Currency window and return scarcity


The financial crises that hit the countries of the world without exception are many and their effects varied between state and another depending on the hedges and actions taken by the monetary authorities and the executive bodies of the government to counter these effects and try to overcome them or reduce the effects of pain.

Perhaps most of the economies of the world are concerned about the storms of these crises, which occur from time to time, so that all concerned parties, especially the monetary policy and those who are represented by central banks are dedicated to avoid the adverse effects of the financial crisis in a particular country, and to talk.

This introduction was marketed after the emergence of a crisis of liquidity may be exposed to private banks felt by the Association of banks as a result of the inevitable and expected, because the dollar and the likelihood behind these fears.

Two months ago, she warned that there would be an impact on banking activity because of the stability of the dollar exchange rate at the same border with the parallel price in the market, which will cause a reduction in the rate of return "profits" obtained by banks.

Since most banks have relied entirely on the currency window in the fulfillment of all their obligations and various expenses on the volume of return, was alert that the situation foreshadowing the possibility of the collapse of some banks and their loss and exit from the market.

And it seems that the continuation of the exchange rate at this limit has been affected, and that these risks have stimulated the Association of Banks to search for the means that work to continue in the market,

and as one of the most important duties of the Central Bank of Iraq to hedge any potential crisis may urge banks, To hear the views and proposals of the Association on them and based in light of the conditions of banks and what passes by to be a solution at hand.

All the measures are possible and available to the central bank to rescue banks from the risks and tribulations; but the question is more important to what time periods can the central bank, and when exhausted all the means available to the central what to do?

In this case, banks should reconsider their activities and products in order to remain in the market. Otherwise, the situation foreshadows the collapse of banks that can not arrange their positions.

This calls on banks to act quickly to avoid the causes and effects of potential crises by returning to income-producing banking products and not relying on the currency window forever.

The banks are also invited to take into account the objectives of the Association in cooperation with the Central Bank behind the adherence to the program of financial inclusion and try to make the most of the revenues that may enrich them in the future revenues of the window even though less but do not allow to leave the market.

The dollar and gold exchange rates in Iraq on Sunday


The wisdom – follow – up: The exchange rate of the dollar, on Sunday, a slight rise against the dinar in the local currency market.

According to the wisdom of the stock market in Baghdad and some provinces, the price of selling the dollar in Baghdad today 120 thousand dinars and the purchase price 120 thousand dinars compared to $ 100.

On the Basra Stock Exchange, the sale price today was 121 thousand and 800 dinars, and the purchase price 123 thousand and 750 dinars for one hundred dollars.

While the price of selling the dollar on the Arbil Exchange today 125 thousand and 250 dinars, the purchase price 125 thousand and 200 dinars compared to $ 100, while yesterday was 125 thousand 450 dinars, and the purchase price 125 thousand and 400 dinars compared to $ 100.

The price of Iraqi gold, today, at 222 thousand dinars for one weight.
The price of the gold weight of the caliber of 21, today 222 thousand, while yesterday recorded the same price of 221 thousand also. "

It is noted that the weight of one gold is equal to 5 grams.

This article was originally published by Niqash. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

By Abbas Sarhan.

The Iranian banking system was seen as an attractive alternative to Iraq’s shaky financial institutions. But a recent, drastic devaluation in the Iranian rial means Iraqi money is stuck over the border.

Depositing money in Iranian banks has been popular in Iraq since around 2012, and even more so since 2014, and the security crisis caused by the extremist group known as the Islamic State.

In the southern city of Karbala, it was a popular move for people who had sold property, especially after the decline of prices in the Iraqi real estate market since June 2014 and the beginning of the security crisis.

But in fact, small and mid-sized Iraqi investors have been putting money into Iranian banks since 2012, when the Iranian authorities significantly increased the interest rate on savings in a bid to get more currency flowing into their sanctioned nation.

Iraqi investors were encouraged to deposit cash in Iran. Iraqis could change their money into Iranian rials, then deposit them with bank officers based in Karbala or Najaf, without ever having to leave home.

