World Bank MENA Quarterly Economic Brief, January 2015: Plunging Oil Prices

[yota691]

MENA Quarterly Economic Brief, January 2015: Plunging Oil Prices

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The over-50% decline in world oil prices—from US$115 a barrel in June 2014 to less than US$50 today—will have significant consequences for the economies of the Middle East and North Africa (MENA) region. This report titled " Plunging Oil Prices", focuses on the implications of low oil prices for eight developing countries, or the MENA-8 (oil importers: Egypt, Tunisia, Lebanon and Jordan and oil exporters: Iran, Iraq, Yemen and Libya) and the economies of the GCC (Gulf Cooperation Council), who play a major role in providing funds in the form of aid, investment, tourism revenues and remittances to the rest of the countries of the region. 

Page 18...IRAQ...from the Link in the article Plunging Oil Prices...

IRAQ A positive development was the ending of the long-standing dispute over distribution of oil revenues between the central government of Iraq and the semi-autonomous region of Kurdistan. Under the new agreement effective January 2015, Kurdistan will export 250,000 barrels of oil a day while the disputed province of Kirkuk will sell 300,000 barrels a day. Though good news for Iraq, the agreement will add to the downward tailspin in the oil market, with the additional barrels expected from Kirkuk adding to the already ample supply in the market. The central government’s payments to the Kurdish region, accounting for 17 percent of the state budget, will resume with additional payment of $1 billion towards salaries and equipment of the Kurdish peshmerga forces fighting the Islamic State in Iraq and Syria (ISIS). Despite the current turmoil, Iraq’s oil exports have increased, reaching an average of 2.9 mb/d in December 2014, their highest level since 1980 (Figure 9) However, due to lower oil prices, oil receipts were much lower during this period compared to the early months of 2014. This has exacerbated the fiscal deficit, projected at 7 percent of GDP in 2014. It has come at a time when spending is higher than usual as the government battles to regain ground from ISIS. Current spending in Iraq accounts for more than 30 percent of GDP while capital expenditure is as much as half of that figure. Iraq’s oil export revenues fell sharply in the second half of the year as a result of declining oil prices. Between May and November 2014, Iraq’s monthly oil export value declined from $8 billion to $5.4 billion. This sharp decline mainly reflects the Iraq oil export price (which discounts to international benchmarks) declining from $100.7 to $70.4 during the same period. The prevailing insecurity has seriously hampered reconstruction and investment, which resulted in lower-than-foreseen oil production growth and hence slower economic growth. Figure 9. Iraq: Economic situation Source: World Bank. 0 1 2 3 0 4 8 12 16 10Q1 Q1 Q1 Q1 14Q1 GDP Crude oil exports (RHS, mb/d) GDP Growth (%)MENA Quarterly Economic Brief Issue 4 January 2015 19 A draft 2015 budget was presented to the Cabinet at the end of November based on an oil price of $70 per barrel and prioritizing salaries, military spending, and humanitarian relief. The budgetshowed a deficit of $39 billion, or 17 percent of GDP. As this was considered infeasible, the government is revising the budget and has focused instead on a freeze in hiring and rooting out the most glaring expenditure abuses (notably with the identification of 50,000 “ghost soldiers”). The rapprochement with the Kurdish Regional Government (KRG) on northern oil exports, both for KRG own-sourced oil exports and transit through KRG for oil from Kirkuk, will also relieve some pressure. From the perspective of the global oil market, the reopening of the northern export route adds 550,000 barrels per day of crude supply, though part of this figure represents existing KRG exports moving out of the grey market, as well as changes in the composition of Iraq’s total exports. The impact of falling oil prices: The major impact will be seen on fiscal and current account balances: The World Bank estimates that the fiscal deficit will rise to about 20 percent of GDP in 2015 from about 6 percent of GDP in 2014; and the oil trade surplus will be 14 percent of GDP. Real GDP growth will decline to about 1.5 percent in 2015, remarkably low for a country that should still be in reconstruction-driven growth. Given Iraq’s lack of capital-market access and existing debt service obligations, the current account deficit implies a large financing gap, assuming unchanged policy on central bank reserves. As of December 2014, Iraq’s gross international reserves amount to $69.1 billion. Government spending: The most likely impact of lower oil prices on government spending would be through a reduction in capital spending by restricting the number of investments, which would return the public-sector borrowing requirement to the 2014 range (i.e. 4-8 percent of GDP). The government would seek to increase reliance on external financing for its capital program (especially through export credit agencies and bilateral/multilateral finance and aid from donors on humanitarian grounds). The government has sought a delay in its final reparation payments to Kuwait, which would defer nearly $5 billion of commitments. Even under optimistic external funding scenarios, none of these options can sustain the full capital program. The remaining financing buffers are central bank reserves, the domestic banking system, and the state pension fund. Tapping any of these sources (more than they are currently doing) raises fundamental questions about the integrity of already weak fiscal institutions. Poverty: As various consumer prices remain administered in Iraq, the impact on poverty will be mainly through the fiscal impact. Since northern Iraq is the main land transit route to the entire country, the increase in transport costs as a result of the ISIS crisis is affecting most non-oil merchandise trade. In particular, the cost of the universal Public Distribution System (PDS) (“food ration”) is expected to increase. Since this program is seen as non-negotiable, the food price increase will be reflected in the fiscal impact. Exchange rate: Iraq pursues a policy of a de facto peg to the U.S. Dollar, and therefore monetary policy is constrained in tackling the current shock. The Central Bank of Iraq (CBI) had kept the Dinar steady through January 2009. In 2014, the nominal exchange rate in the official market remained stable against the U.S. Dollar at 1,166 IQD/1 USD, but the rate in the parallel market increased. The CBI has recently taken steps to simplify foreign exchange market regulations, but has not eliminated all existing exchange restrictions and the multiple currency practice. With the peg, fiscal policy carries the burden of macroeconomic stabilization, but in this case does not have the space to do so.

