Governor of the Central Bank of Iran (CBI) unveiled plans for using a joint mechanism with Iraq to purchase basic commodities and items excluded from the list of anti-Iranian sanctions.

Iran’s top banker Abdonnaser Hemmati, who is on a visit to Iraq with a ranking economic delegation, held a meeting with his Iraqi counterpart Ali Mohsen Ismail al-Alaq.

In the gathering, held on Wednesday morning, the CBI chief stressed the need for the promotion of monetary and banking cooperation between Tehran and Baghdad and the employment of a joint mechanism to expedite the process of supplying Iran’s needs for basic commodities.

Hemmati also pointed to the previous agreements between the two neighbors, saying Iran will be using its resources in Iraq to buy non-sanctioned and basic commodities.

In the meeting, representatives of the central banks of Iran and Iraq were tasked with working out the joint mechanism in detail to put it into practice.

In February 2019, governors of the central banks of Iran and Iraq had signed an agreement to develop a payment mechanism aimed at facilitating banking ties between the two neighboring countries.

(Source: Tasnim, under Creative Commons licence)

The Iraq Energy Institute (IEI) has published an interview with Dr Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund; it is re-published with permission by Iraq Business News:

In the latest instalment in our series on sustainable job creation in Iraq, we spoke to Ahmed Tabaqchali, visiting fellow at the American University of Sulaimani’s Institute of Regional and International Studies (IRIS). Mr. Tabaqchali is also CIO of Asia Frontier Capital’s Iraq fund and Board Member of the Credit Bank of Iraq. Additionally, he has decades of experience in finance, having also worked with the National Bank of Kuwait’s investment arm.

In our last interview, we spoke with World Economic Forum contributor and distinguished economic historian Ewout Frankema, who discussed the role of the state in job creation.

This month we take a different tack and hear Mr.Tabachali’s views on the role of finance and markets, Iraq’s early efforts mobilizing financial technology (FINTECH) for the unbanked and kickstarting small and medium-sized enterprise (SME) growth.

AT: In terms of strategy, everything the new government will have to do has to go through parliament, including accessing foreign loans and reforming the public sector. When it comes to Iraq it is not a question of how strong the institutions are or how competent individuals are, it is a question of passing this through parliament with all of its political fragmentation, between the different pollical parties and within each party between its leadership and members, all of which makes reaching a consensus to embark on real, and thus difficult, reforms very hard. However, the scale of the crisis, brought by COVID-19 both socially and economically, might act as a catalyst for real change.

What is the current risk with having so much of the hiring in the public sector and what might be done to minimise this problem?

AT: Some things have to be done now that are comparatively easy and have been done in the past. Ad hoc measures such as freezing new hiring, cutting staff through attrition, putting a cap on benefits and letting this cascade through every department. This worked last time to a limited extent. But these changes are small scale, easily reversible and they do not solve the wider problem.

One problem is that you cannot have every ministry manage its own human resource processes, there is a need to have a central human resource structure. One course of action could be to separate benefits from salaries and link them to performance. This may sound horrendously complicated but on the public sector side, there is a little alternative. I don’t subscribe to the idea that this is a crisis that will pass, it is a multi-year crisis, a lot of oil demand will come back, but I cannot see a recovery anywhere near the pre-COVID situation.

Iraq is now not only battling a difficult internal situation but a weakened global economy. We are not just talking about a major disaster in one sector only. Consider such effects on hospitality and tourism; that will affect entire countries dependent on tourism, and then consider the knock-on effect on other sectors: what does that do to worldwide aggregate demand? What does that mean to Iraq? It means that oil prices will recover but they won’t be anything sustainably higher than $50 or $55. This points to the need for a complete change in mentality within the Iraqi governing elite and indeed, society at large.

