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First Review of the Three-Year Stand-By Arrangement and Financing Assurances Review


George Hayduke
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Iraq : First Review of the Three-Year Stand-By Arrangement and Financing Assurances Review, Requests for Waivers of Nonobservance and Applicability of Performance Criteria, Modification of Performance Criteria, and Rephasing of the Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Iraq

 
Author/Editor: International Monetary Fund. Middle East and Central Asia Dept.
 
 
Publication Date: December 13, 2016
 
Electronic Access: COMPLETE REPORT HERE (PDF file size is 2,093KB). 
Use the free Adobe Acrobat Reader to view this PDF file 
 
 
Summary: Iraq is adjusting to a double shock arising from the ISIS attacks and the sharp drop in global oil prices. The conflict has hurt the economy through displacement and impoverishment of millions of people, and destruction of infrastructure and assets. The oil price decline has resulted in a massive reduction in budget revenue, pushing the fiscal deficit to an unsustainable level. The authorities are responding to the crisis with a mix of necessary fiscal adjustment and financing, maintaining their commitment to the exchange rate peg. The peg provides a key nominal anchor in a highly uncertain environment with policy capacity weakened by the war against ISIS.
 
 
Series: Country Report No. 16/379
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1 minute ago, Drunk_Viking64 said:

To make it easier just jump to pages 20-21  Bored_77f48c_153233.jpg

on Page 21 (PFM Private Financial Market).......Section 39. PFM needs to be overhauled in order to improve the quality of spending and prevent the accumulation of arrears. To that end, it is crucial that the authorities take steps to implement their new Financial Management Law, comprehensive fiscal and debt reporting, commitment control, a Treasury Single Account, an Integrated Financial Management Information System, and Public Investment Management reforms. The Ministry of Finance should conduct regular surveys to
identify all domestic arrears accumulated over the past years and pay them only after audits of their validity by the BSA, in line with the government’s financing capacity. The authorities need to pay IOCs and the Basra Gas Company on time in order to secure oil revenue and to reduce gas flaring, which could diminish both the cost of electricity production and air pollution.

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Good information in the first review of the three years stand-by arrengement (SBA)

After reading 70 pages, this is what I found

ECONOMIC POLICIES TO ADDRESS THE CRISIS

In order to lay the ground for the necessary fiscal adjustment in the medium term, the authorities will implement a tight fiscal policy both in 2016 and 2017, while maintaining their commitment to the exchange rate peg and protecting social spending, i.e. spending on health and education, food and agricultural subsidies, and transfers to internally displaced people and refugees. They will also take steps to strengthen public financial management as well as financial sector stability and development.

A. Managing External Pressures

17. The authorities remain committed to maintaining the Iraqi Dinar’s peg to the U.S. dollar

(MEFP, ¶23). The peg provides a key nominal anchor in a highly uncertain environment with policy capacity weakened by the conflict with ISIS. To analyze the persistence of spread between official and parallel market rate (¶11) and make recommendations to reduce it, the CBI has requested technical assistance from the IMF Monetary and Capital Markets department.

18. The authorities are gradually removing remaining exchange restrictions and a multiple currency practice (MEFP, ¶24). A move towards acceptance of the obligations under Article VIII of the IMF’s Articles of Agreement will send a positive signal to the investor community. As a first step, the CBI made the weekly limits on the purchase of cash at the weekly foreign currency auctions indicative, by announcing that the CBI will directly meet any documented, bona fide need in excess of limits, or that banks may access foreign exchange in excess of the weekly limit to meet client demand based on appropriate documentation. As a second step, the CBI will issue clarifying implementing regulations and comprehensive instructions, to remove the limitation on transfer of investment proceeds that gives rise to an exchange restriction (SB, MEFP Table 2). 

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Banking Supervision

40. As of December 31, 2015, there were 56 banks operating in Iraq including 7 state-ownedbanks (SOB) of which one is an Islamic bank, 32 Iraqi private banks, of which 6 are Islamic banks, and 17 foreign branches, of which 5 are Islamic banks. The SOBs dominate the financial sector and account for the bulk of assets and credits. Three of the SOBs, Rafidain Bank, Rasheed Bank and Trade Bank of Iraq (TBI), account for around 90 percent of the banking system’s assets.

41. The financial positions of Rasheed Bank and Rafidain Bank are fragile following years of quasi-fiscal operations. As a first step to restructure these banks, the Ministry of Finance appointed international auditors to audit their latest financial statements according to international standards, in cooperation with the Executive Committee for the restructuring of these banks and the World Bank. The auditors will submit their audit reports to the Ministry of Finance by end-February 2017. As a second step, the Ministry of Finance will, by end-August 2017, elaborate a restructuring plan for these two banks, in cooperation with the Executive Committee for the restructuring of these banks and the World Bank, in light of the results of the aforementioned audits.

