The Iraqi government has begun a radical process to reform the economy through the white paper, said the country’s Deputy Prime Minister and Finance Minister Ali Abdul Amir Allawi, noting that 2022’s budget will include major reform steps.
In an interview with Majalla, Allawi said Iraq is currently negotiating with the International Monetary Fund (IMF) to support the reforms it is undertaking, adding that it might borrow between three and four billion dollars from the fund.
Changing the exchange rate of the dollar against the dinar has many benefits, he stressed. These include increasing investment requests to establish industrial projects after the collapse of the industrial sector as a result of the previous dollar exchange rate, which supported imports while negatively affecting local products.
Below is the interview:
Q. How did the government face the financial and economic challenges in Iraq after the spread of the coronavirus?
Iraq went through exceptional circumstances during the pandemic, which caused a decrease in the demand for oil and a drop in its prices. The government is also responsible for fulfilling the commitments made by the previous government during the popular protests in 2019.
Therefore, this government started its work without any financial source and with a billion dollars in its treasury, especially since the virus has contributed to an increase in unemployment rates and the loss of job opportunities.
However, we have an integrated program to reform the economy, represented in the White Paper.
We have embarked on a profoundly radical economic reform process, which started with enhancing government performance.
We cannot create a supportive environment for the private sector without changing the role played by the state in the economy, increasing the productivity and improving the performance of the public sector.
The government may give exemptions and incentives to the private sector, but these can’t be handled by the public sector.
We first carried out reforms in public banks, customs and taxes since the reform usually begins from the finance ministry.
We managed to present a long lasting reform program that should be adopted by the next government as it aims to create balance between oil and non-oil revenues.
Q. Will the 2022 budget be a reform budget?
The strategic committee established to prepare the budget held more than 20 meetings and prepared a budget for the year 2022 and the next three years. It will be submitted to the next parliament, which will be formed after the elections.
It is a reform budget aimed at changing the economy for the better. It prioritizes paying the salaries of employees, retirees and social welfare, in addition to reforming other sectors and financing projects.
Iraq does not lack resources but rather suffers from their poor distribution and management. Resources have been wasted due to the wrong policies approved in previous years.
Therefore, we launched a model budget aimed at creating a private sector capable of managing the requirements of the modern economy and playing its actual role.
Q. Has the finance ministry started reforming the public banking sector?
The ministry began reforming the Rafidain Bank, which constitutes 80 percent of the public banking sector.
We have restructured, changed the internal system and cut off the connection of the bank’s board of directors with the finance ministry since half of its members follow the bank manager’s orders.
We also introduced the concept of governance. But this process takes years because it involves training employees, merging branches and introducing the digital system, all of which are carried out in coordination with the Central Bank.
Q. Why does not Iraq have a new tax law yet?
Any legislation in Iraq needs time to be approved, and it may not be approved at all. We cannot but introduce government reforms in the budget law, which is binding for one year only.
Some basic issues require legislation, and we cannot evade them, while others require approval by the cabinet to be passed.
We are currently working to reform the tax system in Iraq and avoid popular opposition, which may hinder its implementation.
The tax system is part of the reforms introduced in the White Paper, so it is necessary to secure exemptions for investors, being part of the stimulus policy.
We are currently focusing on automating taxes, raising the level of efficiency of employees in this regard and enhancing tax collection. These require three to five years to be implemented since Iraq is one of the countries with the lowest rates of tax revenues.
Q. Did the new dollar exchange rate serve the economy?
The exchange rate of the US dollar against the dinar represents the economy’s shell. The previous exchange rate mainly benefited the importers and contributed to the decline and disappearance of many economic sectors, so it was supposed to be reconsidered.
After changing the dollar exchange rate, requests for industrial investment licenses increased. Investors have been taking advantage of the new exchange rate, which contributes to creating a competitive atmosphere.
The Ministry of Finance allocated sums of funds in this year’s budget to support the segments affected by the new exchange rate, especially since this change was accompanied with change in global prices, which contributed to the hike in the prices of some commodities internally.
Q. Why is the relationship between Baghdad and Erbil still tense economically?
The 2021 state budget law stated that the Kurdistan Region delivers 250,000 barrels of oil per day to Baghdad and half of the non-oil revenues, but the region did not adhere to its commitment.
According to the data obtained, 60 percent of Iraq’s imports pass through the northern ports, making them not subject to the customs tax system implemented in other government outlets in southern and central Iraq.
Q. Why did the Ministry of Finance send money to the Kurdistan Region?
The ministry voted ‘No’ - it was the parliament’s decision to send 200 billion dinars ($138 million) to the Kurdistan region for humanitarian purposes.
We need the cabinet’s approval to send another amount to the region.
Q. Will Iraq borrow from the International Monetary Fund?
Negotiations with the IMF began in late 2020, when the country needed financial support. But our financial situation has improved after the rise in oil prices and the positive impact of the rise in the dollar exchange rate.
Iraq needs support for its reform policy, and the IMF could be able to provide this support through one of its programs. We may get a loan of three to four billion dollars.
Q. Why did Prime Minister Mustafa al-Kadhimi’s government decide to sign economic deals with Egypt and Jordan?
The Egyptian and Jordanian markets are similar to Iraq’s. The region could later be transformed into an economic zone and include other similar markets, represented by Lebanon and Syria.
It is difficult to link Iraq’s economy with Turkey, Iran or the GCC due to the disproportion, since the Iraqi market is relatively small.
Q. Why does the Ministry of Electricity always accuse the Ministry of Finance of being the reason behind the electricity problem in the country?
The finance ministry disburses the funds after being allocated by the Ministry of Planning, and in the absence of any allocation, we cannot disburse any amount. Therefore, it is wrong to accuse our ministry.
The Ministry of Electricity faces many problems, including gas contracts, the operation and production of stations, in addition to the transport, distribution and collection.
It is noteworthy that there are over 200,000 employees in the ministry, which adds a great burden to its challenges.
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