Within Iraq, the government has very limited space to manoeuvre. If you look at Central Bank data on bank lending to the government and on T-Bill issuance, we survived in 2014-2017 through using reserves, via indirect monetary financing, and government bank lending. But while some of that has been paid off, CBI data as the end of November 2019 show that total domestic debt has increased to the prior crisis’ peak. So, I cannot see that being repeated, not in the same way as then. This time, I struggle to see the state banks’ lending beyond a few billion. The reserves are there but not un-limited and then there are conditionality constraints on any upcoming IMF loans. So, there will be no waiting out this crisis, there has to be decisive reform.

What danger is there to the SME sector, in terms of constrained available credit from banks, given this lending is important for start-ups?

AT: For the private sector banks, if you look at the end of 2018’s data, there is something like a $9 bn deposit base, 70% of which is in current accounts, so they can’t lend more than one-third of this, maximum. So, you can’t look to the private sector for state loans. That leaves the state banks, and they are so undercapitalized, burdened by un-resolved legacies of the prior regime, they function by a miracle or by pushing the accounting rules’ envelope. For example, you have an asset that is no longer a creditworthy asset, but you leave it on the books without making realistic downward adjustments to its value and without taking sufficient provisions. So that room for manoeuvre is very limited. Iraq has the foreign deposits at the Ministry of Finance, there is about $6bn there so there are some available funds here and there to meet immediate needs, but how far will you go with that? The need for the state to access domestic debt will eventually place restrictions on available funds for the SME sector.

Iraq is sliding towards a danger zone, a crunch point with foreign reserves where there is a risk of currency devaluation.

AT: Yes. And one problem here is that the last government, to appease the October demonstrations, hired additional employees and lowered the retirement age, adding at least another $6bn to the salary and pensions outlay which is now baked into the current budget. So, the $44bn in salaries and pensions in 2019, is more like $50bn for 2020. Similarly, the $73 bn spent on current expenditures, which also includes transfers to SOE’s, social security and subsidies for fuel and energy, is now more like $80 bn in current expenditures. How much can you cut from that without real restructuring?

So Iraq is facing an emergency situation to mobilise the private sector and there is a risk state banks may have limited room for lending to SMEs. One thing Iraq can do perhaps is maximise export finance and partnerships with foreign banks for SME lending, such as the recent scheme with Commerzbank. And of course, the Iraqi government has its own fund for this, the One Trillion Dinars initiative.

AT: There is no doubt that these initiatives are vital for new business ventures. The issue is structural impediments that are limiting these schemes. Access to finance is very crucial for start-ups to work, but in order for these organizations to operate you need to remove the stifling regulatory environment. The arbitrary nature of taxes, the expenses involved in just setting up and the many bureaucratic steps required to get started. So at the moment many of these start-ups are informal. The only way for these schemes to work is for them to start in the informal sector.

But they can’t make the transition to formality because the process to attain that status is so complicated and expensive, to start and to maintain. We always talk of mobilizing the private sector, but we are throttling it on a daily basis. Look at the UAE for example, they have the Free Zones, a very low time required for company registration, but with Iraq it is a stifling number of procedures.

The solution as far as the Iraqi government are concerned sadly seems to be another level of bureaucracy. In order to mobilise more start-ups, the government following the October demonstrations allowed for 18-35-year-olds to have fast-track separate set of regulations for start-ups in certain industries. So, the same bureaucracy will handle two parallel categories. You open up the door for even more corruption with more bureaucracy.

Every country, of course, has bureaucracy. But we have absurd requirements on top of the usual. Even just very small things, like paying a bill, can be a nightmare. And this is the legacy of formal socialism.

You are saying that in Iraq, socialism is not simply a term to be used as a political label, it is a word that is formally used in laws that are still on the books from decades ago.

AT: That’s right. So what Iraq needs is a change in the political economy. Look at the informal sector -it is mostly in retail, such as hawking goods, and in hospitality such as restaurants, and not in productive sectors. It’s informal because it is so expensive to start up formally. Change the regulations so it is more like the UAE, give them a year’s amnesty before you implement a much easier, formal registration process. These businesses hide because the only way they can operate is by bribing various officials. An amnesty would free them from harassments and un-necessary expenses during the transition to sensible regulations. The government needs to do something that is drastic, and very different from the past, to mobilise the private sector.

