Iraq's Letter of Intent to IMF

[Theseus]

For those who do not wish to read the entire letter, here is a rough cliff-note version and why an RV won't happen until at least the 3rd quarter of 2017 or later:

 

Program Monitoring

 

·      The program will have quarterly reviews and set quarterly quantitative targets … The first review should be completed by end-May 2016.

 

Foreign Exchange:

 

·      The government will maintain the peg with the U.S. dollar.

 

·      As a first step, the government will, by end-February 2016:

 

·      Amend the Investment Law, or issue clarifying implementing regulations, to remove the limitation on transfer of investment proceeds that gives rise to an exchange restriction,

 

·      Draft and adopt a by-law to set up a mechanism to comply with the relevant United Nations Security Council resolutions related to terrorism financing and Recommendation 6 of the Financial Action Task Force on Money Laundering (FATF).

 

Fiscal Policy

·      The government commits to implement a large fiscal consolidation to bring spending into line with available resources in 2015 and 2016.

 

·      This will require:

 

o   (i) a sizable reduction in the non-oil primary balance over 2013-16

o   (ii) a large increase in mostly domestic but also external financing over the short run that will remain compatible with debt sustainability in the medium run

 

·      contain the non-oil primary deficit to no more than ID 69 trillion

 

·      Achieved through:

o   collect at least ID 6.5 trillion (4.9 percent of non-oil GDP) in non-oil revenue

o   contain non-oil primary expenditure to ID 75 trillion (57 percent of non-oil GDP)

 

·      The domestic financing will be covered by the issuance of Treasury bills, out of which up to ID 15 trillion will be refinanced by commercial banks at the discount window of the CBI. The external financing will be covered by the loan from the IMF under the RFI ($1.2 billion, ¶13), a Development Policy Loan by the World Bank ($1.2 billion) to be disbursed in December 2015, and project loans by the World Bank ($35 million), the Japan International Corporation Agency (JICA, $307 million), and Italy ($40 million).

 

·      Kuwait has agreed to the postponement of the payment of the balance of war reparations ($4.6 billion, or 4 percent of non-oil GDP) by the Iraqi government to 2017.

 

Fiscal Programs in 2016

 

·      the government decided to reduce its foreign financing forecast and introduced amendments to the 2016 draft budget to parliament on December 2, 2015 that target a slightly lower non-oil primary fiscal deficit of up to ID 77 trillion (56 percent of non-oil GDP

 

·      achieved through the implementation of the following measures:

·      collect at least ID 8.8 trillion (6.5 percent of non-oil GDP) in non-oil revenue, out of which ID 1 trillion from an increase in wage taxation

 

·      contain non-oil primary expenditure to ID 86 trillion (63 percent of non-oil GDP)

 

·      The domestic financing will be covered by the issuance of Treasury bills, out of which up to ID 7 trillion will be refinanced by commercial banks IRAQ 8 INTERNATIONAL MONETARY FUND at the discount window of the CBI, the issuance of national bonds for the general public in an amount of ID 5 trillion, and the drawdown of government deposits in the banking sector in an amount of ID 4 trillion.

 

·      The external financing will be covered by the planned issuance of Eurobonds ($2 billion), a loan from the Islamic Development Bank ($500 million) and project loans by the World Bank ($50 million), JICA ($502 million), and Italy ($40 million).

 

·      The government will not resort to the accumulation of arrears to finance the deficit.

 

·      In order to strengthen fiscal discipline, the government will implement the following measures

 

·      The Minister of Finance will approve a new draft of the Financial Management law in line with World Bank and IMF comments on the last draft submitted to the Shura Council (structural benchmark for 2^nd review)

 

·      Survey, audit and pay domestic arrears.

 

·      Take steps to move to a Treasury Single Account (TSA)

 

·      Design and implement, with the IMF technical assistance, a commitment control system for budget execution

 

·      Design and implement an Integrated Financial Management Information System (IFMIS)

 

·      Implement Public Investment Management (PIM) reform with the assistance of the World Bank.