[Big_J]

Excellent + Iraq + News = YOTA! GM My Friend!

[yota691]

Here more if you care to read more... PDF...Understanding the Plunge in Oil Prices: Sources and Implications

[Big_J]

Thanx YOTA. This is GOOD!

[TrinityeXchange]

WHOA! did this article come from the World Bank?!  From what I am interpreting, everything they are saying is in hinting toward a revelation of the true value of the IQD.  this is my interpretation solely of this article but i believe this author said a LOT toward the proponent of depegging the iqd from the usd and raising the currencies value to one that would help the country overcome overbudensome monetary whoas.  it is clearly stated here that the currency's monetary policy of a "de facto exchange regime pegged to the usd" is not good for iraq in the slightest.  i agree and thanks Yota!

 

Please see my comments below:

 

Exchange rate: Iraq pursues a policy of a de facto peg to the U.S. Dollar,

so according to IMF Iraq indeed does operate a "de facto" exchange regime as opposed to a "de jure" regime.  what does this mean in everyday speak?  de facto speaks to what is actually happening right now.  so we know the de facto rate is 1166/usd.  de jure speaks to what is by right or rightful entitlement.  in other words, although the iqd exchange regime is pegged to the usd in actuality, it does not have to be by right.  the exchange regime can rightfully change.  here is the official quote from the imf exchange regime site (scroll to the very bottom) where a reference #7 was appended to the country of Iraq in its table: "7 The regime operating de facto in the country is different from its de jure regime".

 

and therefore monetary policy is constrained in tackling the current shock

because iraq is currently operating under this "de facto peg exchange regime", their hands are tied in providing a solution to the current situation they find themselves in addressing monetary issues stemming from the plummeting oil prices and the isis threat.  (me) releasing themselves from this de facto peg exchange regime to a de jure regime would allow them a lot more flexibility in addressing some of their monetary shock.

 

The Central Bank of Iraq (CBI) had kept the Dinar steady through January 2009. In 2014, the nominal exchange rate in the official market remained stable against the U.S. Dollar at 1,166 IQD/1 USD, but the rate in the parallel market increased.

so there is hinting here about two different exchange rates taking place.  one is in the official market at 1166/usd while the rate in a parallel market actually sees an increase to the exchange rate.  a parallel market is what is known as a "grey market".  similar to when your cousin's business sells you cologne that smells exactly like your favorite brand ...that is a grey market.  a grey market is typically not illegal, but simply not really the authorized channel of distribution.  well the value of the iqd is actually more powerful in the grey market than the official market.  by how much....we do not know, the author did not say.  the one thing the author did say that is VERY telling is that the official exchange rate is nominal [nominal - (of a price or amount of money) very small; far below the real value or cost].  

