The International Monetary reveals the conditions for granting loans and confirms its support for the white paper and changing the exchange rate

The International Monetary reveals the conditions for granting loans and confirms its support for the white paper and changing the exchange rate
Economy / Investigations and Reports

   Yesterday, 20:16


Baghdad - conscious - Nassar Hajj



The International Monetary Fund revealed the conditions for granting loans, while commenting on the white paper, expressing its welcome to the medium-term reform plans and changing the exchange rate.

The head of the International Monetary Fund’s regional office, Ghazi Shbikat, said in an interview with the Iraqi News Agency (INA), today, Wednesday, that “Iraq is a member of the International Monetary Fund since 1945, and similar to what the Fund has been doing with other members, it is conducting, with the participation of Iraq, an annual performance monitoring process. Under Article 4 of the fund’s founding agreement, which includes conducting a general diagnosis of the state of the Iraqi economy, "noting that" it discusses with Iraq the priorities of the Iraqi authorities' policies 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, at the present time, there is no existing financial arrangement or agreement with Iraq.



The size of the loans
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," noting that "the fund provided financial support to Iraq, intended to support the economic program on various occasions."

He added, "The aspects of support include the credit preparedness agreement (SBA) in the years 2007, 2010, and 2016 in addition to providing emergency assistance within the framework of the Rapid Financing Tool (RFI) in 2015," noting that "the volume of existing credits (loans) granted from The fund to Iraq, as it is on January 31, 2021, amounted to a total of (825.5) million shares of SDRs, 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 tool to another," noting that "the lending tools are detailed in a way that meets the needs of the country’s balance of payments."

He noted, "The interest rate depends on market rates and that the length of the credit preparedness 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 the SDRs." Which is determined by the market, the profit margin, and the additional fees, all of which depend on the size of the loan amount and the period of time during which the credit (loan) remains in place. "



Terms of the loan
The Fund emphasized that "the financial support provided is support for countries' economic reform programs," explaining that at the beginning, the authorities and the fund experts usually agree on the details of the country's economic policies, which should be supported by lending from the Fund, and the disbursement is from the support that It is provided by the fund conditional on the implementation of those policies that aim to reduce the size of macroeconomic imbalances and enhance its stability, in addition to implementing structural reforms to help the vulnerable (the poor and their equivalents), improve productivity, and encourage a higher level of inclusive (inclusive) growth.

And he indicated 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 the sense that it articulates the reform agenda of the Iraqi authorities themselves, and thus even in the event of entering into a financial agreement with the International Monetary Fund, the Iraqi authorities will assume the primary responsibility for choosing economic policies, designing and implementing them within the framework of the program supported by the Fund. ".

Support mechanism
The Fund pointed out that “financial support is provided to meet the needs of the balance of payments of the member countries of the Fund upon their request and unlike what the development banks do. The Fund does not lend to countries for the implementation of specific specific projects and following up on any request for support of this kind,” indicating that “ The IMF staff team conducts discussions with the governments of the countries that apply for support from the Fund, with the aim of assessing their economic and financial conditions, in addition to assessing the total financial needs of these countries. This evaluation 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, ie, supporting the balance of payments and not projects, whether on 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 continue to escalate for several years, and the pandemic (Covid-19) and the sharp decline in oil revenues have exacerbated this weakness and distortion," indicating that "economic activity decreased sharply in the year 2020, reversing the impact of the measures." Inclusion related to the pandemic, the interruption of transportation, international travel and international trade, and the reduction of oil production under the additional agreement between oil producing and exporting countries (OPEC + agreement). "

He explained, "It is estimated that the GDP of the real non-oil sector declined by 8 percent in 2020, at a time when oil production was reduced by approximately 13 percent. As a result, it is likely that the total real GDP has decreased." A decline of 11 percent, while weak domestic demand kept the level of inflation low at 1 percent in 2020, "pointing out that," at the same time, the sharp decline in oil revenues has caused major imbalances in the finances. " Public accounts and external payments, and put pressure on reserve balances of foreign exchange, which led to a sharp increase in the public debt.



The Fund confirmed that its relationship with Iraq remains strong, "stressing that" the discussions of Article IV, which were held recently, were a good opportunity to consult with the Iraqi authorities during these difficult circumstances that are beset with challenges. "

exchange rate
The fund expressed its support for reducing the value of the Iraqi dinar exchange rate against the dollar, stressing the critical 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.

And that "adjusting the exchange rate will help reduce the level of imbalances in external accounts and payments, maintain foreign exchange reserves and support the government's efforts aimed at reducing the budget deficit, given that controlling public finances alone would have required a major adjustment first." And it might not have been possible to implement the amendment in practice, politically or socially, and it would have been possible, had this major amendment taken place, to weaken the level of critical public services.

He pointed out that "it stresses that a strong fiscal framework will be necessary to reduce the future need for monetary financing for the budget, to maintain the new exchange rate and the importance of protecting the vulnerable from any consequences of the exchange rate reduction on inflation, as well as from any consequences left by the pandemic." Social safety net allocations in the 2021 budget, which the government submitted to Parliament.



White paper
The Fund confirmed that "the white paper presents an explicit assessment of the root imbalances in the Iraqi economy," explaining that "this paper presents a frank assessment of the root causes of the current imbalances in the Iraqi macroeconomic, and focuses on a number of factors, including the sharp increase in wages and salaries of public sector employees, and the exclusion of The activities of the private sector on the economy and the weakness of financial institutions, "expressing his welcome to the medium-term reform plans, in terms of public finances and the structural level, which were detailed in that paper."

He added, "The role that the white paper will play will depend on caution in calculating costs, prioritization, and rapid implementation of these reforms, while working, at the same time, to reduce their impact on the vulnerable."

central bank
He pointed out that "the Iraqi Central Bank can support small and medium 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 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. "




https://www.ina.iq/120917--.html