You can’t have a top-heavy, authoritarian socialist bureaucracy creating jobs or opening up the private sector. During the Kuwait conference, Iraq’s National Investment Commission came up with the One-Stop-Shop initiative – more bureaucracy on top of the bureaucracy. Why not follow the Kurdish Region of Iraq’s approach? Just get a visa on arrival for certain nationalities. That is the direction we need to be going in.

There has been a growing relationship between telecoms and banks in Iraq to provide services such as mobile wallets. Some of it is Iraqi initiative, some of it is fostered by development agencies. Perhaps one danger now is that if public sector payments are digitized, the salaries are still in jeopardy. How important have these FINTECH developments been?

AT: This is where we will see a lot of growth and excitement. One barrier to further progress is not technological. We have decent internet so the issue is firstly, we need to increase the number of areas where these innovations can be used. Right now they are quite limited. I am thinking of using a mobile e-wallet but I have to go to an official shop in town and register, supply the required set of documentation, and once you use it, the places you can use it in are rather limited. A part of the potential in this technology is that it will make it difficult to cover up small scale corruption, which is easy with cash. But there is still a chicken and egg situation in terms of outlets where e-wallets can be used.

So we could say in the long run, the public demand for convenience may crowd out the demand for corruption?

AT: Yes, and in the long run, it can have a huge effect on the “unbanked” and that will have huge potential for job creation. I have some relatives in government who started receiving their salaries through their banks, and their usage followed the same patterns seen by those in the private sector who were provided with Bank cards as I learned from speaking to bankers. At the beginning where there was an ATM when salaries were dispersed the ATM would just empty as people used it as a cash-out outlet. But in time they started leaving money in the bank and starting using the cards for making purchases. So, the cards have been extremely useful in the transition away from cash.

Similarly, for the government’s initiative when the card/ e-wallets were linked to a Mastercard, people started keeping some funds on the card. In the process they were creating deposits, giving the bank the ability to lend as these deposits grow and become sticky. So, there is convenience and value there, and that could spark wider financial development. But there needs to be a bigger deposit insurance scheme in banks, more than the very small $25,000-dollar limit recently introduced. But in the long term, this is extremely exciting. And these are the reforms that need to be pushed, and they should be COVID-inspired reforms because this is how Iraq gets out of its nightmare.

Would you say then, this is not about what the government needs to do but in some ways, about what the government should not do?

AT: I agree although of course there is a vital role for the government in general. The government should ensure there are law and order. Without that, a business cannot run, they need reliable mechanisms of exchange, debt and credit, and the enforcement of contracts. That is only done through law and order. It doesn’t have to copy a Western model either, but what is needed is the monopoly of violence by the state, and its monopoly to enforce the law, i.e. when rules of the game are predictable, enforceable, and applicable to all. Other competencies of the government are in infrastructure. Roads and electricity are enablers, as well as education and healthcare. Healthcare is a great equalizer, at least with decent healthcare you are helping the most vulnerable, and in the process building the state’s legitimacy. And if the government focuses on these and opens up the private sector, it will flourish.

(Source: IEI)

The Iraqi government says Iraq faces an immediate challenge caused by the decline in oil prices and the impact this has had on the economy and fiscal liquidity.

Officials say that the impact of the fall in oil prices is compounded by other weaknesses caused by decades old policies of a command economy, and by the approach to the economy by successive Iraqi governments over the past seventeen years.

These policies, they add,  have led, amongst other things, to an exponential increase in the size of the public sector, low levels of private investment, mismanagement and administrative corruption.

According to official figures, salaries and staff allowances in the public sector constitute approximately 60% of public spending, and this does not include other expenditure on daily activities of ministries, while spending on investment projects represents 2% of the budget.

