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The Impact of the International Loans on the Iraqi Economy


The Impact of the International Loans on the Iraqi Economy

The Impact of the International Loans on the Iraqi Economy  is the subject of the seminar that was held by Tammuz Organization for Social Development in cooperation with Friedrich-Ebert – Iraq and Jordan office. The seminar was held  at Inlil hall in the International Babylon Hotel on  Wednesday afternoon,  25th of January ,2017. The seminar started with welcoming statements by our colleague Vain Alsheikh Ali , the president of Tammuz Organization for Social Development, who welcomed the attendance, which included most of the governmental sectors such as parliament , government, academicians, economists, banks, businessmen, labor unions , NGOs, and media, reflecting the importance of the economic situation and its impact on Iraq and Iraqis.
In her speech, our colleague Vain pointed out that Tammuz Organization undertook the task of discussing the economic issues by holding a series of workshops and seminars, which have started since the Summer of 2016 and will continue during this year. The aim is to address the economy problems and find solutions to achieve the economic growth, which is intended to achieve  justice and social development that our organization works for. “ the aim of our seminar today is to provide this opportunity to experts to identify  the reasons for the international loans that Iraq has resorted to , their amounts , beneficiary sectors, how to redeem these loans, advantageous and disadvantageous on the individual life and society such as education , health, poverty, and unemployment,  as well as their effects on the future generations due to the  burden these  loans put on Iraq” she said.
Moreover, Mrs. Anja Wehler, the Resident Director of  Friedrich-Ebert – Iraq and Jordan office, expressed in her welcoming speech the interest  of her institution in  democracy- enhancing issues, and social justice through  participation and conducting of such  activities. She also raised questions  about the importance of knowing which sectors are going to receive loans, the  benefits  of these loans to Iraqis after all difficulties, and   economic and security challenges.