 

we are being told straight up that this currency's official market value is far below its real value and this is evidenced by its value in the grey market.

 

The CBI has recently taken steps to simplify foreign exchange market regulations, but has not eliminated all existing exchange restrictions and the multiple currency practice. With the peg, fiscal policy carries the burden of macroeconomic stabilization, but in this case does not have the space to do so.

and so they are telling us straight up that the CBI is working in the background to get to a position where it can liberate the iqd, RECENTLY.  one of the major reasons is because the CBI is associated with burdening macroeconomic stabilization concerns of the USD since it is pegged and tied to the hip with it.  however iraq's current situation and pressures does not bode well for this type of monetary pressure, they simply "do not have the space to do so." they cannot thrive under this de facto peg exchange regime to the usd.  they would be better served to 1) get from under this de facto peg exchange regime and 2) dedollarize (not continue to function with multiple currencies in their market).

Edited January 30, 2015 by TrinityeXchange

[Laid Back]

Great article .!!!

Sunday could be our day.

Go Iraq

Go dinar

Go strong $1.13:1

[davis411]

Great article .!!!

Sunday could be our day.

Go Iraq

Go dinar

Go strong $1.13:1

sunday, wow, sure hope so, be the largest gift i give to church then i have ever done

[Wiljor]

Wow Yota you have perhaps hit the jackpot, this article is huge and clearly indicates that Iraq can not capitalize under the current scenario.

Quote; "Even under optimistic external funding scenarios, none of these options can sustain the full capital program"

This is a clear indication that the current monetary policy has to change in order for Iraq to become a major player on the worlds stage.

Hence, in reality, the option is to re value the currency and make it worth international investment.

1,166 dinar to dollar is not sustainable.

[hmmm]

In my extremely humble opinion we do not want this to go over a dollar. Anything under a dollar would basically eleminate a lop scenario. While anything over would put this investment at great risk. Again, jmo and I am not a lopster, I just want to see the moderate RV that ensures a good return! Hope we get good news soon:)

[DWitte]

Great article .!!!

Sunday could be our day.

Go Iraq

Go dinar

Go strong $1.13:1

But Sunday is not January.  I was going to neg you (NOT).  If it were to happen Sunday, you get credit for being spot on.  It would make you the closest in the 11 years I've been in this investment..  I also see you noticed it's not January either.  haha  It's not in your post.  No worries.  You still have another chance to be "The Man" right alongside Adam.

Edited January 30, 2015 by DWitte

[yota691]

Yes this article came from the World Bank . Org!!!

[DinarThug]

CNN. Broadcasting From The World Piggy Bank With Maxwell's Silver Hammer !

 

 

 

(by jjonesmx)

World Bank Questions Iraq Currency Peg



Posted on 30 January 2015 . Tags: 

Central Bank of Iraq (CBI), dinar, Dinar Exchange Rate, IQD, iraqi dinar, oil prices, re-denomination, re-valuation, Redenomination, revaluation, World Bank


World Bank Questions Iraq Currency Peg
By John Lee.
A report published on Thursday by the World Bank focuses on the implications of low oil prices for eight developing countries — Egypt, Tunisia, Lebanon, Jordan, Iran, Iraq, Yemen and Libya — and the economies of the GCC (Gulf Cooperation Council).
The Plunging Oil Prices report questions the practice of pegging the Iraqi dinar to the US dollar, noting the that value of the dinar has been falling against the dollar in the parallel market:
“Iraq pursues a policy of a de facto peg to the U.S. Dollar, and therefore monetary policy is constrained in tackling the current shock.
“The Central Bank of Iraq (CBI) had kept the Dinar steady through January 2009.
“In 2014, the nominal exchange rate in the official market remained stable against the U.S. Dollar at 1,166 IQD/1 USD, but the rate in the parallel market increased.
“The CBI has recently taken steps to simplify foreign exchange market regulations, but has not eliminated all existing exchange restrictions and the multiple currency practice.
“With the peg, fiscal policy carries the burden of macroeconomic stabilization, but in this case does not have the space to do so.“
http://www.iraq-businessnews.com/2015/01/30/world-bank-questions-iraq-currency-peg/

[eburt]

Hmmm I having hard time understanding this article........

