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International Monetary warns Iraq and announces its position on the dollar exchange rate


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International Monetary warns Iraq and announces its position on the dollar exchange rate
  
{Economic: Al Furat News} The International Monetary Fund warned Iraq of the "fragility" of its economic recovery.

The head of the IMF mission in Iraq, Tohir Mizorov, said in a press statement: “Policies aimed at containing inflation and its impact should take into account the fragility of recovery in Iraq and the long-term goals of diversifying the economy and strengthening the private sector. It is to avoid making the problem worse by adopting domestic policies that would increase inflation, for example through expansionary policies.”

He added, "The second priority is to implement policies that are carefully targeted to protect the most vulnerable groups. At the same time, it will be important to avoid any measures that could weaken Iraq's economic capabilities without addressing the problem. For example, measures that undermine the competitiveness of local producers and encourage imports will not contribute to Realizing the benefits of remembering the weak groups, if they exist at all, and this explains the scarcity of countries with a fixed exchange rate to raise the value of their currency in economic history, and for the same reasons, it would not be advisable for Iraq to do so.

Mezroev pointed out that "the rise in prices leads to an erosion of the purchasing power of families' income and savings, and since more than one-fifth of the Iraqi population lives in poverty, protecting vulnerable groups from the effects of inflation is of paramount importance. To achieve this, the 2022 budget should give priority to strengthening cash transfers directed to helping families." the poorest during these difficult times."

"Also, continuing to work on improving the coverage of the social protection network will contribute to ensuring assistance to those who are really in dire need of assistance," he added.

Moreover, linking the increase in pensions, salaries of civil servants and low wages to inflation will contribute to protecting the purchasing power of their incomes and prevent them from falling into poverty. International experience has shown that such measures are the most effective in protecting the livelihoods of vulnerable groups. ".

And the House of Representatives discussed in its session last Monday, in the presence of Finance Minister Ali Allawi 

The Council discussed, during its hosting by the Minister of Finance, the rise in the exchange rate of the dollar and its repercussions on the market through the rise in prices and the damage to the poor segment, and the discussion of public debt and the financial policy of the Ministry of Finance and the proposed treatments.

Allawi warned during the session that reconsidering the exchange rate of the currency “in an ill-considered manner would lead to financial chaos similar to some countries, so the trend was to set the exchange rate of the Iraqi dinar comfortably to protect it from any external changes with a proactive and correct step in coordination with the Central Bank and study it with the President The government, heads of political blocs and other parties, in addition to the support of the International Monetary Fund, to change the price at a reasonable rate.

Allawi indicated that the benefits of devaluing the Iraqi dinar increased government revenues by 23 percent, pointing out that "the rise in prices in the Iraqi markets was not due to the decrease in the exchange rate of the dollar only, but rather as a result of the increase in global food prices since 2020."

The Minister of Finance explained that "the rise in global oil prices is beneficial to Iraq and at the same time affects its needs of foodstuffs and oil derivatives, and the import of gas that is used to generate electricity by 30 percent, noting that the Iraqi external debt will be reduced by 4 billion dollars in 2021."

Allawi suggested "supporting vulnerable segments of society by allocating a direct grant to be distributed through the ration card or social welfare and supporting small and medium-sized enterprises, especially in rural areas, as a result of the financial abundance resulting from the increase in oil prices."

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Toukher Mizorov for “Al-Sabah”: The necessity of protecting vulnerable families from inflation and enhancing economic resilience

Wednesday 02 March 2022 829

Toukher Mizorov for “Al-Sabah”: The necessity of protecting vulnerable families from inflation and enhancing economic resilience
 
