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IMF Iraq: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding
tlm724   CO-ADMINISTRATOR
HIGHLIGHTS
International Monetary Fund Iraq: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

December 22, 2015
The following item is a Letter of Intent and a Memorandum of Economic Policies of the government of Iraq.
Ms. Christine Lagarde   Managing Director
International Monetary Fund
700 19th Street, N.W.  Washington, DC 20431, USA
the government commits to implement the economic and financial policies described in the attached Memorandum on Economic and Financial Policies (MEFP) as part of a Staff-Monitored Program, in order to demonstrate good performance and move to a possible IMF financing arrangement as soon as possible.

  1. In response to escalating protests across the country fueled by massive electricity outages, the Prime Minister proposed a series of significant administrative reforms in August.
    Parliament approved a number of these measures, including reducing cabinet from 33 to 22 members, eliminating three vice-president and three deputy prime minister positions, addressing tax evasion, implementing customs at border points including within KRG,
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    12. The spread between the official and the parallel foreign exchange market rate receded to around 2 percentage points since August from as high as 16 percentage points in June, as a result of the elimination of the obligation to prove custom duty and income tax payments before buying foreign exchange.
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    15. The fall in oil prices since mid-2014 is expected to shift the current account balance from a surplus of 1 percent of GDP in 2014 to a deficit of 7 percent of GDP in 2015 and 6 percent of GDP in 2016. The overall balance of payments deficit will reach $14 billion in 2015 and $11 billion in 2016, which will be financed mostly by a large draw down of official foreign exchange reserves.
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    18. The government will maintain the peg with the U.S. dollar. The peg provides a key nominal anchor in a highly uncertain environment with policy capacity weakened by the conflict with ISIS.
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    19. The government will gradually remove remaining exchange restrictions and multiple currency practice (MCP) with a view to eliminating exchange rate distortions. Such a move towards acceptance of the obligations under Article VIII of the IMF’s Articles of Agreement will send a positive signal to the investment community that Iraq is committed to maintain an exchange system that is free of restrictions and MCPs for current international transactions and thus facilitate creation of a favorable business climate.
    As a first step, the government will, by end-February 2016, amend the Investment Law, or issue clarifying implementing regulations, to remove the limitation on transfer of investment proceeds that gives rise to an exchange restriction, as recommended by a recent technical assistance mission of the IMF.
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    20. The government will implement reforms on anti-money laundering and combating the financing of terrorism (AML/CFT). This will improve the integration of the domestic financial system into the global economy and lower transaction costs, improve governance, and reduce the size of the informal sector.
    As a first step, the government will, by end-February 2016, draft, with the help of IMF technical assistance, and adopt a by-law to set up a mechanism to comply with the relevant United Nations Security Council resolutions related to terrorism financing and Recommendation 6 of the Financial Action Task Force on Money Laundering (FATF).
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    2013 is the appropriate reference year to measure the fiscal consolidation since it is the last year that fully included revenue and expenditure of KRG in the federal government fiscal tables; 2014 includes only 2 months of KRG’s revenue and expenditure and 2015 only 6 months owing to disagreements between KRG and the federal government over their oil revenue sharing agreement. The 2016 budget fully incorporate oil revenue exported by KRG and transfers of the federal government to KRG.
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    24. To ease the cash constraint in 2015-16, the government of Kuwait has agreed to the postponement of the payment of the balance of war reparations ($4.6 billion, or 4 percent of non-oil GDP) by the Iraqi government to 2017. Fiscal Program in 2016
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    collect at least ID 8.8 trillion (6.5 percent of non-oil GDP) in non-oil revenue, out of which ID 1 trillion from an increase in wage taxation; and contain non-oil primary expenditure to ID 86 trillion (63 percent of non-oil GDP).
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    The domestic financing will be covered by the issuance of Treasury bills, out of which up to ID 7 trillion will be refinanced by commercial banks
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    The amount of central bank indirect monetary financing will be revisited on the occasion of the first review in light of the inventory of government cash holdings in bank accounts to be completed by end-February 2016
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    As of end-April 2015, the government identified ID 7.3 trillion in domestic arrears, out of which ID 5 trillion accumulated in 2015 (¶13); the Board of Supreme Audit will audit these arrears to check their validity by end-February 2016
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    Take steps to move to a Treasury Single Account (TSA); as a first step, the Ministry of Finance and the CBI will, by end-February 2016, compile a list of all bank accounts controlled by the Ministry of Finance and all spending units and sub spending units of the federal government, in CBI, state-owned and commercial banks; details should include balances at end-December  2015,
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    Public Investment
    Management Decision Process Framework in line with World Bank recommendations
    FYI:
    The World Bank Washington D.C.
    A Diagnostic Framework for Assessing Public Investment Management
    http://siteresources.worldbank.org/PUBLICSECTORANDGOVERNANCE/Resources/FrameworkRajaram.pdf
    IV. Conclusion
    This note provides guidance to country teams relevant to forming a pragmatic and objective assessment of the quality of public investment efficiency in a context where governments are seeking to mobilize additional fiscal resources for investment.
    An indicator-based approach provide a basis both for objective assessment as well as serving to highlight weaknesses that should be addressed if the use of fiscal resources is to enhance public sector assets and economic growth. The use of indicators must be accompanied by good country-specific judgments on the functioning of institutions and the underlying incentives for public sector performance, including political economy considerations.
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    As a first step to restructure these banks, the Ministry of Finance will, by end February 2016, appoint international auditors to audit the latest financial statements of Rasheed Bank and Rafidain Bank according to international standards (structural benchmark, Table 2), in cooperation with the Executive Committee for the restructuring of these banks and the World Bank.
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    29. The CBI will continue to implement reform measures to enhance the stability of the banking sector in Iraq which includes inter alia:
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    3. An exchange rate set at ID 1,180 per U.S. dollar will be used for monitoring purposes. This exchange rate will be used to convert into Iraqi dinars the U.S. dollar value of all CBI foreign assets and liabilities denominated in U.S. dollars, as required. For CBI assets and liabilities denominated in SDRs and in foreign currencies other than the U.S. dollar, they will be converted in U.S. dollars at their respective SDR-exchange rates prevailing as of November 10, 2015, as published on the IMF’s website. The same rules will be used to convert external debt related parameters.
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    INTERNATIONAL MONETARY FUND 19 payments. They include CBI holdings of monetary gold, SDR holdings, Iraq’s reserve position in the IMF, foreign currency cash, holdings of non-resident equity and debt securities, and deposits in foreign currency abroad, including foreign exchange account of the government (300/600).
    Excluded from reserve assets are any assets that are pledged, collateralized, or otherwise encumbered; claims on residents; precious metals other than monetary gold; assets in nonconvertible currencies; illiquid assets; and claims on foreign exchange arising from derivatives in foreign currencies vis-à-vis domestic currency (such as futures, forwards, swaps, and options).
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    6. Net domestic assets (NDA) of the CBI include: (i) net claims on the general government,comprising of gross claims on the general government minus general government domestic and foreign currency deposits at the CBI; (ii) gross claims on other depository corporations;

