Central Bank: the failure of fiscal policy to achieve economic growth and current expenditure inconsistent with the monetary policy

ID number: 2438 Issue Date: 01/10/2012 day: Tuesday
Last Updated: 10/01/2012

BAGHDAD - Follow-up:

Deputy Governor of Central Bank of Iraq the appearance of Mohammed Saleh, said that the Iraqi central bank reserves are formed via two-way direction, which is often direct and indirect way. Saleh added that the trend of direct which often is the fact that the government fill up between (60-70%) of the expenditures of Interior Iraqi dinar by exchanging dinar product in the Central Bank of Iraq being the authority to release cash and exchange it for dollars to represent the process trade-off between the balance sheet and the general budget or between items within the balance sheet and items outside the balance sheet of the Central Bank of Iraq, noting that this swap is for the purpose of bridging the expenditure of local Iraqi dinar and the dollar intake to meet this swap represents the accumulation of reserves of foreign central bank of Iraq or the so-called assets of State, consisting of cash basis used in trading.

He noted the benefit to the trade finance imports government is of the remainder of the ratio in the above through the management of the Trade Bank of Iraq TBI , which established in 2003 to finance imports government as an alternative temporary or permanent Rafidain and Rasheed indebted government foreign and claims custody and all of which are still in through the settlement.

And the trend of indirect Saleh explained that this trend is some flow of remittances from resident abroad to residents of the home, but in spite of the transfers from the non-resident entities or (external) to the entities of a non-resident (internal) have left some mark on the flow of foreign currency in the local market which is caused by some of the expenses of the occupation period, indicating that the separation of foreign currency reserves divided into two parts first, the government and is funded by state trading and the second central bank reserves, which holds in one of its functions the financing of foreign trade to the private sector by meeting the demands of banks through an auction Currency Alajunbahz

He said the auction, which shall exercise the function of open market operations to swap dollar dinar is not to finance the foreign trade of the private sector and the needs of foreign exchange, but also exercised a policy critical of the intervention step in the exchange rate stability and to control the levels of domestic liquidity and contain the power of the overhead generated by the public budget and in particular current expenditures and to generate strong demand local very diverse goods and external services to the fragility of economic diversification, the local and the growing spending per capita derived from the force of public expenditures in the general budget, which represents as inflation caused by demand pressures or spending overall, which do not constitute a contribution to the agricultural sector and industrial only 5% the configuration of the gross domestic product, making the auction of foreign currency as a means to absorb the power of government spending generated by oil revenues and feed the market and needs of the vast demand for foreign goods and services through the central bank financing of foreign trade to the private sector means and mechanisms of funding available behind the isolation of Iraq for the world and Anzoah within chapter VII, which can not provide high efficiency in foreign trade financing to the private sector only through prepayment or Direct Cash in Advance as an alternative means of financing foreign trade through commercial credit or credits LCs to the fact that Iraq has the dangers of credit Credit Risk does not have the country or its institutions rated in rating significant in the international financial system in order to move trade finance than cash by direct conversion of foreign currency to pay by means of credit in the financing of trade messages such as the aforementioned credits LCs or collection of documents Documentary collections and other means of regulating trade.

Saleh pointed out that Maittalaa him the Iraqi Central Bank of the future plans are summarized the development of management of the country's resources and diversification of foreign through the formation and the creation of sovereign wealth fund different standards a little bit about standards of management of foreign reserves, the International (the cover of currency) that prevail return and veneration on the issue of liquidity which are inherent to the status of reserves International central banks usually for emergencies, noting that the diversification of sovereign wealth fund various financial instruments stems from two facts first that the oil resources that are difficult to absorb through the diversification of the real should diversify financial and other returns sovereign wealth fund, which must be in the interest of financing for development and building physical and human capacities of the country in a line parallel with the ability to diversify the real sectors of the national economy, all of which represents one of the strategies of the Central Bank to come.

He noted that the general budget if the over fiscal policy has failed to achieve a strong base for economic growth and leaned too far to the current expenditure of the generator to the excess consumer demand and the continued weakness of the productive base of national, such a trend intersects with the basic principles of monetary policy and its aims to achieve stability by addressing spending or generate Showing Moawad to the lack of domestic supply by financing import trade and make the presentation consistent with strong demand and otherwise, the restricted auction of foreign currency to serious deficiencies in the diversification of the local supply and failures of development policy not only lead to the generation of AC negative in the economy is striking elements of stability and the dimensions and distortion of the monetary policy objectives, particularly in increasing the ceiling of public budgets and pushed to the top and today we are facing the largest fiscal budget in the history of Iraq's estimated expenditure ceiling where some $ 112 billion for 2012, a phase that started since 2004 and of the enactment of the Iraqi Central Bank No. 56, where separated resources of the central government in foreign currency for foreign reserves of the Central Bank of Iraq and that the exercise of its function of the State Bank under the autonomy made ​​of government revenue in foreign currency and actress calculates the DFI , which represents the proceeds of revenue directly to the public budget can be recorded in the balance sheet of the Central Bank under the terms of off-balance Off Balance Sheet and not, as was the case in the previous phase of the independence of the Central Bank.