Tens of thousands of Iraqis took up the offer, says Mohammed Abbas, one of the locals who also did so: He put US$500,000 in Iranian banks.

“It was too tempting for anyone with a small or medium sized deposit,” he explains. “Iraqis were afraid to invest their money in Iraq and there are really not many other opportunities for investment.” Abbas says that in the first three years he made good money off his deposits and he used the rials on his frequent trips to Iran.

However the situation has since deteriorated badly. The Iranian rial has recently lost a lot of value and even those Iraqis who had done well with the interest rates on their money, saw that extra cash wiped out. Now, Abbas says, Iraqi money is trapped in Iran. Depositors cannot withdraw their deposits for fear of wiping out half the value so they leave it there in the hope that the Iranian authorities may be able to revalue their own currency.

However the Iranian authorities appear to only have been able to take limited steps. In April this year, Iranians arrested as many as 90 foreign exchange traders, accusing them of raising the price of foreign currencies against the rial, and suspended activities in ten foreign exchange bureaus. They also tried to set the exchange rate more favourably.

However these measures have not worked and thousands of Iraqis who deposited savings over the border remain frustrated. Anybody who does want to withdraw their cash needs to change the rial for dollars first. Iraqis must change their money on the black market.

Iranian banks only exchange dollars in specific situations and then only to Iranians. Even though the Iranian authorities have tried to set the exchange rate against the US dollar there, the black market exchange rate puts the dollar at significantly higher rates. Which still leaves Iraqi depositors in a bad way.

Iraqi economist Abdul-Hussein al-Rumi says there’s not much anyone can really do. That is the risk that Iraqi investors were taking and Iran’s economy and currency is unlikely to be able to withstand the new round of US sanctions.

Instead of taking their money out of Iran, al-Rumi suggests withdrawing the deposits, buying Iranian goods over the border and then selling them on the Iraqi market to try and reduce their losses and to get out of the Iranian banking system.

Off-balance sheet


Mohamed Sharif Abu Maysam
Hedge exaggerated in estimating the price of selling oil barrels at $ 46 in the budget of 2018, which we pointed out in the preparation of the budget in previous articles, raised above the ceiling of exaggeration as a financial problem with the contraction of the budget in its investment and the method of funding deficit through borrowing after The price of OPEC’s oil has jumped by 70 dollars per barrel and sales prices have not fallen below 55 since the beginning of this year.

Which makes the rate difference until this moment between the price of the guess and the price of selling prices about $ 17, and therefore the price difference for the past six months in the light of the budget approved the amount of daily sales estimated at three million and 888 thousand barrels per day,

up to about 66.096 million dollars can be calculated Over a period of six months by multiplying the number in 180 days to be the amount of difference about 11.9 billion dollars and offset the amount at the exchange rate of the budget capacity at 1182 dinars to the dollar is the final outcome of 14 trillion Iraqi dinars,

the difference in selling prices for the price of the guess for only six months, Covers and increases the comp The planned deficit of 12.5 trillion dinars, which means that we urgently need a supplementary budget through which we can free from the conditional indebtedness complex and free with us the investment budget from the restriction of Alakmashi.

Thus, we have no choice but to adapt the text mentioned in the budget law Article 2 – 1 – which states that (this deficit is covered by the abundance achieved and then internal and external borrowing ..) as the abundance of the need to borrow and is achieved, which means the absence of the need to borrow.

The abundance here does not mean the amounts collected from the highest revenues of fiscal year 2017, as it can refer to the abundance of the increase in oil prices or increased sales quantities, and as long as the explanation here in favor of the country to save from the conditions of creditors and cumulative interest rates on the origin of debt, Procedures for recourse to foreign debt are considered to be detrimental.

Towards effective economic leadership


Samir al-Nusairi
Iraqis are waiting for the formation of a new government with special national standards aimed at serving the people, economic stability and reconstruction, revitalizing the economic cycle and achieving prosperity for the people who suffered 15 years of instability, terrorism and loss of basic services.

