higher price
Another thing that the government can do is reduce the value of the dollar against the dinar, so that it can cover the salary expenses when selling the dollar to the central bank after selling oil, as it will try to pressure to reduce the quantities of the dollar sold by auction, and it will face two problems (the first) is its fear of its inability to cover the demand External, (second) the inability to be influential, especially with the difficulty of trying to obtain dollars without oil due to the fact that Iraq is an environment that expels dollars, visitors and investment.
The orientation towards import alternatives, which is a great opportunity for aspirants in the private sector, through the shift from trade to industry, and from import to export, by building substitute factories for every commodity on which there is a demand for clothing, equipment, foodstuffs, etc., and the value of demand in Iraq for goods is estimated Foreign Ministry by 40 to 50 billion dollars.
Get a dinar in another way
Maximizing the state’s revenues from the local dinar from some sectors, but this step collides with some economic indicators and others related to the great interests of the influential people, according to specialists.
As the reduction in expenditures will lead to a decrease in the prices of local goods and services, and not to decrease the dollar-denominated goods. link
MilitiaMan: They have laid out what they are to do and it is imo to be immediately from what he stated in the previous article. This one spells out they have a choice that makes the most sense and that is by reducing the value of the dollar to the Dinar.. And it even suggests there may be a gold component to it.. This report is very well written and is embraced by the public and his peers, imo … Good job Don961! Thank you – MM