  Baghdad: Hussein Thaghb
In an exclusive interview with "Al-Sabah", the head of the International Monetary Fund mission, Tokhir Mizorov, confirmed that the Iraqi economy is gradually recovering, but it is still weak, and said: that policies must remain focused on reducing vulnerabilities, supporting economic recovery, and enhancing resilience through broad structural reforms. the range. Increasing inflation, fueled by rising global commodity prices, calls for strengthening targeted social safety nets to help the most vulnerable while avoiding measures that weaken financial sustainability and weaken competitiveness.  
Al-Sabah directed its questions to the head of the mission:
* What is the assessment of the International Monetary Fund for the Iraqi economy during the coming period, and what are the policies recommended by the Fund to achieve economic growth?
- The good news is that the Iraqi economy is witnessing a gradual recovery, and it is expected that the balances of public finances and the external current account will shift from a double-digit deficit in 2020 to a double surplus in 2021, especially with expectations that the gradual recovery trend will continue. At the same time, however, the economic recovery remains fragile, incomplete, and subject to challenges – real non-oil GDP has not yet reached pre-pandemic levels – and global inflation presents a new challenge. Public finances are still mainly dependent on oil revenues, which threatens that any reversal in the oil market conditions will easily cause pressure on public finances to be financed again.
Accordingly, it will be important for economic policies to continue to focus on reducing vulnerabilities and on supporting economic recovery without exacerbating domestic inflation.
This will help enhance the resilience and sustainability of the Iraqi economy, enabling it to better face future challenges.
In addition, diversifying the economy and promoting private sector development are the most important factors for achieving development in Iraq. This requires carrying out wide-ranging reforms, the most important of which are those aimed at enhancing public resources and reducing their dependence on oil, while creating the necessary space to increase much-needed spending on the investment and social protection sides. combating corruption and improving the governance and efficiency of the public sector; In addition to reforming the electricity and financial sectors.
 
* How do you explain the increase in inflation in Iraq? Do you attribute this to the devaluation of the dinar in 2020?
As is the case in many countries around the world, inflation in Iraq largely reflects the rise in prices globally. Due to a combination of different factors such as the rapid recovery in global demand, supply chain disruptions, and the deterioration of production capacity due to the global pandemic, global commodity prices have risen sharply over the past year.
International energy prices have more than doubled, while world prices for wheat, rice, aluminum, copper and nickel have risen by 20-50 percent. All of this increase, in turn, has led to an increase in the costs of production and transportation for a wide range of consumer products whose prices are increasing globally, including in Iraq. 
In our assessment, it appears that the impact of the devaluation of the dinar on inflation was limited.
In general, it is very unusual for a one-time adjustment of the exchange rate to continue to affect inflation in any significant way after fourteen months. 
 
* Does the Fund support maintaining the current exchange rate or returning to what it was in order to reduce inflation and help the vulnerable groups?
- Policies aimed at containing inflation and its impact should take into consideration the fragility of the recovery in Iraq and the long-term goals of diversifying the economy and strengthening the private sector. Hence, the first priority for policies is to avoid making the problem worse by adopting domestic policies that increase inflation, for example through expansionary policies. The second priority is the implementation of policies specifically targeted to protect the most vulnerable.
At the same time, it will be important to avoid any measures that could weaken Iraq's economic capabilities without addressing the problem. For example, measures that undermine the competitiveness of domestic producers and encourage imports will not bring significant benefits to vulnerable groups, if at all. This explains why countries with a fixed exchange rate have rarely revalued their currency in economic history. For the same reasons, it would not be advisable for Iraq to do so.
 
 * What should the government do to contain the social impact of inflation in Iraq?
 The rise in prices leads to the erosion of the purchasing power of household income and savings. Since more than a fifth of Iraq's population lives in poverty, protecting vulnerable groups from the effects of inflation is of paramount importance. To achieve this, the 2022 budget should prioritize strengthening targeted cash transfers to help the poorest families during these difficult times.
Continuing to improve the coverage of the social protection net will also contribute to ensuring that those who really need it most are helped.
Moreover, linking the increase in pensions and salaries of low-paid civil servants to inflation will contribute to protecting the purchasing power of their incomes and prevent them from falling into poverty. International experience has shown that such measures are most effective in protecting the livelihoods of vulnerable groups. 
 
* What should the monetary policy of Iraq and the Central Bank of Iraq focus on?
The main objective of the Central Bank is to maintain price stability, support growth, and maintain the stability of the financial sector. To achieve this objective, in the short term, the central bank should closely monitor domestic liquidity conditions to contain potential inflation expectations, while ensuring that sufficient credit is available to support a gradual recovery path. Continuing to build foreign exchange reserves will also contribute to strengthening and enhancing Iraq's ability to sustainably meet its external obligations. It will also be of paramount importance to advance banking sector reforms and enhance financial inclusion to support job creation in the private sector and achieve sustainable growth, during the next phase.
 
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52 minutes ago, NMP2017 said:

Sounds to me like all the Gov agencies solutions are saying to do is give more money to the poor...not to actually FIX their problems or their exchange rate so the people will have more in the long run!

 

Exactly.....DON"T fix it. Throw more money at it! Sound familiar?

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