Baghdad – IA – Nassar Al-Hajj
The International Monetary Fund revealed the conditions for granting loans while commenting on the white paper, expressing its welcome for the medium-term reform plans and changing the exchange rate.
The head of the International Monetary Fund’s regional office, Ghazi Al-Shubikat, said in an interview with the (INA), today, Wednesday, that “Iraq has been a member of the International Monetary Fund since 1945, and similar to what the Fund conducts with other members, it conducts, with Iraq’s participation, an annual performance monitoring process.” In accordance with Article Four of the Fund’s Establishment Agreement, which includes conducting a general diagnosis of the state of the Iraqi economy, he pointed out that he “discusses with Iraq the priorities of the policies of the Iraqi authorities in the short and medium term.”
He explained that “Iraq also benefits from the technical assistance and financial support provided by the Fund when it needs them,” stressing that there is, at the present time, no existing financial arrangement or agreement with Iraq.
Loan size
The Fund indicated that “the volume of loans granted to Iraq until the beginning of this year amounted to one billion and 180 million dollars,” indicating that “the Fund provided financial support to Iraq, allocated to support the economic program on various occasions.”
He added, “The aspects of support include the Credit Standby Agreement (SBA) in the years 2007, 2010, and 2016, in addition to providing emergency aid within the framework of the Rapid Financing Instrument (RFI) in the year 2015,” noting that “the volume of existing credits (loans) granted by… The Fund to Iraq, as of January 31, 2021, amounted to a total of (825.5) million shares of Special Drawing Rights, equivalent to about one billion and 180 million dollars.
The Fund continued, “The value of the interest rate and the value of the financial arrangement agreement varies from one lending instrument to another,” noting that “the lending instruments are detailed in a way that meets the needs of the country’s balance of payments.”
He noted that “the interest rate depends on market prices and that the length of the credit standby agreement is flexible, and it usually covers a period ranging between 12 and 24 months, but does not exceed 36 months. As for the lending rate, it usually consists of the interest rate on Special Drawing Rights.” Which is determined by the market, the profit margin, and additional fees, all of which depend on the size of the lending amount and the period of time during which the credit (loan) remains outstanding.”
Loan terms
The Fund stressed that “the financial support provided is support for the economic reform programs of countries,” explaining that in the beginning, the authorities and Fund experts usually agree on the details of the economic policies of the country in question, which should be supported by lending from the Fund, and the disbursement is from the support that The Fund provides it conditional on the implementation of those policies that aim to reduce the extent of macroeconomic imbalances and enhance its stability, in addition to implementing structural reforms to help the vulnerable (the poor and the like), improve the level of productivity, and encourage the achievement of a higher level of inclusive (inclusive) growth.
He stated that “there is currently no financial arrangement (agreement) with Iraq, and therefore there are no conditions or obligations related to the policies that Iraq is currently implementing,” stressing that “the set of conditions stipulated in these arrangements (agreements) is based on the principle of ownership, In that it outlines the reform agenda (action program) of the Iraqi authorities themselves and therefore, even in the event of entering into a financial agreement with the International Monetary Fund, it is the Iraqi authorities that will bear the primary responsibility for choosing economic policies, and for their design and implementation within the framework of the program supported by the Fund. “.
Support mechanism
The Fund pointed out that “financial support is provided to meet the balance of payments needs of the Fund’s member countries based on their request, and unlike what development banks do, the Fund does not lend to countries for the purpose of implementing specific specific projects and following up on any such support request,” noting that “ The Fund’s team of experts begins holding discussions with the governments of countries that submit requests for Fund support, with the aim of assessing their economic and financial conditions, in addition to assessing the overall financial needs of those countries. This assessment is used as a basis for discussions and to agree on the appropriate response to the policies required to be implemented to obtain support.
He stressed that his strategy in Iraq is based on this same context, that is, supporting the balance of payments and not projects, whether in the public or private sector, and that this matter is the basis for granting loans.
The Iraqi situation
The Fund stated that “the weaknesses and distortions of the Iraqi economy have been and are still rising for several years, and the pandemic (Covid-19) and the sharp decline in oil revenues have exacerbated this weakness and distortion,” noting that “economic activity declined sharply in the year 2020, reversing the impact of the measures.” Containment related to the pandemic, the interruption of transportation, international travel and international trade, and the reduction in oil production in accordance with the additional agreement between oil-producing and exporting countries (OPEC+ agreement).”
He explained, “Estimates indicate that the GDP of the real non-oil sector declined by 8 percent in the year 2020, at a time when oil production was reduced by approximately 13 percent. As a result, it is likely that the overall real GDP has decreased.” It declined by 11 percent, while weak domestic demand helped keep the inflation level low at 1 percent in 2020,” noting that “at the same time, the severe decline in oil revenues created major financial imbalances.” public accounts, and in external accounts and payments, and imposed pressure on foreign exchange reserve balances, which led to a sharp increase in public debt.”
The Fund affirmed that its relationship with Iraq remains strong, stressing that “the Article Four discussions, which were held recently, were a good opportunity to consult with the Iraqi authorities during these difficult circumstances surrounded by challenges.”
exchange rate
The Fund expressed its support for reducing the value of the Iraqi dinar’s exchange rate against the dollar, stressing “the extreme importance of having a strong framework for the state’s public finances to ensure its credibility, and to meet the need to protect the vulnerable.”
He stated that “adjusting the exchange rate will help reduce the level of imbalances in external accounts and payments, preserve foreign exchange reserves and support the government’s efforts aimed at reducing the budget deficit, given that controlling the public financial conditions alone would have first required making a major adjustment.” It may not have been possible to implement the amendment in practice, from a political or social perspective, and it would have been possible, if this major amendment had occurred, to weaken the level of critically important public services.”
He pointed out that he “stresses that the presence of a strong public finance framework will be necessary to reduce the future need for cash financing of the budget, and to maintain the new exchange rate and the importance of protecting the vulnerable from any consequences of lowering the exchange rate on inflation, as well as from any consequences left by the pandemic,” welcoming “an increase.” Social Safety Network allocations in the 2021 budget, which the government submitted to Parliament.”
White paper
The Fund confirmed that “the white paper presents a frank assessment of the fundamental imbalances in the Iraqi economy,” explaining that “this paper presents a frank assessment of the root causes of the current imbalances in the Iraqi macroeconomy, and focuses on a number of factors, including the sharp increase in the wages and salaries of public sector employees, and the exclusion of… The activities of the private sector affect the economy, and the weakness of financial institutions,” expressing his welcome to the medium-term reform plans, at the public finance and structural levels, which were detailed in that paper.
He added, “The role that the white paper will play will depend on being careful in calculating cost estimates, prioritizing, and quickly implementing these reforms, while working, at the same time, to reduce their impact on the vulnerable.”
central bank
He pointed out that “the Central Bank of Iraq can support small and medium-sized enterprises through loans through commercial banks,” noting that “housing and small and medium-sized enterprises are two important sectors in the economy.”
He noted that “the Central Bank of Iraq can provide support to these two sectors, and to other sectors, by maintaining macroeconomic stability, ensuring appropriate financial conditions, and providing the possibility for all sectors to obtain financing,” stressing that “direct lending activities must take place Through commercial banks.