Well… here we are again! It is now nearing the end of the 2nd Quarter. Again… a perfect (budget/bookkeeping) time for a currency RV. The CBI has been working diligently toward this goal. They have been successful in removing over 39 Trillion worth of the "000" notes from the streets. They have issued new lower denomination notes as low as the 50 Dinar note and are also distributing coins that will most likely cover the need for even lower amounts of change (although I haven’t heard anything on the value of these coins as yet). CBI has the tools and is now ready to implement the mechanism to raise the value of their currency. I have heard and am hopeful this happens within the next week.

On a side note, Mahdi is cutting it pretty close. He has till the end of this month (one more week) to complete his government, or he will become subject to a vote of No Confidence. There are those that believe not having a complete Cabinet has been the holdup for CBI implementing the mechanism. I am NOT one of those. I believe, although CBI works with the government, it is separate from the government. Their sole purpose is to maintain Financial Stability within Iraq. I believe regardless of whether Mahdi completes his government or not, CBI has the authority to move forward with adding value to their currency. I guess we’ll see what transpires over the next week.

Another tidbit… Years ago we were told to go to our local Bank of choice when the time came to exchange. Lately, I have been hearing that there will be 800 #’s posted to set up appointments for exchange at "Redemption Centers". An established exchange rate, higher than CBI’s posted rate, would be locked-in for a limited amount of days. At this time, I have heard nothing more about these Redemption Centers, so I will have to wait till those 800 #’s are released to find out how they process the exchange. In the meantime I have had several talks with my banker and was told that their local bank branches do not have the Del-A-Rue Machines required to verify our Dinar, but their Vault does. So, if I exchange at my bank, they will credit my account at the current CBI posted exchange rate, then the Dinar would be sent off to "The Vault" to be verified. Once verified, my funds would be released for my use. And since no one would be allowed to know where, or allowed to go to "The Vault" themselves, our dinar would be out of our sight for several days. Not a comfortable thought, but it is what it is.

Tax wise… I’m still hearing this investment will not be Taxed. That is a nice thought but I wouldn’t count on it. Bush’s tax free credit expired during Obama’s administration and I have read enough to rule out Capital Gains as well. Plan on Ordinary Income @ 35%, depending on how much you earn at exchange. And Please check with your Tax professional at the appropriate time. The IRS has had plenty of time to give this a lot of thought. I’m sure they will have a ruling by time taxes are due.

That’s all I have to say for now. Let me know your thoughts as well. We are all in this together. Thanks and take care. :cool:

By John Lee.

FBM-KNM FZCO, an indirect wholly-owned subsidiary of Malaysia’s KNM Group, has been awarded a contract for the supply and delivery of replacement heat exchangers to the Khor Al Zubair’s gas processing plant in Basrah Province.

According to a regulatory statement, the contract from Basra Gas Company (BGC) is worth USD 2.096 million (equivalent to approximately RM8.739 million based on the exchange rate of USD1.00 : RM4.17).

The project is to be completed by 14th January 2020.

(Source: KNM)

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.

The market, as measured by the Rabee Securities RSISUSD Index, declined by -1.7% in March, bringing the YTD decline to -13.9. Turnover, while up +23% from February’s dismal levels, was still mostly in-line with the historic lows of the last few months. Foreign selling, the cause of the last few weeks’ declines, continued along the recent low levels dragging prices lower given the overall low market liquidity.

The market’s obliviousness to the increasing signs of the return of liquidity to the economy (discussed here over the last few months) has extended into an obliviousness to solid earnings growth for one of the market’s top banks- an earnings growth that has all the characterises of a classic banking recovery after a severe economic contraction.

It was argued here in November, following the earnings recovery of mobile operator AsiaCell, that “The next few quarters should see a similar recovery for the battered banking sector, with probably the first indicator to recover being the quality of loans. A return of liquidity and an economic pick-up should be followed by a recovery in the quality of bad loans and the reversal of NPL’s (non-preforming loans) with past provisions becoming earnings, thus providing the first boost to earnings recovery. This should be followed by growth in loans and deposits …”.

Mansour Bank’s (BMNS) 2018 results provide a textbook example of the above argument in action. BMNS reported revenue and income growth of +28.1% and +42.6% respectively for 2018 over 2017. Both revenues and net income were helped by a reversal of some of the past provisions for NPL’s (non-preforming loans) as some clients, helped by the economic pick-up, began to pay back loans that were classified as non-performing. However, even without this reversal of provisions, both revenues and earnings would have been up +13.1% and +15.5% respectively on the back of strong underlying metrics.

The first of these underlying metrics was deposit growth of +25.8% in 2018 over 2017, driven by the growth in private sector deposits. This lends support to the argument, made here in January,  that the growth in the monetary base M0 is an early indicator of a recovery in private sector deposit growth.  The second and most promising metric is an acceleration of loan growth to +6.1% in 2018 over 2017, after an almost flat trend. BMNS’s management singled its confidence in its future outlook by declaring a 9.7% dividend yield- up 40% in absolute terms over last year’s dividend payment.

BMNS’s financial performance during the years of conflict up to 2017 was reviewed here in October after it was caught in the selloff that engulfed the banks during the second half of 2018. The improvement in 2018 suggest the end of the tough times for the bank, and potentially for other strong banks in general.