[MyLadiesDaddy]

Holy God, Thugs , can you say Sunday.

[yota691]

Thanks Thug already posted........MENA Quarterly Economic Brief, January 2015: Plunging Oil Prices

Read more: http://dinarvets.com/forums/index.php?/topic/195819-world-bank-mena-quarterly-economic-brief-january-2015-plunging-oil-prices/#ixzz3QKUz4QIa

[NeedRv]

whaaaaaaaaaaaaaaat????

 

well peg it at 1:1 and we have a deal.... lol 

[chinadawg]

So, WB thinks it"s a good idea to unpegg if i read that correctly, if so I agree.............let the boat float !!

[NeedRv]

LOOKING REAAAAAAAAAAL GOOD..... Sunday or not...SOON.... 

 

GO RV...

1:1 all day 

[MyLadiesDaddy]

Exactly, it's clear that the WB wants it to float. Betcha it rises faster than the Frank.

And it should be noted that according to the IMF Status Report for Iraq in 2013

,I believe, stated the IMF's desire for the same thing.

Were goin places folks.

[TrinityeXchange]

Wow Yota you have perhaps hit the jackpot, this article is huge and clearly indicates that Iraq can not capitalize under the current scenario.

Quote; "Even under optimistic external funding scenarios, none of these options can sustain the full capital program"

This is a clear indication that the current monetary policy has to change in order for Iraq to become a major player on the worlds stage.

Hence, in reality, the option is to re value the currency and make it worth international investment.

1,166 dinar to dollar is not sustainable.

completely agree!  and well written Wiljor.  the assessment from the world bank authority clearly shows that this current monetary exchange regime cannot support iraq's economic climate any longer.  iraq's costs have grown too large to continue operating a 1166/usd.  they should be in full blown reconstruction mode which should bolster the nation's gdp tremendously but because of its security issues, reconstruction and investment has been hampered.  what are they going to do then?  run the same deficits and austerity measures next year as well?  something has to be done immediately to get them out of this situation and that would be to go to a de jure exchange regime and abandon the nominal rate assigned to the currency.  iraq need more purchasing power.

[MyLadiesDaddy]

Sunday, Sunday.

Were goin places folks.

[TrinityeXchange]

please post comments on this if you would in yota's thread.  this is a significant article.  thanks thugs and yota!

[MyLadiesDaddy]

Maybe a mod can merge the two threads.

[Maggie123]

Holy God, Thugs , can you say Sunday.

 

 

Like what you said last Sunday?  

 

 

(kindly STOP saying the lords name in vain LGD)

 

 

wow 

 

There actually gonna do this

 

And I think tomorrow morning

 

 

...................................................

[Wiljor]

completely agree!  and well written Wiljor.  the assessment from the world bank authority clearly shows that this current monetary exchange regime cannot support iraq's economic climate any longer.  iraq's costs have grown too large to continue operating a 1166/usd.  they should be in full blown reconstruction mode which should bolster the nation's gdp tremendously but because of its security issues, reconstruction and investment has been hampered.  what are they going to do then?  run the same deficits and austerity measures next year as well?  something has to be done immediately to get them out of this situation and that would be to go to a de jure exchange regime and abandon the nominal rate assigned to the currency.  iraq need more purchasing power.

Thanks TX, and I concur totaly on your points as well. Make the currency internationally recognized and watch how foreign investment flocks to Iraq. The security situation mentioned in Yota's article is becoming less and less with each passing day. Once the currency re values this will create a middle class which will move the money internally and as you said, create more purchasing power.

I am really hyped about this article and has been to date, imo, the best article to indicate a revaluation of the Iraq Dinar.