In order for the new government to achieve these goals and aspirations, its main sessions should lead national economic leaders in the next phase.

The national economic elites in various fields should have an effective role in analyzing and assessing the economic reality in Iraq after 2003.

Of the economy, adding and enriching the successful experiences and bright points that emerged during the suffering of Iraq from the financial and economic crisis experienced by them,

starting from their national sense to be given the opportunity to lead the wheel of change and origin Because the Iraqi economy and Eebenah Aaisalha only his sons, especially his experts, technocrats and Mvkroh people with real experience in the previous process successful work locally
and externally.

The observer and observer of the role of government institutions over the past years, in terms of the management of the Iraqi economy, notes failures and challenges with the loss of methodology and the lack of clarity of policies and programs and the lack of harmonization of strategies prepared in partnership with international organizations and experts with the reality of the Iraqi economy monolithic resources,

which depends primarily on oil rent and its causes This is due to the structural and structural imbalance in the economy and the lack of stability in the financial system and the monetary system due to the deficit in non-oil revenues and the balance of payments deficit and the continuing wage in the public budgets,

and weak coordination between the financial policies and As well as the mismanagement of public funds and the obvious weakness in the economic leadership of most of the governmental economic institutions and the lack of involvement and give an active role of the private sector in economic decision-making.

All failures and the war on terror have led to economic instability and lack of vision to build a solid national economy capable of drawing the preconditions for a transition to a social market economy, which I believe is the solution to our economic reality.

These challenges have created pessimism and pessimistic outlook for our economic future among many of our economic elites, but many economic, financial and local experts believe that there are several promising and bright points that some economic institutions have made clearly and effectively during the years 2015-2017, the years of economic and financial crisis

The most prominent of these bright points in this march is the experience of the Central Bank in supporting the national economy while maintaining its functions and objectives set out in its law. The most important achievement of the Central Bank is its contribution to achieving economic steadfastness and strengthening the decisive victory over terrorism.

I do not want to clarify the executive and development procedures and build balanced relations with Arab, regional and foreign banks and its strategy for the next five years,

the results achieved on the scope of monetary policy applications internally and convince the international financial organizations and the most important official reports issued by them confirm the success of the policy of the Central Bank to achieve an important transition of the Iraqi economy from The gray phase to follow up.

One of the most prominent achievements was to stabilize the exchange rate and recovery of the Iraqi dinar and raise its purchasing power.

In addition to its various contributions and initiatives to activate the economic cycle and enhance the liquidity of banks and reach a re-bridge of coordination between the financial and monetary policies and propose new economic and structural policies to prepare public budgets for the coming years and attempts to restore confidence in the banking system.

The CBB has demonstrated its clear ability to interact, analyze labor constraints and create conditions to overcome challenges, and the road is still long before the central bank and the competent government agencies to achieve a sound national economy.

Therefore, the invitation is addressed to the national economic elites to interact with the bright points and experiences and enrich them with their ideas, visions and proposals to build a solid national economy, overcome challenges, correct the wrong tracks, and transparent and calm dialogues without personal and partisan targets.

Stock Exchange: 65 billion shares volume trading


Baghdad / Al-Sabah
The Iraqi market for securities announced the trading reality for the month of May last, where the number of shares traded (65) billion shares worth the shares traded (66) billion dinars.

"The trading sessions for the month of May 2018 showed that the number of trading sessions was (21) sessions, participated (62) joint stock companies and the banking sector is the most in terms of the number of companies traded market measure," pointing out that " The number of shares traded reached (65) billion shares worth (66) billion shares, where the number of shares traded for foreigners buy (2) billion shares, the value of the purchase (10) billion dinars.

Number of Shares

He pointed out that "the number of shares traded for foreigners sold (3) billion shares, worth (2) billion dinars," noting that "the index of shares prices traded ISX60 closed at (608) points in the first session of the month of May and closed at (593) A point in the last session of the month, down by 2 percent.