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

  - working on reviewing and assessing CBI prudential regulations with the assistance of the IMF Middle East Technical Assistance Center (METAC) and the World Bank;

 - strengthening banking supervision including for AML/CFT, with IMF and World Bank technical assistance;

 - compiling and publishing financial stability indicators, elaborated with IMF technical assistance (by end-December 2016);

 - enforcing the minimum capital requirement of banks of ID 250 billion ($214 million), a level to which all private banks except one have increased their capital;

 - contracting a consultant to assist the CBI in rating banks, whereby they have already rated 17 banks: three banks were rated “satisfactory”, eight banks rated “fair” and six banks “marginal”;

  - contracting a consultant to assist the CBI in upgrading the prudential regulations on “Liquidity” and “Capital Adequacy Ratio”;

-  preparing a Deposit Insurance Scheme which stipulates the establishment of a corporation to be licensed by the CBI, of which banks will have the opportunity to  take a share in the capital;

 - contracting a private firm to provide the CBI with a credit registry system for sharing information among banks on their common existing and potential borrowers;

-  issuing a banking law for financial institutions offering Islamic services;

 - penalizing, financially and administratively, banks and non-bank financial institutions for any non-compliance with laws and regulations in force;

  - introducing the international bank account number (IBAN) system in Iraq.

43. Building on the safeguards assessment conducted by the IMF in December 2015, the government will strengthen the legal framework of the CBI to provide for independent oversight of the CBI’s operations. The Governing Council of the CBI will, by end-December 2016, approve a new charter for the Audit Committee prohibiting Central Bank of Iraq executive representation on the committee (SB, Table 2). The Council of Ministers will, by end-March 2017, approve and introduce to parliament amendments to the Law on the Central bank of Iraq to strengthen CBI governance and the internal control framework, in line with the IMF safeguards assessment's recommendations (SB, Table 2). Specifically, the CBI Law should be amended to: (i) specify external auditor selection criteria and timely appointment (i.e., before the end of the fiscal year for which the financial statements need to be audited); (ii) shift the authority to appoint the external auditor from the Ministry of Finance to the CBI; (iii) provide for multi-year appointment terms for the external auditor; (iv) provide for timely publication of audited financial statements; (v) establish an audit committee, including its mandate and composition, and representation on the CBI Board; (vi) change the CBI Board’s composition to a non-executive majority; (vii) strengthen the autonomy of the chief internal auditor; and (viii) require market-based rates for lender of last resort operations. The proposed amendments should be developed in consultation with the IMF.

44. On November 25, 2015, the prime minister approved CBI credit lines to banks in an amount of ID 6 trillion, with a state guarantee, for on-lending to small and medium-sized enterprises (SME, ID 1 trillion) and agriculture or infrastructure projects (ID 5 trillion). So far the CBI has disbursed
ID 21.2 billion for the former and 0.5 trillion for the latter. Before proceeding any further with these initiatives, the Ministry of Finance and the CBI will analyze the potential fiscal risks posed by these credit lines. In light of this analysis, the government will discuss with IMF staff whether to continue executing these credit lines on the occasion of the second review (¶47). 

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By this report from the IMF looks like iraq and the banking system still have a lot of work to do.

Do you think we have to wait till 2019 the end of the SBA for an RV?..... Good question for tomorrow update

 I would like to hear your opinion.

Thanks for the post GH

 

 

 

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George Hayduke Thanks,  LB, Appreciate the summarization of SBA from the IMF great information for digesting.  IMHO, The Major Players / Investors are not going to wait on Iraq for years into the future so I do believe that Iraq must act in the very near term.   They must show the World they are serious about truly returning to its "Former Glory" and that my DV friends will require an increase in purchasing power or strong currency.   Just my 2 cents....:D:)

Keeping the faith!!

GO RV!!

 

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Am I really taking away from this that the Status Quo should remain in this investment: and that we may still be (possibly ) 2 years away from seeing the RV ? 

REALLY ? What is going on Here ? Months of ( perhaps misleading ? ) steady Buildup articles: WTF, over. So I ask myself as I'm reading all this "info",Why would the IMF have come out early this year stating Iraq would rejoin the international community in June ? ( course it didn't happen ) Y'all remember that, I do. I had hoped then we might be "THERE." 

Have we been led down the path, again ?. . . "delete the zeros project" kicking in. BIG Noise on other fronts giving folks the notion that with the passing of the 2017 Budget etc. . . well we're all feeling pretty good right now - then it's time to pull the rug out from beneath everyone's feet !!!! 

" Just kidding, could be 2 more years !!!!!!! " [ is this deliberate to throw folks off the scent ? ]

Have we just been Bent Over & Humped Dry ?  OR is this just the report and Iraq ( and the 3 letter agencies ) still plan on making 2017 " The Year of Reconstruction."   Can't do that Freaking Borrowing $$$$$$ - or can they ? Investors have been chomping at the bit, I doubt most will be willing to wait for perhaps 2 more years !!!!! 

Where is Iraq, really ? Are the citizens of Iraq ( and all of us ) about to be Played in a Monumental Con Job ??????

