External sustainability: Between monetary and financial stability in Iraq

The concept of current account sustainability is a complex concept, and solvency is sometimes used as a criterion for assessing long-term imbalances in the current account. The economy is able to repay if the present value of trade surpluses is equal to the net present value of its future debt, Because it requires repayment of the country's external debt in the long run, even if the country suffers from a deficit in the current account can be considered as able to pay as long as it expects current account surpluses in the future, and in rent countries, including Iraq depends on changes Oil prices and the volume of non-oil revenues expected, and we note that the volume of these revenues do not exceed most (10%) and oil revenues are more than (90%).

The concept of sustainability is the sustainability of the current account assuming that the macro-economic and domestic policies are not changed. Therefore, the concept of sustainability reflects the current account imbalance in savings and investment decisions in the public and private sectors and foreign investors' loans. In Iraq, the current account without the oil sector is very uneven , And the value of trade balance deficit without the oil sector about (30) billion dollars in 2017, and this is a very dangerous if exports were diversified in order to reduce the imbalance and the direction of balance or slightly below, while the balance of trade with oil has achieved in 2017 (95%). Other exported products accounted for less than 5% of total exports. Financial sustainability can be observed without the oil sector The burden of debt to the growth of non-oil GDP) that it exceeded the safety limits of (100%), which amounted to about (165%).



The most important interrelationship between public finance and external sustainability relates to the exchange rate market. This interdependence gives us a tradeoff that is usually negative. Studies show that the real devaluation process is a necessary condition for external sustainability. In contrast, we note that a large volume of public debt Developing countries are denominated in foreign currency. As a result, the devaluation of the national currency can lead to a sudden increase in debt to GDP ratio. Thus, the appreciation of the national currency can have a positive impact on financial sustainability and a negative impact on external sustainability if With a rapid deterioration in the current account, so the improvement in fiscal conditions will be temporary.

If this is exactly the problem, the government trade off achieves financial sustainability and drives governments to ignore the fragility of external public finances. Ultimately, the result will be a currency crisis and a financial crisis, so some economists say that devaluation has a negative impact. During which competition of imported goods, and there are those who say that the devaluation of the national currency has a positive impact because it can stimulate the national production again to rise and compete imported products, and I believe the latter opinion is difficult now because of its impact on low-income people and To lead to increasingly high levels of inflation and this increase will be added to consumer goods and services and productivity.


https://annabaa.org/arabic/economicarticles/17315