" (47) joint stock companies in the annual disclosure of 2017 within the legal period of the law and instructions, which ended at the end of May 2018, and delayed (36) joint stock companies in the submission of annual disclosure and is expected to be submitted during the month of June 2018, and there are (19) Of the trading decision of the Securities Commission for non-disclosure of the year 2016 and 2017 disclosure.

Investor confidence

"The lack of disclosure or delay in the submission affects some companies investor confidence and desire to keep their shares that these companies will be offered to the decision to stop trading of shares by the Securities Commission on the other hand and the continued lack of knowledge of financial position from the other hand.

" He pointed out that "What matters to the shareholder and investor in securities is to ensure the stability of the financial position of the company through the available data and the size and type of performance achieved and surplus realized and the percentage of profits distributed from it or that will be converted to reserves and despite the absence of the standard value of the share, expressed in accordance with International Standard No. 13 ) But the financial statements give a historical impression of the type and size of performance

" The real value

"When a shareholder or investor finds that the real or fair value of a share is higher than its market value, it seeks to strengthen its portfolio of financial instruments by that type of stock and leads to an increase in the turnover of stocks in terms of increasing effective demand and vice versa.

While measuring the aspect of performance and disclosure is also to increase the methods of control and achieve results not only in terms of measurement and evaluation, but in terms of creating a real demand for shares and vice versa also that the real measure of trading depends on indicators of demand by small and medium-sized shareholders because they are the most traded Selling and buying on securities ".

He said: "The stability of the exchange rate of the national currency and the low volatility in the official price will direct liquidity towards investment in alternatives, which have a high flexibility in circulation and characterized by low costs of transfer of ownership, led by shares of companies listed on the Iraqi stock

Banks and dinar recovery


Samir Nusairi
more than two months ago the stability of the exchange rate and the recovery of the Iraqi dinar and the high purchasing power in the market of cash circulation because of the success of the plans and procedures of the Central Bank and the cooperation of the banking sector with him, which led to convergence of the exchange rate set by the Central Bank with the parallel market price,

despite pessimistic forecasts Which traders speculate that the dollar exchange rate will rise during the election and after the results emerge or cause the political circumstances of the US escalation against Iran.

For the purpose of assigning decisions of the Central Bank and maintaining the recovery of the dinar requires the Iraqi banks and branches of Arab and foreign banks operating in Iraq to go to real banking and activate the financing of small and medium enterprises and provide modern electronic banking products and attract deposits and participate in the establishment of the insurance company deposits and the establishment of the national companies to finance large projects ,

Which contribute to commercial and Islamic banks and cooperation with the Central Bank in the implementation of its policy in support of the development of the banking sector in accordance with the directives of the Governor of the Central Bank of Iraq last in the periodic meeting The last monthly of banking leaders and emphasis on the stability of the exchange rate and recovery of the Iraqi dinar.

And that this goal will remain one of the objectives of the central bank, which requires direct banks to immediately leave the total dependence on the window selling foreign currency in its financial activity.

The time has come for our banks to move to the practice of real banking, which is to provide modern banking products to the public and provide the best services to customers and work to increase the proportion of
financial coverage .

The banking sector should play an important and important role in the development and revitalization of the economic cycle, stressing that the stability of the exchange rate should not make banks afraid of their future in the banking market.

On the contrary, the stability of the exchange rate should be an incentive to improve the banking sector and achieve growth in the national economy and stability in the monetary and financial system. And the trend towards investment and
* Economic and banking consultant

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:  The Elections, the Economy and the Stock Market

A key aspect of the Iraq investment opportunity is arbitraging the delta between real and perceived risk. The perceptions of the widely covered parliamentary elections fit within this arbitrage opportunity in that they miss the mark by a wide margin.

The May elections did not result in an overall winner with an outright majority (165 seats among the parliament’s 329 seats) enabling the formation of a government. Instead, they produced winners and losers who will eventually form a coalition government. At the lead is Sairoon, a coalition of Shia cleric Muqtada Al Sadr, Communists and Liberals, with 54 seats; followed by Fateh, a coalition of the political arms of the Popular Mobilisation Units (PMU’s), with 48 seats; finally, Nasr, the Prime Minister’s (PM) coalition, with 42 seats.