The figures show that the number of people employed in the public sector in 2005 was around 850,000, but the number of state employees has risen to more than 3 millions now, and this figure does not include contract employees or those on daily rates, costing Iraq US$36 billions annually, a ten-fold increase from US$3.6 billions annually a few years ago.

The new Iraqi Cabinet announced the establishment of the Emergency Cell for Financial Reform to lead the response to the crisis, under the chairmanship of the Prime Minister, and with the membership of the Ministers of Finance, Foreign Affairs, Planning, the Governor of the Central Bank, the Secretary General of the Council of Ministers, and other officials as nominated by the Prime Minister.

The Cell’s mandate is to ensure financial liquidity, agree measures to rationalise public spending, diversify resources, and propose finance mechanisms for reconstruction and investment projects from outside government funding streams.

As well as rationalising public spending, the new Iraqi government says it will embark on an economic reform programme in Iraq that includes:

  • Supporting the expansion of the private sector and encouraging investment
  • Introducing automation and simplifying procedures in the public sector
  • Adopting a single budget account to monitor spending by ministries to reduce waste and corruption
  • Expanding the electronic payment system for salaries, and pressing ahead with the e-government project
  • Rebalancing Iraq’s economic relations with all neighbouring countries

Earlier this month, the Minister of  Finance, Ali Allawi, said that cutting spending was essential, and that this will include reductions to the the benefits and allowances of state employees, including those of senior officials, but he stressed that the basic salaries of employees will not be reduced, and that any cuts will not include employees or pensioners who earn 500,000 dinars or less a month.

(Source: Govt of Iraq)

KAPITA has compiled a study about the economic effects resulting from the COVID-19 Pandemic.

The research aims to provide insights and recommendations to tackle the challenges and opportunities that currently face the various segments of the Iraqi market. This will aid governmental organizations and authorities in devising effective policies to make a faster economic recovery.

Our team studied the magnitude of the current economic crisis resulting from plummeting oil prices and the preventive measures taken against the virus. The research surveyed over 500 people from various professional backgrounds such as public and private sector employees and business owners. Also the research includes insights from experts from a range of fields such as finance, economy, construction and business development.

The study discusses attitudes towards the financial situation and the extent of the impact on different sectors such as, Energy sector, Travel sector, E-commerce, Banking system etc.

Here are some key highlights from the study ‘Surviving the COVID-19 Crisis: Preliminary Findings of the Economic Impact on Iraq“:

  • More than 30% of respondents had their salaries cut-off and over 25% were laid off, stopped working or closed their businesses.
  • Over 27% of the respondents said that their savings would last between 2-4 weeks.
  • Public sector employees are considered to be in a better financial position while a heavier toll was inflicted on private sector employees.
  • Over 40% of employers believe that 1-3 months will be needed to recover from the crisis and 50% of employers believe that zero interest loans could help in a faster recovery.
  • 90% of e-commerce and delivery services were paralyzed due to the curfew imposed.
  • Around 70 private bank activities have been limited due to government debt, and shortage in liquidity affecting revenue, deposits, and profits.

KAPITA’s research team deeply thanks and appreciates its partners who majorly contributed to the completion of this study. We sincerely thank Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) for being an outstanding enabler for us, Iraqi Innovation Alliance (IIA) for their contribution in data collection and Iraq Business News (IBN) for being our media partner.

We would like to thank all the people who filled out the survey and contributed to the shaping of this study to highlight the impact of the COVID-19 crisis on Iraq’s economy.

