Financial Strengthening of Iraq: Vision for the years 2018-2020

Dr.. Appearance of Mohammed Saleh

Crude oil imports dominate the order and movement of three major balances in the national economy: the current account of the balance of payments (the so-called balance of payments balance, which accounts for 98 percent of total foreign exchange flows).

 As well as the federal budget as the oil revenues represent at least 92 percent of the total annual revenue of the public budget.

 The final balance is the contribution of the oil sector to the GDP components, which range from 46 to 50 percent of the composition of that output.

 While the non-oil revenues in the general budget estimates for the year 2017 amounted to 8 trillion dinars, of which (5.7 trillion dinars is the tax revenue, including: (4) trillions dinars direct taxes on property income and (1.7) trillion dinars taxes Such as customs and others.)

 * If we exclude the oil resource from the three scales mentioned above, the country will go to a tripartite deficit complex difficult to dismantle in the short term because of the lack of diversity in the sources of national income.


 Based on the above, the modern public finance of the producing and exporting countries has created a standard for measuring the actual deficit rooted in the financial structure of the highly leveraged economies called non-oil primary balance-NOPB, ie, the non-oil balance that expresses the amount * Not more than 2.4 trillion dinars representing capital revenues (on the sale of state property, such as land and real estate) and transfer revenues (such as mobile phone license fees, exchange rate differences, refunds, etc.).

 The total tax revenues are not more than 2 percent of GDP according to the statistics of 2016 and the income and property tax (direct taxes) is half the percentage.

 In sum, total non-oil revenues in all cases did not exceed 5 percent of GDP, which is close to 8 percent of total actual budget revenues.

 (Negative) if all public expenditures were subtracted from non-oil revenues (expenditures incurred on the oil sector should be deducted from total expenditure as well as debt services because they relate to the obligations of previous financial years). Thus, the non-oil main balance in 2017 will be about (72) trillion dinars.

The deficit or negative sign is a sign that non-oil revenues account for only 5 percent of the country's gross domestic product, while oil revenues account for 46 to 5 percent of Iraq's GDP.

 This has made the oil revenues increase by 9-10 times the non-oil revenues in the general budget, which means that the country is dependent on its public expenditure on oil revenues.

 The lack of non-oil resources in the composition of the budget has become a serious financial threat because of the construction of the federal budget on the constants of spending is difficult to dismantle, especially salaries, wages and pensions and salaries of workers in state-owned enterprises (the unemployed).

As all salaries, wages and pensions are accounted for 50 percent of the total expenditure ceiling of the country's budget, which is covered by oil revenues exclusively or through internal and external borrowing, especially during the years of the previous oil recession.

 Therefore, there is no choice for Iraq's fiscal policy, but one option is to enhance financial resources in the short and medium term and to diversify the economy and national income through long-term development programs (Iraq 2030).

 Therefore, the need to maximize the resources of the non-oil budget requires awareness of the following economic factors:

 First: - Iraq is one of the high countries in government spending relative to gross domestic product by about 46%, which requires reducing this ratio in favor of market economy and the role of the private sector in Economic activity and aggregate demand formation.

Second: The country's financial indicators still show Iraq's dependence on oil revenues or expansion to cover public expenditures, which is unsecured resource, which requires a radical new financial reform in the composition of public revenues.

 Third: - The opportunity to address unnecessary government expenses and expenses from support and extension to non-eligible and ended with the tax evasion equipment accumulated income and wealth far from the scope of public finances and social and economic goals.

Fourth: The burdens of the war on terrorism and the reconstruction of the regions of Iraq and the development of all areas of Iraq require a financial program is hardened and not intended to serve the direction of financial resources towards stability and development and address the manifestations of waste.

 Fiscal consolidation 2018-2020 Fiscal consolidation Iraq's fiscal policy today has to look for greater opportunities for non-oil resources that make NOPD a target for strengthening and fiscal adjustments required to control and control public expenditures and maximize non-oil revenues

The following should be noted: a. In order to maintain the non-oil main balance (NOPD) in the short term (at the level of one fiscal year) and then to take the medium-term decline, then fiscal consolidation should be used, Here the state on the overall national level or at the level of provinces and regions in order to seek to reduce the fiscal deficit and the balance of the accumulation of public debt.

 In other words, work to reduce the deficit or reduce the increase in indebtedness through restructuring expenses and reduce as much as possible
Maximizing non-oil revenues.

 Which is to make the non-oil main NOPD decline at a steady rate over the next three years from the current status of (- 72) trillion dinars 2017 to - (42) trillion dinars in 2020, assuming that the ceiling is stable at about (100 - 107) .

And that the rate of change in the main non-oil balance in the direction of reduction or reduction should be about 70 percent. Which means that non-oil revenues will be significantly improved, including taxes, fees, and various transformational capital revenues during the years 2018-2020.

 As a direct result, direct and indirect taxes and fees should rise from the current 6 percent of non-oil GDP to 11 percent of that non-oil output (assuming other factors are fixed) until the year 2020 is reached. Financial Steps 2018-2020 There are practical steps to be adopted starting from fiscal year 2018 as follows:

 First: The establishment of an account in the name of the public debt compensation fund, which will deposit any increase resulting from the improvement of oil prices above the target rate in the federal budget used to compensate for any internal debt Or external schematic cells For the fiscal year or the extinguishment of previous debts depending on the situation to be committed to the current prices estimated in the supplementary budget for the year 2017 of 44.4 dollars per barrel of oil exported during the period 2018-2020.

 The account receives the public debt compensation fund capital revenues from the sale of land and state real estate And conversion income promised by the above mentioned Fund financing aspects.

 Second: Adopting and expanding the system of outsourcing at the level of customs outsourcing through contracting with international companies in a secure manner to ensure the efficiency of examination and collection and customs clearance, which maximizes the sovereign resources of the state. Lead to lower import costs and eliminate systemic and other corruption as well as maximizing public resources.

 Third: Adopting the system of outsourcing to the tax system for small units of outsourcing by granting licenses to civil companies to open the doors of tax collection on the adoption of the system of tax cut Flat Rate for small taxpayers to ensure collection and raise efficiency and stay away from diligence and corruption, and there is no objection to the outsourcing of the outsourcing of the collection of collection For various other collections such as fees, municipal fees and others.

 Fourth: Expansion of the system of partnership with the private sector in the distribution of electric power to be the year 2018 Finance is the starting point to cover all regions of the country. And included in the provisions of the Budget Act of 2018.

 Fifth: Legislation the sales tax law by calculating the tax on the final value of the service, and to take the decisions and financial regulations gradual in order to avoid the complexity of the tax system for sales tax. For example, food, building materials, etc. are exempted in the first stage.

 Sixth: Improve the management of collection of fees (non-sovereign) and wages approved in accordance with Article 24 of the Federal Budget Law for the year 2017, on the establishment of a clear and transparent accounting system shows the movements of income and expenditure and disbursements at all spending units and provide the Ministry of Finance movement and calculation of the account monthly.

 Seventh: To develop the fuel subsidy system and limit it to poor consumption classes through social welfare programs.

The state-owned and fuel-producing state companies will maintain a cost accounting system that will demonstrate the actual costs of production and avoid the "free ride" aspects of unrealistic profit collection due to the unrealistic pricing of refined crude oil and marketed internally.


http://www.imn.iq/archives/188355