    (iii) monetary policy instruments, including dinar and foreign currency denominated term deposits and CBI bills held by other depository corporations; (iv) net claims on public nonfinancial corporations; and (v) claims on private sector.
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    20 INTERNATIONAL MONETARY FUND created under a contractual arrangement through the provision of value in the form of assets  (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:
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    Key Financial Indicators
    Weekly preliminary monetary and financial aggregates as in “Key Financial Indicators” including exchange rate data (daily), currency in circulation, transferable and other deposits held at commercial banks, balances on government accounts at the CBI, interest rates on loans and on deposits at commercial banks, holdings of government securities, and credit outstanding to the public and private sectors.
    The data, excluding exchange rates, should be reported no longer than three weeks after the end of the reference period.
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    http://www.bondladyscorner.com/t160533-international-monetary-fund-iraq-letter-of-intent-memorandum-of-economic-and-financial-policies-and-technical-memorandum-of-understanding-wolfwhistle#205224
    [tlm724]  They sure do have a lot of plans to complete by end-February 2016, just sayin….  Wink  by the way with the IMF and this agreement with Iraq the kurds will have no choice but to fall in line if they want their budget money and they do !
    [RCS1947] I agree timmie…somethings afoot!
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    Economist: no right to the central bank lending to the state of financial reserves
    [tlm724] Antoine, on Wednesday, on the non-eligibility of the Iraqi Central Bank lending to state what the bank did not change the law with the consent of the House of Representatives.
    [tlm724] that the federal government intends to resort to State reserves in the Central Bank of Iraq to cover the deficit
    [tlm724] well I don’t like the idea but if the IMF says it’s ok then I’m cool with it Cool
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    Iraq sends a memorandum to the IMF expected decline in foreign reserves in 2016
    [tlm724] RCS1947 got any thoughts since last nite ?
    [RCS1947] just like you said end of Feb is looming!
    [tlm724] RCS1947 yes many pieces of the monetary reform have a time limit so it appears to me and the investment law is being worked on by the IMF, shows us how critical it is.
    [RCS1947] yes
    [tlm724] it’s good too cause Iraq is like molasses in winter
    [tlm724] plans to finance the deficit in its balance of payments by drawing on foreign reserves
    [tlm724] heres the link :  International Monetary Fund Iraq: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding
    http://www.bondladyscorner.com/t160533-international-monetary-fund-iraq-letter-of-intent-memorandum-of-economic-and-financial-policies-and-technical-memorandum-of-understanding-wolfwhistle
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    Neglect May Do What ISIS Didn’t: Breach Iraqi Dam