The seminar schedule started by the chairmanship of the economist Basim J. Antowan , and the valuable participation of  Dr. Mudhhir M. Salih, Prime Minister’s Advisor for financial affairs, Dr. Majid Alsoury, financial expert and member of the Central Bank board , Dr. Izzat S. Ismael, member of the Financial and Economic Committee in KRG parliament . At his introduction, Dr. Basim said “ the subject of international loans is a big issue  which needs a sound management to deal with in order to payback the loans without resorting again to loans through the  use of man power , qualified people, the use of  effective means to upgrade economy, improving banks activities , encouraging people to deal with  banks for the important role they play in attracting saved money which is away from banks and investments.”
Later, the main interventions  of the seminar started. The first speaker, Dr. Mudhhir M. Salih, clarified that Iraq did not resort to loans haphazardly but due to a dire need after hard economic circumstances and challenges; the most clear of which are the collapse of oil prices and the war on Daesh, which cost Iraq more than 40 billion U.S. dollars .He also clarified that Iraq went to loans only after advice from international institutions to cover Iraq under a multilateral  international financial umbrella.
Based on this fact, Iraq approached the International Monetary Fund and World Bank and entered into an alliance and agreement titled stand-by arrangement known as (SBA) , which imposes strict commitments and conditions, but, it is in line with the economic reformation that we seek such as improving the financial performance, enhancing financial governance, monitoring the operation of the Iraqi Central Bank through amendment of its law , auditing the state accounts, managing cash flow, amendment of the financial management , amendment of the commission on integrity law,   following up  and restoring smuggled money.
Dr. Mudhhir explained in detail how Iraq has mitigated the economic crisis through  the international loans . He pointed out that the IMF drew up a roadmap to face the expected deficit  in the budget for the years 2014-2015-2016, which was estimated to 50 billion U.S. dollars, in addition to the needs of Iraq to keep a financial sustainability to keep meeting  its needs of activity, rebuilding, war, and salaries, etc.
Iraq, in order to face this deficit, received a loan of 3 billion dollars from the World Bank  to be paid back at an interest rate of 2% within a period of 18 years. Iraq also borrowed from IMF an amount of 5.3 billion dollars with an interest of 1.5% for 5 years. In addition, the G7 largest industrialized states granted Iraq easy loans up to 4 billion dollars in response to a support call raised by these countries in Tokyo conference for solidarity with Iraq. Moreover, Kuwait delayed the collection of its accruals remaining from  the compensation it gets f Iraq war against it which is amounted to 4.6.billion dollars. We also have got 2 billion dollars as aids from other countries. Accordingly, nearly an amount of 20 billion dollars has been provided to Iraq against an expected deficit of 50 billion dollars. With regard to the remaining deficit which is amounted to 30 billion dollars, the repayment is built on three ways, namely the improvement in oil prices , internal borrowing, and restructuring the financial engineering . These are internal requirements Iraq has to work with.
With regard to 2016,  the total expenditure is estimated at 81 trillion dinars , which means 90% of the execution of  the budget; the deficit in which was estimated at 25% , and  when the budget is made  it will turn out that the deficit has decreased to 15%.
The total external loans for 2016 has been estimated at 3.8 trillion dinars, whereas internal borrowing at 5.11 trillion dinars , these loans have helped Iraq to pay for  the deficit which is estimated at 15% in 2016.
It is important to know that each Iraqi citizen’s share in the payment of the total debts is amounted at 3500 dollars, in return the Iraqi citizen has to pay taxes estimated at 200 dollars per year.
Then Dr. Majid, member of the Central Bank board  spoke about the historical development of the Iraqi debts pointing out that Iraq had a financial surplus of 35 billion dollars before 1980 and became indebted with 42 billion dollars after the war. There was another  opinion, because no exact statistics  were available, about the real amount of those debts estimating them  at 80 billion dollars. The debts have three stages; the first is the Iranian war stage, the second stage is the Iraqi invasion to Kuwait and  consequent united nations’ resolution which force Iraq to compensate for all damages resulting from the war. At the blockade period, Iraq was isolated from the rest of the world, which meant that it could not be able to obtain international loans , but there are some views that assert that Iraq had borrowed more than 50 billion dollars.
As for the third stage, which started after 2003, it is divided into two periods the first of which until the mid of 2014. At this period, the oil prices had increased and enabled Iraq to decrease debts, thanks to international efforts and a good settlement, and to pay off 69 billion dollars  out of 125 billion. This helped Iraq to gain international credibility and entered  the international classification.
The second period of this stage, is the period after Daesh invasion and the war and devastation it caused since the mid of 2014. As a result, the total loans amount was 101 billion dollars   at the end of 2016; external debts amount  was 60 billion and 41 billion as internal loans. Iraq as a result of these conditions could not be able to pay off the debts but it only managed to payoff the interests.
In 2017 the amount of the expected debt  would be 164 billion dollars as internal and external loans, and KRG debt  which would be  expected to  be 40 billion dollars.
Concerning the debts , Dr. Majid clarified that the cause of debts was the absence of a vision and strategy, plans, good governance, and coordination among Iraqi institutions, not to mention the spread corruption throughout the state’s elements. All this happened because of the failure   to apply the constitution articles pertaining to the economic and financial duties of the government, failure to apply the financial management system despite its disadvantages, but even the budget was not applied correctly.
Debts cause a lot of money to be away from economic and social development process which requires the reconsideration of all administrative policies and activation of the private sector to assume its role in solving economic and social problems and achieving economic development and social justice, otherwise debts would increase even if oil prices, which forms 99% of Iraq’s revenues, increased.
A glimpse of hope came from the intervention of the economic expert Basim J. Antowan who said “matters are not so tragic to this extent, and hope exists by achieving economic advancement, if modern methods are adopted, notably the absence of statistics prevents us from knowing a lot of  resources  and revenues which have not been declared”. According to his opinion , for example, if the total revenue was estimated at 100 billions, it might be expected to be 300 billions because many sectors such as agriculture and  building weren’t registered , in addition to the availability of youth staffs who suggest brilliant ideas and projects.
The last speaker was Dr. Izzat Sabir , member of the Kurdistan parliament , who spoke about the financial commitments of  KRG and  Iraq,  the political and economic disputes between these two parties, and the claims of both to have  the right and each one claims to have financial commitments with the other, stressing that loans should be for all Iraqis in terms of benefits and payoffs, and that spending loans in fields other than developmental projects would put a heavy burden on Iraq in the future.
Then the floor was opened for discussion and listening for interventions and the questions of the audience who enriched the seminar with information and interactions most important of which are as follows:
- An inquiries about plans and payoff mechanism of loans without resorting to other loans under the oil prices and fears of dropping in these prices. 
- Inquiry about the fate of the private banks deposits at the central bank of Kurdistan region which are in seizure  for three years , the matter that affected the work of the banks and cash flow.
- An intervention about alternatives finding , diversity of revenues , and revitalizing the industrial sector; Iraq has 250 important plants, 20 of which   only were referred to investment and the rest are out of work.
- A Reference to  the increase of poverty levels which are bound to increase because of loans and conditions of the international parties.
- Inquiry about the vagueness in the armament contracts
- An intervention about the negative impacts of the international loans and damaging consequences they cause, examples were given about international experiences in this regard.
- An inquiry about the seriousness of the government to find solutions to the economic problems and how it gives exemptions and economic felicitations to neighboring countries while Iraq is passing through this crisis.
The speakers  answered most of the questions  and, at the same time, extended their thanks to the audience for their attentive listening and interaction. At the end , Professor Basim J. Antowan summarized the main suggestions and recommendations.
Main Recommendations
- Applying the constitution  terms pertaining to the economic and financial duties  of the government
- The importance of  establishing a statistical system to address financial and economic aspects; its absence caused Iraq a considerable administration gap 
- Reconsidering of all administration policies with the activation of the private sector’s role to assume its position in solving economic and social problems and achieving economic, development and social justice.
- Empowering  economic journalists because for the  lack of economic media.
- Combatting widely spread  administrative and financial corruption
- Directing loans to the societal benefit through developmental and investment projects.
- Developing of banking sector and making use of the personal not - invested money
- Opening branches of the central bank in KR
- Initiating actual reform measures in the field of enhancing monitoring and financial governance .
- Developing agricultural and touristic sectors as well as diversifying income resources.
- Availing of youth powers and adopting scientific modern methods capable of developing the economic system.
It is worth mentioning that the seminar was remarkable for the quality audience who exceeded 140 participants including two Iraqi parliament members, namely Mra. Rezan Sheikh Diler and Mrs. Rihab Ni’ms as well as governmental, banking, academic , researchers , civil, and businessmen representation. Moreover the seminar witnessed  a large attendance by labor unions and a good media coverage which indicated the important nature of the topic for Iraqis.

Media Office
Tammuz Organization for Social Development
29th Jan, 2017

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