KAPITA’s research team would like to express its deep gratitude to the interviewees for their help in making this research possible (The following order is the order of the interviews):

  1. Ammar Al-Khatib, Executive Director of The Station
  2. Anas Morshed, Economics Blogger & Business Development Consultant
  3. Mahmoud Al-Daghir, Former Director General of Financial Operations and Debt Management, Central Bank of Iraq (CBI)
  4. Samir Al-Nosery, Banking & Economics Consultant
  5. Tamara Hussein, Head of Traders at Rabee Securities
  6. Omar Salam, Secretary-General of Engineers Syndicate
  7. Abdul Ghani Al-Hassani, Financial Expert & Investment Manager at GroFin
  8. Ayser Jabbar, Media manager of the Central Bank of Iraq (CBI)
  9. Hyder Zahid, Financial Advisor at PMO
  10. Ali Sabeh, President of the Iraqi Federation of Industries
  11. Hamid Ridha, Owner and CEO of Royal Nuts Company.
  12. Mustafa Sirri, Business Environment and Policy Development Advisor in the PSD project of GIZ
  13. Zuhair Sabri, Secretary-General of the Iraqi Contractors Federation
  14. Ahmed Tabaqchali, Senior Fellow at the Institute of Regional and International Studies (IRIS)
  15. Alaa Jassim, Vice President of Earthlink

Please click here to download the full report.

“So, that's not the dinars which are counterfeit, but America's statements,” the Russian foreign ministry said in a statement. The parallel central bank in …

The Cabinet held its regular meeting in Baghdad on Tuesday under the chairmanship of Prime Minister Mustafa Al-Kadhimi.

At the start of the meeting, the Prime Minister told the Cabinet that this Iraqi government came to office to address the challenges facing the country, combat poverty, reduce unemployment among young people, and deliver a fair distribution of wealth.

He said ministers and government officials must not show favouritism or tolerate political interference, and that everyone must focus on implementing the government programme and on building Iraq‘s state institutions.

Prime Minister Al-Kadhimi paid tribute to Iraq‘s armed and security forces, saying that they had endured and sacrificed much, and that the authority of the military and security institutions must be restored.

The Prime Minister reaffirmed his commitment to protecting the right to protest, adding that he will not tolerate any act of aggression or violence against protestors, and that the government will work to fulfill their legitimate aspirations.

The Prime Minister concluded his remakes by saying that “we will not compromise on the dignity of our citizens, or the interests of our country.

Following discussions, the Cabinet decided the following:

  •  Establish the Emergency Cell for Financial Reform under the chairmanship of the Prime Minister, and with the membership of the Minister of Finance, the Minister of Foreign Affairs, the Minister of Planning, the Governor of the Central Bank, the Secretary General of the Council of Ministers, and other officials as nominated by the Prime Minister. The Cell’s mandate is to ensure financial liquidity,  agree measures to rationalise public spending, maximise resources, and propose mechanisms for reconstruction and investment projects from outside government funding streams
  • Direct government entities to submit plans for the rationalization of their administrative structures
  • Press ahead with the e-government programme and with the automation of procedures, especially in the areas of customs and tax collection
  • Conduct a review of all draft laws related to combating corruption, strengthen the role of the Integrity Commission and the Federal Board of Supreme Audit
  • Mandate the Ministry of Planning to conduct a review of the process of awarding government contracts and the basis for agreeing and selecting investment projects
  • Provide the necessary staff to enable the Federal Service Council to carry out its duties
  • Expedite the draft legislation of the general Federal Budget Law
  • Expediate the completion of the draft oil and gas law
  • Mandate the Ministry of Labour and Social Affairs to submit proposals within a month to increase the number of people entitled to social security benefits
  • Authorise the Reconstruction Fund for Areas Affected by Terrorist Operations to establish mobile hospitals to quarantine and treat patients with Covid-19 in regions to be agreed with the Ministry of Health, and to fund this project through the grant from the German Development Bank

The Cabinet also discussed proposals for a freedom of information law and other policies.

Click here for details of the Iraqi government programme.

(Source: Govt of Iraq)

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Market Review: “Lockdown Iraq & the month of Sundays”

Iraq, like other countries, went into full lockdown on March 16th that was only partially lifted just before the fasting month of Ramadan – in which activity is normally subdued. Unlike many countries, Iraq went a step further in that its lockdown included its whole financial sector.

In particular, the Central Bank of Iraq (CBI) and the banks that it regulates suspended most activities during the lockdown. In turn, this negatively affected the availability and circulation of the USD in the country’s cash dominated economy – where about 85% of the currency in circulation is outside the banking system.

