Financial Strengthening of Iraq: Vision for the years 2018-2020


Crude oil imports dominate the order and movement of three major balances in the national economy: the current account of the balance of payments (the so-called balance of payments balance, which accounts for 98 percent of total foreign exchange flows).

As well as the federal budget as the oil revenues represent at least 92 percent of the total annual revenue of the public budget.

The final balance is the contribution of the oil sector to the GDP components, which range from 46 to 50 percent of the composition of that output.

While the non-oil revenues in the general budget estimates for the year 2017 amounted to 8 trillion dinars, of which (5.7 trillion dinars is the tax revenue, including: (4) trillions dinars direct taxes on property income and (1.7) trillion dinars taxes Such as customs and others.) *

If we exclude the oil resource from the three scales mentioned above, the country will go to a tripartite deficit complex difficult to dismantle in the short term because of the lack of diversity in the sources of national income.

Consequently, modern public finance of producer and exporter countries has created a benchmark for measuring the actual deficit inherent in the financial structure of highly leveraged economies called non-oil
balance- NOPB, ie the non-oil balance that expresses the amount
* Note that other non-oil revenues did not exceed 2.4 trillion dinars represent capital revenues (on the sale of state property, such as land and real estate) and conversion income (such as mobile phone license fees and exchange rate differences and recoveries
and others).

The total tax revenues are not more than 2 percent of GDP according to the statistics of 2016 and the income and property tax (direct taxes) is half the

In sum, total non-oil revenues in all cases did not exceed 5 percent of GDP, which is close to 8 percent of total actual budget revenues.

(Negative) if all public expenditures were subtracted from non-oil revenues (expenditures incurred on the oil sector should be deducted from total expenditure as well as debt services because they relate to the obligations of previous financial years).

Thus, the non-oil main balance in 2017 will be about (72) trillion dinars.

The deficit or negative sign is a sign that non-oil revenues account for only 5 percent of the country’s gross domestic product, while oil revenues account for 46 to 5 percent of Iraq’s GDP.

This has made the oil revenues increase by 9-10 times the non-oil revenues in the general budget, which means that the country is dependent on its public expenditure on oil revenues.

The lack of non-oil resources in the composition of the budget has become a serious financial threat because of the construction of the federal budget on the constants of spending is difficult to dismantle, especially salaries, wages and pensions and salaries of workers in state-owned enterprises (the unemployed

). As all salaries, wages and pensions are accounted for 50 percent of the total expenditure ceiling of the country’s budget, which is covered by oil revenues exclusively or through internal and external borrowing, especially during the years of the previous oil recession

Therefore, there is no choice for Iraq’s fiscal policy, but one option is to enhance financial resources in the short and medium term and to diversify the economy and national income through long-term development programs (Iraq 2030).
Therefore, the need to maximize the resources of the general non-oil budget needs to be aware of the following economic factors:

First: – Iraq is one of the high countries in government spending relative to gross domestic product by about 46 percent, which requires reducing this ratio in favor of the market economy and the role of the private sector in economic activity and the formation of aggregate demand.

Second: The country’s financial indicators still show Iraq’s dependence on oil revenues or expansion to cover public expenditure, which is unsecured resource, which requires a radical new financial reform in the composition of public revenues.

Third: – The opportunity to address unnecessary government expenses and expenses from support and extension to non-eligible and ended with the tax evasion equipment accumulated income and wealth far from the scope of public finances and social and economic goals.

Fourth: The burdens of the war on terrorism and the reconstruction of the regions of Iraq and the development of all areas of Iraq require a financial program is hardened and not intended to serve the direction of financial resources towards stability and development and address the manifestations of

2 – Features fiscal consolidation in Iraq
2018 – 2020 Fiscal consolidation
that in front of fiscal policy for Iraq today to look for opportunities binoculars resources of non – oil that make the principal balance is Alnafty- scale NOPD
objective of strengthening the financial adjustments required to control overhead and control and to maximize the revenue of non – oil level The following should be noted: a.

order to maintain the non-oil
main balance ( NOPD)
in the short term (at the level of one fiscal year) and then to take the decline in the medium term,

Fiscal consolidation
Which represents the set of policies adopted by the state at the national level or at the level of provinces and regions in order to seek to reduce the fiscal deficit and the accumulation of public debt balance.

In other words, work to reduce the deficit or reduce the increase in debt through restructuring expenses and reduce as much as possible and maximize non-oil revenues. Which is to make the non-oil main NOPD decline at a steady rate over the next three years from the current status of (- 72) trillion dinars 2017 to – (42) trillion dinars in 2020, assuming that the ceiling is stable at about (100 – 107) .

And that the rate of change in the main non-oil balance in the direction of reduction or reduction should be about 70 percent. Which means that non-oil revenues will be significantly improved, including taxes, fees, and various transformational capital revenues during the years 2018-2020.

B – Method of adaptation or financial reinforcement
There are practical steps to be adopted starting from the financial year 2018 and as follows:

First: the establishment of an account on behalf of the Public Debt Compensation Fund, to deposit any increase resulting from the improvement of oil prices above the target rate in the federal budget Is used to make up for any internal or external debts planned during the fiscal year or extinguish previous debts depending on the situation to be committed to the current prices estimated in the supplementary budget for 2017 of 44.4 dollars per barrel of oil exported during the period 2018-2020.

Public Debt Revenue Capitalism from the sale of land and real estate and state revenue and manufacturing promise from aspects of the financing of the fund account

Second: The adoption and expansion of outsourcing system at the level of customs outsourcing
Through contracting with international companies in order to ensure the efficiency of inspection and collection and customs clearance, which maximizes the sovereign resources of the

Lead to lower import costs and eliminate systemic and other corruption as well as maximizing public resources.

Third: The outsourcing system ‘s reliance on the tax system for units of small taxpayers
by granting licenses to companies civil outstandingly to open the collection of a tax that ports depends broken tax system Flat Rate
for small taxpayers to ensure the achievement and raise its efficiency and stay away from diligence and corruption, I do not mind the outsourcing outlets civil to assume collection For various other collections such as fees, municipal fees and

Fourth: Expansion of the system of partnership with the private sector in the distribution of electric power to be the year 2018 Finance is the starting point to cover all regions of the country. And included in the provisions of the Budget Act of 2018.

Fifth: Legislation the sales tax law by calculating the tax on the final value of the service, and to take the decisions and financial regulations gradual in order to avoid the complexity of the tax system for sales tax.

For example, food, building materials, etc. are exempted in the first stage.

Sixth: Improve the management of collection of fees (non-sovereign) and wages approved in accordance with Article 24 of the Federal Budget Law for the year 2017, on the establishment of a clear and transparent accounting system shows the movements of income and expenditure and disbursements at all spending units and provide the Ministry of Finance movement and calculation of the account

Seventh: To develop the fuel subsidy system and limit it to poor consumption classes through social welfare programs.
The state-owned and fuel-producing state companies will maintain a cost accounting system that will demonstrate the actual costs of production and avoid the "free ride" aspects of unrealistic profit collection due to the unrealistic pricing of refined crude oil and marketed internally.

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