 

·      Implement the existing asset declaration procedures for high-level officials

 

Banking Supervision

 

·      by end-February 2016, appoint international auditors to audit the latest financial statements of Rasheed Bank and Rafidain Bank according to international standards (structural benchmark, Table 2), in cooperation with the Executive Committee for the restructuring of these banks and the World Bank.

 

·      The CBI will continue to implement reform measures to enhance the stability of the banking sector in Iraq which includes inter alia:

 

·      Introducing the international bank account number (IBAN) system in Iraq;

 

·      Increasing the capital requirement of banks to ID 250 billion (all but one has done)

 

·      Contracting a consultant to assist the CBI in rating bank

 

·      Preparing a Deposit Insurance Scheme which stipulates the establishment of a corporation to be licensed by the CBI

 

·      Contracting a private firm to provide the CBI with a credit registry system

 

·      Issuing a banking law for financial institutions offering Islamic services

 

·      Penalizing financially and administratively banks and non-banks financial institutions for any non-compliance with laws and regulations in force.

Edited January 13, 2016 by Theseus

[Theseus]

Couple of things to add:

 

Foreign exchange:

 

The government will gradually remove remaining exchange restrictions and multiple currency practice (MCP) with a view to eliminating exchange rate distortions. Such a move towards acceptance of the obligations under Article VIII of the IMF’s Articles of Agreement will send a positive signal to the investment community that Iraq is committed to maintain an 

 

Definitions 

 

An exchange rate set at ID 1,180 per U.S. dollar will be used for monitoring purposes. This exchange rate will be used to convert into Iraqi dinars the U.S. dollar value of all CBI foreign assets and liabilities denominated in U.S. dollars, as required. For CBI assets and liabilities denominated in SDRs and in foreign currencies other than the U.S. dollar, they will be converted in U.S. dollars at their respective SDR-exchange rates prevailing as of November 10, 2015, as published on the IMF’s website. The same rules will be used to convert external debt related parameters. 

 

Central government is defined to include the central administration & the Kurdish regional government

------

 

So as you can see once this has been done, the move to article 8 will be accomplished and then and only then can Iraq RV. It would be a fool's gambit to do so otherwise.

Edited January 13, 2016 by Theseus

[eburt]

NOT GOOD at all - Oh well from this information Iraq will never RV because of excuses, excuses, and more excuses

[yota691]

This is part of requirements for the Budget law 2016 for the Loan....as it states, this is what will happen...that why it called...Program Monitoring...

[Theseus]

I don't disagree with that Yota. However to have an unrealistic expectation of whenever a grain of sand is moved in Iraq an RV will occur is ludicrous and its the view some take on here. Like the HCA being the HCL or the HCA will be transformed into the HCL. The Letter of Intent outlines the program monitoring as stated in the 2106 budget. However, even after the actual HCL is passed and implemented there will not be a RV until these goals stated in this letter are reached. Given that and the history, a realistic expectation would put any semblance of an RV out two years from now. Not in Feb or May like some here think.

[eburt]

I don't disagree with that Yota. However to have an unrealistic expectation of whenever a grain of sand is moved in Iraq an RV will occur is ludicrous and its the view some take on here. Like the HCA being the HCL or the HCA will be transformed into the HCL. The Letter of Intent outlines the program monitoring as stated in the 2106 budget. However, even after the actual HCL is passed and implemented there will not be a RV until these goals stated in this letter are reached. Given that and the history, a realistic expectation would put any semblance of an RV out two years from now. Not in Feb or May like some here think.

If that's the case how will they support the Tariff Taxes and investors?  They will need an RV and/or float with their currency....Don't make since to have HCL without doing something with their currency......