The CBI conducts five daily USD auctions every week to facilitate foreign trade transactions (transfers or green bars in the chart below) and to satisfy the need for physical USD for Iraqis travelling abroad (cash or red bars in the chart below). The closure of this facility over the lockdown period, and its much-reduced frequency following that, have naturally resulted in an unmet need for USD and hence a rise in its price in the market versus its official price.

Typically, the market price of the USD is at a premium to official prices, but spikes higher during periods of uncertainty or crises – the last of which were the momentous events at the start of the year that raised the feared spectre of a US-Iran proxy war fought in the country. This premium began to spike, and stayed at elevated levels, as the lockdown came into full effect as can be seen from the chart below.

(Source: Central Bank of Iraq (CBI), Asia Frontier Capital. The CBI did not provide market prices on March 16th-April 21st, so the chart assumes gradual increases in prices in this period)

Consequently, this affected the market price of the physical USD which normally trades at a further premium of 2-4% over the premium discussed above (i.e. the gold/brown line in the above chart). This extra premium widened, as it does during spikes, and is now about 8-10% and remained at these elevated levels by the CBI’s ceasing of its offering of physical USD in its currency auctions from mid-March (above chart). In a country in which the dissemination of economic updates is poor and trust in the government is very low, rumours come to the fore and drive perceptions and subsequently fears.

One such rumour that dominated perceptions was that sharply falling oil prices were resulting in major USD shortages at the government level and it was thus conserving its reserves by stopping the flow of physical USD. This line of thinking has some merit as it takes its cue from a similar pattern during 2014-2017’s twin crises of the ISIS conflict and the collapse in oil prices. However, then the CBI restricted the supply of the USD during its auctions but didn’t stop either transfers or cash offerings. As it turned out, the physical USD offerings were halted as no foreign travel was taking place, given that they are meant to satisfy the needs of individuals’ foreign travels.

Rumours of a USD shortage aside, the weakening of demand in the economy is evident as seen from the smaller volumes of transfers in the currency auctions during late April, and from the “Community Mobility Reports” provided by Google. These are based on data from mobile phone users who have opted-in for “Location History” on their Google accounts. These users provide a reasonable population sample given the high levels of mobile penetration in Iraq (chart below) – more so given the high combined Samsung/Huawei market share, a proxy for Google’s Android system, which is about 75% in mobiles – and thus should provide a reasonable picture of economic activity during the lockdown.

(Source: Statista)

While every sector of the economy has felt the effects of the lockdown, the informal sector – dominated by retail trade, transport and hospitality, and which accounts for the bulk of private-sector economic activity in Iraq – has been particularly hard hit as can be seen from the chart below, which shows changes in activities compared to the baseline January 3rd-February 6th.

(Baseline is the median, for the corresponding day of the week, on January 3rd-February 6th,

Source: Google, data as of April 30th)

However, the decline in activities are likely to have been more precipitous than shown in the above chart as activities in the retail, transport and hospitality sectors were subdued during the baseline period given the chilling effects of the dramatic events at beginning of the year. More so, these events came on the back of a slowdown induced by the continued countrywide demonstrations from October 2019.

The Iraq Stock Exchange (ISX) resumed trading on April 26th, after closing on March 16th, and in-line with government guidance of reduced commercial activity, it reduced trading days to three days per week from five. However, the board of governors of the ISX, in a misguided attempt to calm market fears, lowered the daily stock price limit downs to 5% from 10%, but kept the upside limit at 10%. Inevitably it did the exact opposite of its intended purpose, as the same low trust in authorities fuelled rumours that the market authorities were hiding some major negative news. The new limit-down limits served as magnets for sellers during the remaining three trading days of the month with prices obligingly closing down 5% on each of these days. As often happens in frontier markets, buyers disappear for several days as sellers chase down small bids and drive prices to very attractive levels. While prices tend to recover as buyers return to pick up bargains, which seems to be taking place in early May.

