Page 1 of 1 • Share
An overview of the history of Iraq's sovereign debt
Monday, January 07, 2020
Dr.. The appearance of Muhammad Salih
The history of Iraqi debt in general and external to it in particular is a sad and dark fact in the modern economic history of Iraq. For the past four decades, government debt has remained far from its philosophy of borrowing in order to invest in development and achieve economic prosperity by virtue of the exceptional circumstances and political factors.
In the last decade of the 1980s, during the war with Iran, external borrowing was used to finance the deadly war machine, which is a fatal and odious consumer debt, accompanied by internal borrowing for the same consumer spending purpose. In the year 2004, the Paris Club Secretariat estimated the external debt of Iraq for the pre-1990 stage at about $ 128 billion, at which time it was decided to write off 80% of it under the Paris Club Agreement.
That agreement was based on Security Council Resolution 1483 in May 2003 regarding the settlement of Iraq's external debt to its creditors. As debts accumulated before the year 1990 due to interruption of payments and the inability to pay and the application of the terms of the debt agreements formally signed with the various creditors, whether sovereign ones that belong to the group of nineteen Paris Club countries or to official creditors from the group of 54 countries creditor to Iraq from outside the Paris Club group, as well From thousands of commercial creditors.
What the bilateral debt agreements have shown with the creditor parties has indicated decisions to pay the accumulated interest, whether in terms of the principal of the debt or the acceptance of the delay interest (PDI) and according to the provisions of the contract on the debt, most of which are formally signed with the creditor parties in the eighties of the last century.
During the 1990s siege and the international sanctions imposed on Iraq resulting from the Kuwait war and the consequences of its invasion, the issue of debt and its burdens took two different paths. First, domestic borrowing remained heavily in favor of public spending within monetary tools and playing a budget deficit financing game with inflationary financing, or a debt monetization game that provides sustainability to the fragile reality in the budgets of the economic blockade and its time to run the machine of the economic system.
The real income of the Iraqi individual has been confiscated through the use of the so-called (the principle of automatic confiscation of individuals ’savings and their potential surpluses and their absorption in advance of waves of inflation and inflationary expectations generated by public spending funded by the cash issue or by inflation).
It is an automatic alienation mechanism based on the permanence of replacing government debt instruments (annual treasury transfers) issued by the Ministry of Finance with cash issued to be automatically accepted in the balance sheet of the Central Bank of Iraq. Hence, it was adopted as bad assets that are not subject to extinguishing at that time in the formation of the monetary base.
As for the second track, which is to implement the agreement with the United Nations, after the international organization has harnessed a third of the Iraqi oil revenues exported through the Memorandum of Understanding or the "Oil for Food and Medicine" program. Work was started on that rescue note in the year 1996, in order to pay (external compensation) to Victims of the war in Kuwait through the United Nations Compensation Fund UNCC and their various stripes and their countries and institutions that have been countless and with a compensation amount in excess of $ 52 billion. Note that compensation is not debt, but sanctions imposed by UN resolutions, including covering the costs of inspection teams and collecting them from the revenues of the oil memorandum of understanding.
The international organization has kept Iraqi oil revenues in an account in the name of the Secretary-General of the United Nations within the arrangements for Chapter Seven of the Charter of the International Organization.
Currently, only $ 3 billion of the amounts of these Kuwaiti awards remain. As the other new stage in the economic life of Iraq and the development of its debt started from the beginning of the third millennium, and specifically the stage of the great political transformation in the year 2003 until the present time, Iraq has not resorted to any borrowings of little importance.
However, after the end of a decade of political transition, our country suddenly was exposed to two suffocating crises (security and financial) in the year 2014 that extended until the year 2017, which launched the wheel of operational loans to take their ranges again. Most of the internal and external borrowing went this time to support the operational budget in a way that secures the sustainability of current budget payments, especially of salaries, wages and other obligations, as well as reassuring the war front against terrorism after the price of crude oil fell from $ 80 a barrel to less than $ 30 a barrel.
Thus the external debt came this time, mainly related to arms purchases, equipping, and rebuilding the armed forces to counter ISIS terrorism, a trend at the end of which possesses a highly consuming nature in operating the war machine and tools, which were required by the priorities of liberating the land.
It is noted that half of the external debts generated by the aforementioned (financial and security) crises after 2014 (especially foreign loans from the seven major countries that were based on the pledges made by those countries in the May 2016 statement in Tokyo to support Iraq in its war against terrorism, as well as Credits provided by international multilateral financial institutions such as the World Bank and the International Monetary Fund, which amounted to about $ 12 billion over today) have spent more than half, or perhaps the majority, in supporting the operational budget between the years 2017-2015.
Based on the foregoing, the history of Iraqi indebtedness and through multiple and different decades of time has been closely linked to government consumer spending as a result of wars, conflicts, blockades, crises and corruption at a rate of 90%, and the burden of consumer debt may have been offset on the other side of the debt, albeit in a limited way, by association Some are funded by income-generating development projects. However, loan-executed projects have also remained marginal in impacting the country's economic growth and bringing about significant economic transformation.
Thus, over four decades of the economic life of Iraq, the development debts associated with the state investment projects did not constitute only 10% of the total Iraqi sovereign debt. As Iraqi oil resources continued to operate as a sustainable financial leverage in the service of unproductive consumer debt, after which the country also recorded four consecutive decades of lost development. For example, the expenditures of grants, international aid, and soft loans (or where the grant element represents a high percentage) that were spent on the Iraqi investment and infrastructure sector between the years 2013-2003 are about $ 94 billion.
On its part, Iraq participated in the disbursement of $ 126 billion, meaning that the total actual expenditures on the government investment sector during the past ten years amounted to $ 220 billion! The result is that the country has still and still needs more than 8,000 school buildings and that there are 3,
Despite the foregoing, the macroeconomic situation of Iraq, whether visible or latent, still shows sustainability in the country's financial and economic strength, backed by adequate foreign cash flows to pay and the ability to maintain and sustain debt service, which made the total current debt of Iraq (internal and external) as a ratio to The gross domestic product does not exceed 49.7%, at $ 115 billion, according to what is indicated in the indebtedness tables in 2019, and this percentage will decrease to 48.6% in the year 2020 despite the rise of those debts slightly (in absolute value) and according to expectations due to conditions Financing the federal budget 2020 and the Where shear is expected, it will help if high GDP (from $ 235 billion in 2019 to $ 254 billion in 2020) to provide an effective weight will stand behind the decline in the standard ratio of the Iraqi debt in 2020.
In conclusion, Iraq will have, from today, an adequate fiscal space that touches with its reference the expectations of international creditors and capital markets in a positive way to enable the management of public debt and fulfill its service obligations at a more reassuring level.
* Researcher, academic economist and former deputy governor of the Central Bank of
Iraq, the Iraqi Economist Network
- VIP Member
- Posts : 11895
Join date : 2018-11-04
Page 1 of 1
Permissions in this forum:You cannot reply to topics in this forum