The rest are made up of: five different coalitions each with 18-25 seats; four coalitions each with 4-6 seats; and finally, a gaggle each with 1-3 seats. The next step would be the formation of an alliance of coalitions that would, on the first day of the new parliament by end of June, have the largest number of seats to enable it to have a PM with a chance of forming a government. The whole process should take a few weeks but, in the past, it took a few months.

The winning coalitions, irrespective of their lead player, are all cross-sectarian unlike the prior ethno-sectarian monolithic blocs that dominated over the past 14 years – a division that was the root cause of Iraq’s political and social instability since 2003. Moreover, for the first time since 2003 there was a strong mass opposition to these ethno-sectarian monolithic blocs that manifested

in an active non-participation movement. This led to an election participation turnout of 44.5%, which in turn had huge effects on the seats won and lost by the different coalitions.

Drilling further into the leading blocks shows neither they nor their leading players conform to simplistic assumptions. For example, Muqtada Al Sadr is often described as a firebrand cleric who is anti-secular, anti-Western and pro-Iran as a result of his leading role in Iraq’s dark history since 2003. Yet, at least outwardly, he went through a transformation to a firebrand cleric who is anti-Iran and anti-its proxies in Iraq, whose alliance with Communists and Seculars kept the 2015 pro-reform demonstrations alive and relevant.

Moreover, he was a leading player in rebuilding Iraq’s relationship with Saudi Arabia and the UAE – both received him in their capitals in 2017 to further this rebuilding. The second leading coalition, Fateh, a grouping of the political arms of the supposedly pro-Iranian PMU’s, although not all are, is led by Iranian-allied Bader Organization. Yet Bader has been a part of every Iraqi government since 2005, responsible for the Ministry of the Interior, and as such a major part of the next phase of Western support for Iraq in rebuilding its security apparatus in the long-term fight against ISIS.

The most visible fruit of which has been the decline of violence since the end of the Mosul campaign and in the first violence free elections (see chart below). Finally, the Naser coalition which is led by the PM and while much admired for leading the fight against ISIS, he suffers from perceptions of failure to address the demands of the demonstrators since 2015. Although an unfair criticism given the overriding priority to deal with the ISIS invasion, it was behind much of the reason for his collation’s third place showing. Nonetheless, his chances of returning as a PM capable of leading a workable government are high.

UN Casualty figures for Iraq November 2012 – April 2018

(Source: United Nations Assistance Mission for Iraq (UNAMI), for 8 months from 2015 UNAMI, in some cases, could only partially verify certain incidents)

Optimists see the potential for a coalition governing with a clear reform agenda and with a proper opposition in parliament providing a check on the government. The pessimists however see a repeat of the prior coalition governments that were made up of all groupings in parliament, and thus no real change to the failures since 2003. However, irrespective of who would be right, a few things are clear that would have implications for Iraq’s economy, the investment opportunity in Iraq and the stock market.

The combination of the lead by Sadr’s coalition, the continued pro-reform demonstrations since 2015, and the large active non-participation movement together imply that the upcoming government would need to address the issues at the heart of the public’s anger. This would be the provision of services and reconstruction, which require much needed overdue investments in the country’s infrastructure and the reconstruction of the liberated areas.

The new oil price dynamics have a huge positive implication on Iraq’s ability to provide funds for this massive investment spending estimated at USD 88bn over the next five years. Current estimates for the country’s revenues for 2017-2022 are based on Iraqi oil price assumptions of USD 45.3/bbl in 2017 and increasing to USD 47.1/bbl by 2022. These estimates would result in a cumulative deficit of USD 17.6bn, thereby increasing the debt load, necessitating borrowing to fund the deficit and restrict the ability to fund reconstruction. This implies the need for outside aid and investment to fund reconstruction.

However, different assumptions based on the new oil price dynamics would provide a vastly different picture. For instance, using realized prices of Iraqi oil of USD 49.2/bbl for 2017, and assuming Iraqi oil prices of USD 60/bbl for 2018, then declining to USD 51/bbl in 2022, would produce a cumulative surplus of USD 47.4bn instead of the earlier assumed cumulative deficit of USD 17.6bn. In other words, this equals a turnaround of USD 65bn in potential available funds.