 
[tlm724] 16 months after Iraqi and Kurdish forces reclaimed Mosul Dam from Islamic State fighters, the structure faces a new threat: the danger that it may collapse because of insufficient maintenance
[tlm724] I had a discussion with BondLady about the Mosul dam this morning and we want to share some thoughts with you about it
[tlm724] look at the map and you can see most of what is south of the dam and how it feeds the rivers

[glory8516] I’m listening………..thanks
[tlm724] yw
[tlm724] according to State Department officials, an estimated 500,000 people could be killed while more than a million could be rendered homeless if the dam, Iraq’s largest, were to collapse in the spring
[therealbubbie] if it goes so does iraq !
[tlm724] that dam has had no maintenance
[tlm724] therealbubbie exactly a very large portion of Iraq would be affected
[therealbubbie] and they have known about it for years !
[tlm724] IF that dam goes there will be no stopping it
[tlm724] the lack of maintenance and the mentality of the terrorist could bring it down and when the surge on Ramadi really starts it could be bad for Iraq and bad for us, it would slow down the momentum if that dam blows
[cstacy] o o o o o
[therealbubbie] imo if isis was ever to lose in Mosul that would be the thing they would do … blow it up !!
[tlm724] this is why you see BondLady posting these kind of articles, all angles must be studied
[tlm724] therealbubbie thats a strong possibility
[therealbubbie] make no mistake . they will do it !
[tlm724] we just need to pay close attention to this situation
[tlm724] do you have any questions ??
[tlm724] btw that was a statement from OUR state dept
[cstacy] tlm724 yikes
[tlm724] stay situationally aware
[therealbubbie] it’s very simple … isis will blow it .. bank on it ….
[soon] wow!
[tlm724] tyvm BondLady for making us all aware !!!
[soon] ty
[cstacy] tlm724 ditto thanks
[tlm724] again if this happens it will be a set back no doubt
[soon] yes
[cstacy] tlm724 do they realize that or they don’t care?
[therealbubbie] thats why I say their stupid … because they let all this crap happen there never has or will have the sense of urgency !
[tlm724] cstacy oh I am sure they do but we have watched over the last 2 years make progress despite the terrorist, they keep plugging along but this could be a game changer for a hot minute
[cstacy] thanks
[tlm724] yw
[tlm724] Worried that repairs might not come in time, American officials have urged the Iraqi government to begin warning its citizens, including those who live under the control of the Islamic State in Mosul, about precautions to take and where to flee if the dam starts to fail.
[tlm724] At the heart of the problem is a major engineering challenge: reinforcing a massive dam built during the Saddam Hussein era on a weak foundation of gypsum, chalky limestone and clay. ​
[tlm724] State Department officials said the danger would be the greatest in Mosul, where rushing water would be funneled in a powerful current along the Tigris through the center of the city. Residents might have as little as two hours’ notice that the dam to the north had given way, and the wall of water could be as high as 80 feet.
[tlm724] now look at this next quote
[tlm724] The Iraqi capital would have several days’ notice before the water reached there. But some areas in Baghdad near the Tigris, including the American Embassy compound and prominent Iraqi government buildings, could be flooded with water as high as 13 feet.
[tlm724] it would reach all the way to Baghdad and beyond, that should give you an idea how bad it could be ! We are not trying to scare you but we are trying to make you aware of the possibility  Wink a gypsum foundation, now thats stupid !!
Emmaduke     [tlm724] it would reach all the way to Baghdad and beyond, that should give you an idea how bad it could be ! We are not trying to scare you but we are trying to make you aware of the possibility Wink a gypsum foundation, now thats stupid !! 
[emmaduke]  The Russian’s built this dam, and quite poorly.
[b2stepblue]   So if dam blows iraq is gone and our investment is gone…aaahhh no
http://www.bondladyscorner.com/t160601-morning-news-comments-1-13-2016-imf-iraq-letter-of-intent-memorandum-of-economic-and-financial-policies-and-technical-memorandum-of-understanding