Dr. Muhammad Salih appearance *: The prospects for the economic situation in Iraq under the global recession - an early vision

04/30/2020







































 










 







 

Papers in macroeconomic policies

Dr. Muhammed Salih *: Possibilities for economic conditions in
Iraq under the global recession - an early vision


04/30/2020








First, preamble:

Looking forward to the country's economic map shows that it is still under the picture of oil rents isolation
It shrinks from the joints of macroeconomic activity and the possibility of this decline continuing to more than
For economic (financial and monetary) policies

For a year or years, the country is drawn into two different scenes, depending on the situation
And commercial (approved and that will address them later.

As the Standard and Garter International Bank for example, has cautioned the inventory, according to its studies

That the Iraqi economy witness a contraction of about
Recently published forecast 5.7% in 2020 results
The agreement (OPEC +) and the repercussions of the price war in the oil markets, the corona wounds that hit
The country currently has $ (+) for Iraq
. As previously mentioned, the bank expected growth of 1.2 percent (

For the year 2020 at least, and there are other expectations that estimated that growth in more optimistic conditions to reach (+
7.4 percent (this year, according to Fitch's global forecasts).

He built his outlook for economics
And the World Bank, above, is based on its oil exports

The local currency exchange rates against the dollar and non-oil imports.
Our classification of (the Iraqi economy) is based on both the signature of the (OPEC +) agreement and the direction

Towards a deeper recession in the non-oil sector in light of the turmoil related to Corona or others.
The aforementioned bank also raised its expectations regarding the budget deficit and the current account of the balance
Payments to 13 percent and 11 percent of GDP, respectively, from
to be

He had previously forecast 10 percent and 8 percent, respectively
And that bank was more likely to face difficulties in facing oil prices for a while
Long without external support as claimed.

Second, potential economic policy.

Doubt is the early caveats of what the macroeconomic will be about fiscal stress tests
Foreign exchange, or the current account deficit of the balance of payments in relation to GDP
In this regard in general

The other forecasts, the most pessimistic of 2020, varied (i.e.
Current account deficit to GDP (by 16 percent due to declining returns
Oil and its correlation with the public budget deficit and the emergence of twin or double deficits
 deficit, i.e. internal budget deficit and external current account deficit
For the balance of payments simultaneously. 

Thus, there are two scenes in the interpretation of economic policy
The potential for Iraq under the conditions of the international recession are:

 First scene

Finance Inflationary

Addressing economic stability conditions in this scene will be very complex in light of the downside
Annual GDP activity to growth level (minus 5%) as expected by most
Studies and the annual population growth to (positive) 6.2.% If the fiscal policy is resorted to
To adopt the expansionist doctrine in government spending (i.e. financing the fiscal deficit according to
Cheap cash policies (with a continuous deterioration in the current account of the balance of payments, accompanying

This includes adopting flexible monetary policy in maximizing the liquidity of the economy and enhancing its levels

I.e. in keeping pace with the financial policy in financing the budget deficit continuously through
Continuous liquidation in the usual internal public debt instruments such as treasury cases
And others, the expected economic prospects in this scene will indicate inflation

Incredible inflation hyper in two decimal places, either expressed in the general price level or
In its upside down we mean the deteriorating purchasing power of monetary union and the mother of a leading parallel exchange market

Prices control the price path of the country, i.e. market leadership for high liberal prices
Flexibility.

 The central bank reserves will then decline as a way to defend continued stability
Nominally
Exchange rate being installed .anchor nominal. 

Then you will lead the parallel market
Exchangeable market parallel as we mentioned price leadership as an alternative to central bank intervention and appear

The dominant (commercial) forces of inflationary expectations and the drivers of the unrest
again

It is a strong private sector that has the ability to quickly mobilize foreign monetary assets
High or direct foreign commodity flows in order to seize profit opportunities and reap the surplus
Economy, by using external pass-through tools and converting them into
Entrances to the national economy through an upward inflationary movement.



The second scene or the second scenario
Dripping Financial Approach

It is the austrization method in managing the public budget and public spending and ridding it of the
Significant deficits are outside the bands and international practices) that adopt narrow limits of deficits in
The general budget does not exceed 3% of the gross domestic product (), as well as limited cooperation
Or codified monetary policy within the limits permitted by the law of the Central Bank in force in the market
Cash and secondary markets in buying and selling different financial instruments. 

We believe that this approach will generate

Referral stagflation and its beginnings is that unemployment jumps to double the limits
Out of the two decimal places in the current unemployment levels, which currently stands at 18%
Prices of imported or foreign goods due to the difficulties of financing foreign trade in foreign exchange
There is an apparent scarcity of foreign goods and services whose scarce supply will remain highly valued
It is linked to inflationary expectations (which may be launched by the parallel market) towards generally weak demand

Gradually, but it will be slower to deteriorate than what happened
Nevertheless, inflation will grow
He was diagnosed in the first scene for two reasons. 

First, the persistent lack of domestic liquidity
The majority and fear of the unknownty uncertainty among individuals will generate a state of liquidity traps
 traps liquidity and cash will be a broad case in keeping with economic recession however
They are accompanied by inflated interest rates that are proportional to the liquidity traps, which are almost real interest

And, secondly, unemployment will take dangerous levels in all its forms, exceeding the state of gradual inflation itself

Many marginal service-based economic activities will be generated with added values ​​that remain modest and clogged

The wealth gap has prevailed in the thriving rentier economy, in the short and medium term at least
Including, for example, agricultural activity whose input will still depend on foreign supplies, which are
Expensive unless you receive support. Wide from the state ???

This necessitates great caution towards radically revising the budget structure and avoiding it
Country: Resorting to the risks of excessive deficit financing to support the operational budget support bud

Through borrowing, external borrowing, or resorting to more flexible internal borrowing
As the financial indicators of debt sustainability continue to confirm that the debt-to-GDP ratio is high
The total is around 56%, and what we are calling for is not a call for austerity, but there is a call for a return
Iraqi public financial engineering and spare the public budget problems equivalent to the so-called restrictions
Fragile budget - constraints budget soft, in which spending has become easy with widening
Government advances, overdraft and borrowing in the hope of possible government revenue
Fast.

 It is all of the government customs not good in the history of Iraqi public finance in
In the last forty years, inevitably helps accumulate indebtedness and widen the deficit in
Public Revenue The consolidation fiscal issue is losing its fundamental manifestations
Such as reducing the deficit gap in public revenues or reducing the amount of accumulation in public debt
Others The country's financial architecture is losing the ingredients for sustainability to achieve economic and social goals
The stable college ..

In conclusion, we certainly see that even under the scenario of financial distillation or austerity and the extent of space
Macroeconomic downturn, economic policy priorities will continue to be sustained support
Especially for the agricultural sector produced for food security as well as for human needs
Necessary at the minimum, through international cooperation and its transferred financial leverages.

 (*) Academic Economic Researcher, former Deputy Governor of the Central Bank and financial advisor to the government
Iraqi

Copyright Iraqi Economist Network. Republishing is permitted provided that reference is made to
Source. April 30, 2020
http://iraqieconomists.net/ar/


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