For the three days that made the trading month of April, the Rabee Securities RSISX USD Index (RSISUSD) was down 12.7%. The argument made here last month that ” Iraq’s equity market was discounting neither an economic nor a corporate earnings recovery, it’s difficult to see why it should decline as other markets have elsewhere“, is stronger now, especially given that the market by end of April is now down 75% from the 2014 peak.

The closing argument of the Asia Frontier Capital team in the March newsletter, is an appropriate end here.

“The recent stock market correction, though painful, is now providing an excellent entry point to investors as valuations across our universe are at 10-year lows – stock picking has never been easier. Though we believe global markets could remain volatile in the near term as the number of infections rise and poor economic numbers come through, a sustained rally could be seen once there is an indication of infections peaking especially in Europe and the U.S.

“Asian frontier markets have bounced back very strongly after previous episodes of market dislocation such as in 2008-09 with markets like Pakistan and Vietnam generating much higher returns than major indices. Though it is very easy to get distracted with the negative consequences of the pandemic, Asian frontier markets are at present and will over the next few months provide an opportunity to invest in these markets last seen a decade ago.”

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

By John Lee.

Iraq’s Council of Representatives (Parliament) on Thursday approved by a majority the government programme presented by Prime Minister Mr. Mustafa Al-Kadhimi.

The programme is a general framework that sets out the government priorities, which include:

  • Holding free and fair early elections after finalising the new electoral law
  • Mobilising all resources to combat the coronavirus pandemic, and laying the foundations for a modern health system
  • Restricting weapons to state and military institutions
  • Submitting to Parliament a special draft budget law to address the economic crisis
  • Launching a national dialogue with all sections of Iraqi society, listening to the demands of the protest movement, bringing to justice those involved in the spilling of Iraqi blood and looking after the families of the martyrs
  • Protecting the sovereignty and security of Iraq, continuing to fight terrorism, and providing a national vision on the future of foreign forces in Iraq
  • Fighting corruption and protecting the wealth of Iraq
  • Promoting the values of shared Iraqi citizenship, respecting Iraq’s ethnic, religious diversity, and rejecting all forms of discrimination
  • Providing all the necessary requirements to support internally displaced people to return to their home, and end internal displacement in Iraq

Developing and reforming security institutions

The programme outlines the government’s plans to reform and modernise Iraq’s military and security institutions, and confirms that:

  • The duty of the Iraqi Army is to protect Iraq’s external borders, sovereignty, and democratic process. It must not operate inside civilian areas unless by exceptional orders from the Commander-in-Chief of the Armed Forces
  • The security formations of the Ministry of Interior will be responsible for internal security, maintaining civil peace, the rule of law, and protecting human rights. These formations will be reorganised, will receive further training, and be properly equipped
  • The National Intelligence Service, the National Security Agency, the Counter-Terrorism Service, and Popular Mobilisation Units will continue to perform the tasks assigned to them as directed by the Commander-in-Chief of the Armed Forces
  • The security forces will be properly equipped and provided with the necessary arms and ammunitions to enable them to protect Iraq from terrorism and to secure its borders
  • The Armed Forces will be governed by a professional military doctrine with a strict respect for the chain of command, and be representative of all segments of Iraqi society

Addressing the economic and fiscal challenges

The programme outlines several measures the new government will implement to address current economic challenges, including:

  • Reducing public spending, ending non-essential expenditure, developing an effective system for collecting customs tariffs, and starting negotiations to restore Iraq’s oil production share which was reduced recently
  • Working with global financial institutions, including the International Monetary Fund and the World Bank, to develop programmes to minimise the impact of the economic crisis, especially in relation to reducing the budget deficit, and ensuring efficient management of financial resources
  • Establishing the Supreme Council for Construction and Investment which will be responsible for drawing up a comprehensive plan for building Iraq’s infrastructure, and for encouraging investment in all provinces
  • Submitting to Parliament a draft Iraqi National Oil Company Law, and establishing a team to negotiate with oil companies changes to Iraq’s oil licensing rounds to reflect recent developments in global markets
  • Launching a “Made in Iraq” national project to encourage local industry and agriculture by adopting appropriate mechanisms and laws, and through the consistent and effective application of customs tariffs
  • Directing the Central Bank of Iraq to develop a plan within a year for the modernisation of the Iraqi banking sector
  • Undertaking comprehensive administrative reforms of state institutions, removing unnecessary procedures, and implementing anti-corruption measures
  • Restarting the e-government and transparency projects to include all state institutions
  • Adopting programmes to empower young people to access jobs in the private sector and provide them with social security benefits similar to those enjoyed by their counterpart in the public sector
  • Expanding the scope of social security benefits to support low and fixed income groups
  • Adopting automation and modern technology in state institutions, especially at the Border Crossings Authority and  in the customs system

Iraq’s foreign relations

The programme outlines three pillars that will guide the government’s approach to foreign relations:

  • Sovereignty: Iraq will not allow any country to violate its sovereignty, and will not permit its territories to be used to launch attacks on any of its neighbours or be used as an arena to settle regional or international scores
  • Balance: Iraq will not become part of any regional or international axis, and will adopt a balanced policy of positive engagement with its Muslim and Arab neighbours, countries around the world, and abide by its international commitments
  • Cooperation: Iraq seeks to build an integrated system of common and shared interests as a basis for its foreign relations, and seeks to contribute effectively to resolving regional and international crises, combating terrorism, money laundering, and organised crime. The government will also commence detailed preparations for the upcoming talks with the United States on the future relationship between the two countries and the presence of the Global Coalition in Iraq, with the aim of preserving Iraq’s higher interests and fulfilling the aspirations of the Iraqi people.

Combatting corruption and administrative reforms

The programme outlines a range of measures to combat corruption, including:

  • Conducting an audit of the financial records of companies and commercial entities belonging to political parties, public figures, and others which are suspected of having illegitimate sources for their assets
  • Reforming the system of awarding government contracts and changing investment rules
  • Enforcing current laws to pursue  and return Iraq’s money that have been smuggled abroad
  • Holding corrupt individuals accountable, regardless of their influence

Delivering justice and judicial independence

The government will propose laws and adopt measures to safeguard the independence of the judiciary, and to pursuse and hold accountable law breakers.

Protecting the right to protest, empowering youth

The programme underscores the government’s commitment to protecting the right to peaceful protest, describing it as a “fundamental democratic practice”. It also highlights the critical role of young Iraqis in shaping the future of the country.  The programme commits the government to:

  • Establishing an advisory council of young Iraqis representing all provinces, linked to the Prime Minister’s Office, to be part of the policy formulation process with regard to the government reform agenda. The proposed council will also advise the government on the development of mechanisms and regulations to protect the right to peaceful protest.

The Federal Government, the Kurdistan Regional Government and the Governorates

The programme sets out a number of steps to regulate relations between the Federal government on the one hand and  the Kurdistan Reginal Government and the governorates on the other, including:

  • Working with the Kurdistan Regional Government to address outstanding problems in accordance with the Constitution
  • Working with Parliament to develop necessary legislation to organise the relationship between the Federal Government and the governorates in a way that guarantees an effective distribution of powers between the centre and the provinces.

(Source: Govt of Iraq)

By John Lee.

The Iranian parliament, the Majlis, has approved a government bill to redenominate its currency, dropping four zeros.

According to Tehran Times, the proposal came from the Central Bank of Iran (CBI), and will result in a new currency, the “toman”, which will equal 10,000 rials.

Reuters reports that the bill must now be approved by the clerical body that vets legislation before it takes effect.

The rial has lost more than 60 percent of its value since US President Donald Trump abandoned the 2015 nuclear deal (JCPOA) and reimposed sanctions.

(Sources: Tehran Times, Reuters)