It's a shot of Whiskey and some needed Sack Time . . .  :confused2::facepalm:    we'll see what 2moro brings

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8 hours ago, siberian_shaddow said:

Evened you out 10 Years Later, Come on man don't give up yet. I know bro, were in this together. We will get there and there is a lot of intelligent people here including Thugs (lol) and they believe we're getting really close. stay the course. 

Not giving up Brother ( probably looked like it though ) - it was late last night when I posted; and seeing it again in the light of day, I was tired, pi$$ed off and over reacted some by this report. Appreciate you having my back :tiphat:

We all want this to be "right" this time with no shenanigans - we've had false flags/disappointments before. We're in it to Win it - on my second cup of coffee and I be more better and stuff this Morning - :twothumbs:

 

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8 hours ago, siberian_shaddow said:

there is a lot of intelligent people here including Thugs (lol) and they believe we're getting really close.

I'm Invested In Balloons, Silly String And This Exotic Foreign Currency ...

  :D     :D     :D

 

 

(by walkingstick)

 

IMF Country Report No. 16/379

IRAQ 

December 13, 2016

FIRST REVIEW OF THE THREE-YEAR STAND-BY ARRANGEMENT AND FINANCING ASSURANCES REVIEW, REQUESTS FOR WAIVERS OF NONOBSERVANCE AND APPLICABILITY OF PERFORMANCE CRITERIA, MODIFICATION OF PERFORMANCE CRITERIA, AND REPHASING OF THE ARRANGEMENT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR IRAQ

In the context of this Staff Report, the following documents have been released and are included in this package: 

 A Press Release including a statement by the Chair of the Executive Board.

 The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 5, 2016, following discussions that ended on October 10, 2016, with the officials of Iraq on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement. Based on information available at the time of these discussions, the staff report was completed on November 21, 2016.

 The Staff Report includes a Debt Sustainability Analysis prepared by the staff of the IMF.

 An Informational Annex prepared by the IMF staff.

 A Statement by the Executive Director for Iraq. The documents listed below have been or will be separately released: Letter of Intent sent to the IMF by the authorities of Iraq* Memorandum of Economic and Financial Policies by the authorities of Iraq* Technical Memorandum of Understanding* *Also included in Staff Report The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

 

SNIPPET:

Exchange Arrangement Iraq’s de jure and de facto exchange rate arrangements have been retroactively reclassified to a conventional peg arrangement, effective January 15, 2012. The Central Bank Law provides the Board of the CBI with power to formulate exchange rate policy. The CBI Board undertook a realignment of the peg from 1166 to 1182 dinar per USD on December 1, 2015, unifying the effective rates applicable to cash sales and transfers at 1190 including the central bank commission. The CBI stands ready to provide foreign exchange at the official exchange rate plus commissions for permissible transactions through its daily auctions (allocations), establishing a peg. However, because certain transactions are excluded from the access to the CBI auctions, many transactions take place at parallel market exchange rates. The CBI publishes the daily volume of the auction allocation on its website. 

Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or multiple currency practices subject to Article XIV, Section 2, and currently maintains two exchange restrictions and one multiple currency practice (MCP) subject to Fund approval under Article VIII, Sections 2(a) and 3.

The exchange restrictions arise from (i) the requirement to pay all obligations and debts to the government before proceeds of investments of investors, and salaries and other compensation of non-Iraqi employees may be transferred out of Iraq, and (ii) an Iraqi balance owed to Jordan under an inoperative bilateral payments agreement. IRAQ 4 INTERNATIONAL MONETARY FUND The MCP arises from the official action to limit the purchase of foreign exchange, with no mechanism to ensure that exchange rates in the official auction and in the market do not deviate from each other by more than two percent. The average spread between the official and market rates was around 3 percent in December 2015 and has increased to about 9 percent since May 2016. In addition, one exchange restriction maintained for security reasons should be notified to the IMF under the framework of Decision 144– (52/51)

 

http://www.imf.org/external/pu.....r16379.pdf

 

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12-13-2016   Newshound Guru Kaperoni   Iraq: First Review of the Three-Year Stand-By Arrangement and Financing Assurances Review    [Looks like from this article the IMF wants them to stay on the peg indefinitely until oil prices go up and ISIS is gone. They speak of Iraq being committed.]  Until the conditions are created, I would expect so.  That means until laws are passed and investors begin to come into Iraq we are at status quo.

 

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8 hours ago, DinarThug said:

 Until the conditions are created, I would expect so.  That means until laws are passed and investors begin to come into Iraq we are at status quo.

....Does this mean we're depending on Parliament to actually stay at work to accomplish something between their never ending holidays....:rake: 

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41 minutes ago, climber7 said:

Is that true? No one can buy dinar from any currency dealers? 

What would be the purpose of that? 

I think China was just saying there using  the sky is falling scare tactics to stop speculators like us from buying anymore dinar. Peace 

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26 minutes ago, skeetdog said:

....Does this mean we're depending on Parliament to actually stay at work to accomplish something between their never ending holidays....:rake: 

 Now Skeetdog that's not fair they always return in time to turn in their expense reports, collect their checks, complain how the other side isn't upholding its end of the bargain and then go on holiday/vacation again!

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