While, an assumption of an oil price of USD 64/bbl for 2018, then declining to USD 55/bbl by 2022 would produce a cumulative surplus of USD 78.2bn, or a turnaround of USD 95bn in in potential available funds.

Granted some of this windfall will result in higher government spending, especially on populist measures which would be detracting from the funds available for infrastructure investment. Though this would nevertheless be a large positive for consumer confidence and economic activity, all of which would ultimately support the earnings profile of consumer service providers and the banking sector.

In the immediate term, given the impossibility of forecasting future oil prices out to 2022, if Iraq’s oil price was to hold the YTD average for the remainder of 2018, it would convert the IMF 2018 projected deficit of USD 9.5bn into a surplus of USD 10.9bn. This means a turnaround of USD 20bn in potential available funds. Coupled with a slight positive variance to 2019 projections, this would provide Iraq with enough fiscal flexibility to start directly funding the immediate needs for reconstruction. This changed fiscal position would further allow it to comfortably access debt markets at reasonable rates to build upon this reconstruction. The potential addition of regional investments led by Saudi Arabia, as discussed here in the past, could lead to a self-reinforcing investment cycle.

The stock market’s action in the weeks before and after the elections has been business as usual and very much followed the same themes discussed over the last few months. This is an indication of how much negative news the market has discounted over the last three years that saw the index, as measured by the RSISUSD Index, decline -68% from its 2014 peak to the 2016 bottom.

Through 22nd May the market was down -3.9% for the month, bringing the year to date gains to +5.8%. The daily market action has been almost identical to that of the prior month with the same low turnover, the same buying in the selected leading stocks and the same selling in the banks based on the same fears.

The response of the currency to the elections for the most part matches that of the market with the market price of the Iraqi Dinar (IQD) weakening versus the USD in the days around the elections but returning to the same levels at the start of the month. The upshot, is that the premium of the market price of the IQD over the official exchange rate increased from 1.2% at the end of April, reaching 2% just before the elections and is now back to 1.2%.

The issue that continues to dominate the market is the timing of the return of liquidity as a result of the expansionary effects of higher oil prices and the end of conflict. As discussed here in the past, the observed time lag between Y-Y changes in oil revenues and Y-Y changes in M2 has been about 7-9 months which suggests that M2 growth should see improvement over the next few months as the chart below implies: it shifts the Y-Y percentage change in M2 back by 9 months versus the Y-Y percentage change in oil revenues. However, it is complicated by the additional time taken up by pre and after elections, and the additional time needed for the formation of the new government. All of which will delay this recovery but would likely result in a large back-end loaded return of liquidity.

Oil Revenues (green) vs the RSISUSD Index (red)

(Source: ISX Central bank of Iraq, Iraq’s Ministry of Oil, AFC.)
(Note: M2 as of Jan. with AFC est.’s for Feb & Mar, Oil revenues as of Mar with AFC estimates for Apr & May)

As argued here in the recent past, the backdrop continues to be positive: historically the equity market, as measured by the RSISUSD Index, has tended to follow oil revenues with a time lag of 3-6 months as the chart below shows.

Iraq’s Oil Revenues (green) vs the RSISUSD Index (red)

(Source: Iraq’s Ministry of Oil, Rabee Securities, Iraq Stock Exchange, AFC)
(Oil revenues are as of Mar with estimates by AFC for Apr & May)

Given the time lag involved and the delay over the formation of the new government, this will probably unfold over the next few months and the recovery will likely be in fits and starts with plenty of zig-zags along the way. This continues to underscore the opportunity to acquire attractive assets that have yet to discount a sustainable economic recovery.

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). 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.


[1] Source of current estimates on Iraq (deficit, oil price, revenues etc) are from the IMF Iraq Country Report No. 17/251 ( Updated assumptions are the author’s calculations based on the above source