[MFNGPTYLTD]

Just as it says Letter of Intent IMF should fire back and say no and get your act together now and no more rubbish excuses enough is enough .you have had delays after delays its time Iraq started to get its act together and RV and move forward with the rest of the world This is our letter of intent to you Iraq.   One thing is for sure that many things can happen to cause this not to happen as of now they must deal with them problems as they go not try and set up a crystal ball it never works. so IMF show fire back and say this is the last warning and request for you to get your act together now or you will be heavily fine for ever month as it does not happen from now  like 10 million. If it does not happen nothing in the world will convince me that it will happen too many obstacles and they just keep coming actually Iraq is in a great position right now to act but not they want to set the bar any idiot that lets this pass is just that a idiot. It will never happen as far as im concerned if it is delayed longer than two months then all troops should be pulled out and let then go there way completely by them selves they have been milking the cow far to long now.

[easyrider]

The IMF can only simply suggest, influence, and have a plan that is all, they cannot demand when the central banks can revalue or devalue their currency that is solely up the the central bank NOT the IMF.

[yota691]

Parliamentary Finance: World Bank loans will go to fill budget gaps and distributed to ministries

Economy and Tenders

 Since 01/13/2016 19:21 pm (Baghdad time)

Special - scales News

He stressed the parliamentary finance committee member Ahmed Sarhan, said on Wednesday that World Bank loans will be included in the budget to bridge the economic gaps and are distributed according to their importance to the ministries.

Ahmed said L / scales News /, said that "the Central Bank of Iraq excise loans which amounted to about one billion and $ 200 million in Treasury funds will come with the budget to bridge the economic gap."

The member of the parliamentary finance committee, said: "These loans will be spent according to the budget law to the ministries and the most important and Projects directly that generate benefits for the country," noting that "after which comes the role of censorship in the disbursement of these funds to carry out projects." It ended 29/34 R.  

Read more: http://dinarvets.com/forums/index.php?/topic/214350-parliamentary-finance-world-bank-loans-will-go-to-fill-budget-gaps-and-distributed-to-ministries/#ixzz3xBtChAR8

[DinarDavo]

Wasn't there a couple of articles recently that the GOI and CBI had worked out a deal where the government could now borrow money from the CBI and that a chunk (a large chunk) of currency reserves was going to bridge the budget deficit? Who's driving this bus?

[DinarDavo]

Wasn't there a couple of articles recently that the GOI and CBI had worked out a deal where the government could now borrow money from the CBI and that a chunk (a large chunk) of currency reserves was going to bridge the budget deficit? Who's driving this bus?

 

Posted Yesterday, 04:35 AM

Iraq resorted to foreign reserves to cover the deficit

 

PM: 12: 03: 13/01/2016

 

 

 

Khandan - The Iraqi government, in a note to the International Monetary Fund that it "plans to finance the deficit in the balance of payments of withdrawal from Iraq's reserves of foreign, including make it go down to $ 43 billion in 2016 from 59 billion in October last end."The government said under the program approved by the Monetary Fund as a precondition for the loan, "It is expected that the balance of payments deficit of $ 14 billion in 2015, before shrinking to $ 11 billion in 2016". He estimated Iraq that "GDP will grow by 1.5 percent in 2015 and 10.6 percent in 2016 with the increase in production of oil, "whilefalling oil prices will lead to a budget deficit of 15 percent of GDP in 2015 and a deficit of 10 percent in 2016.

Read more: http://dinarvets.com/forums/index.php?/topic/214292-iraq-resorted-to-foreign-reserves-to-cover-the-deficit/#ixzz3xDpFjqg9

Edited January 14, 2016 by DinarDavo

[WheresmyRV?]

Glad I haven't put all my money into the iqd. Looks like the Iranian rials are getting set to to take off.

[lupine49]

Talk about mis management.   Iraq is loaded with natural resources, and not just oil.  They have international companies chomping at the bit to get into country and get to work,  and they have to borrow money?  The whole thing doesn't make any sense.

With the current occupant in the oval office, no RV will probably happen until that changes.  So 2017.

[sandfly]

THANKS