BMNS’ financial performance during the years of conflict, the stability of 2017 and the start of the recovery in 2018 can be seen through the two charts below that look at loans/non-performing loans (NPL’s), and deposits and their association with government budget surpluses/deficits given the central role that government spending plays in the economy. BMNS’ loan and NPL data were supplied by the research team at Rabee Securities which is gratefully acknowledged, while other data were taken from the Ministry of Finance, the Central Bank of Iraq, the Iraq Stock Exchange and company reports. Data from 2010-2014 are based on Iraqi accounting standards, while data from 2015-2018 are based on IFRS, and all calculations use the official USD/IQD exchange rate.

BMNS’ loan book growth peaked in 2015 at the same time that NPL’s peaked. Unlike many other banks in the sector, its loan book was almost flat during 2015-2017, and started to pick up in 2018. NPL’s as a percentage of loans declined by over 60% from the peak (chart below).

Mansour Bank: Loans & NPL’s 2011-2018

(Source: Ministry of Finance, Central Bank of Iraq, Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)

Unlike, almost all other banks in the sector, BMNS experienced deposit growth throughout the crisis, which accelerated during the relative stability in 2017, and continued into 2018. A flat loan book and sharply increasing deposits resulted in a very low loan/deposit ratio allowing BMNS the opportunity to grow its loan book. Moreover, most of these loans are collateralized by property, as most of banks’ loans are in Iraq, and where the norm is for collateral value at 2x the loan. It should be noted, that most of these deposits are in the form of current accounts, followed by on-demand deposits underscoring the nascent nature of the Iraqi banking system and the opportunity for future growth as the society adopts banking culture.

Mansour Bank: Deposits and Loan/Deposit ratio 2011-2018

(Source: Ministry of Finance, Central Bank of Iraq, Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)

While not all of the other banks enjoy the same financial strength of BMNS, yet the macro forces that contributed to BMNS’s recovery are the same for the sector as a whole and should therefore create the conditions for a recovery in the sector. These macro forces are boosted by the December data from the Ministry of Finance which show that the government recorded a budget surplus of about USD 22.9 bln for 2018, or a two-year surplus of USD 24.4 bln by end of 2018.

The government’s 2019 non-oil investment programme is about USD 12.5 bln, which would be equivalent to about a 7.5% stimulus to the estimated non-oil GDP for 2019. While it is highly unlikely that this would be immediately spent, yet the spending should start with a trickle but grow as investment spending gets underway- and should therefore provide a further boost to the expected banking sector recovery.

The market has made a mockery of expectations, made here over the last few months, that its divergence from its past close relationship with oil revenues (a proxy for the forces driving the economy) should come to an end. Nevertheless, the strong fundamentals of the market’s leading stocks such as Pepsi bottler Baghdad Soft Drinks (IBSD), mobile operator AsiaCell (TASC), and Mansour Bank (BMNS) coupled with resuming growth in oil revenues only add to the unsustainability of this divergence (see chart below).

(Source: Iraq’s Ministry of Oil, Rabee Securities, Asia Frontier Capital)

(Note: Oil revenues as of Mar)

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.

The Federal Budget Law for the year 2019, voted in the House of Representatives and ratified by the Presidency of the Republic

2/5/2019

In the name of the people, the
Presidency of the Republic
on the basis of what was approved by the House of Representatives and approved by the President of the Republic and based on the provisions of item (I) of Article (61) and Article (III) of Article (73) of the Constitution.

The following law was issued:Law No. () of 2019
Federal Budget Law of the Republic of Iraq for the fiscal year 2019
((Chapter I))
Revenues

Article 1 First-a- Federal budget for the fiscal year / 2019 revenue is estimated at the amount (105 569 686 870) thousand dinars (one hundred and five trillion five hundred and sixty – nine billion six hundred and eighty – six million Tmnmaip seventy thousand dinars) as Shown in (Table A / Revenues as per the preparation) attached to this law.

B) Calculation of the revenues from the export of crude oil based on the rate of (56) dollars (fifty six dollars) per barrel and an export rate of 3880000 barrels per day (three million eight hundred thousand barrels per day), including (250000) barrels per day (two hundred and fifty) Thousand barrels per day) for the quantities of crude oil produced in the Kurdistan region on the basis of the exchange rate (1182) dinars per dollar and all revenue is actually achieved a final revenue for the state treasury.

Second: The ministries and entities not affiliated with the Ministry and the provinces and the Kurdistan Regional Government are obliged to record all amounts of cash grants obtained under the memorandums of understanding with foreign governments or institutions as final revenues of the Federal General Treasury. The Federal Ministry of Finance shall reallocate them for the purposes granted for them in coordination with the Federal Ministry of Planning.

Third: The amounts donated to ministries and entities not connected to the Ministry, the provinces and the Kurdistan Regional Government shall be recorded after their acceptance by the Federal Minister of Finance as final revenue to the Federal General Treasury, provided that the Federal Minister of Finance allocates them to the appropriations of the Ministry or the entity not connected to the Ministry of Disbursement.

The amounts of grants or donations from foreign governments and institutions to ministries and entities not affiliated with the Ministry, the governorates, the provincial councils and the KRG under the memorandums of understanding or the private sector shall be recorded as final revenues for the Treasury, whether these grants and contributions are in the form of technical assistance or projects Training courses), with their guesswork being recorded in the records of the ministry or the non-affiliated with the ministry or the regions and governorates and the provincial councils concerned.

Acceptance of cash or in kind grants and re-allocation in coordination between the beneficiaries and Of the Federal Ministries of Planning and Finance.

Fifth: The amounts of grants and unused subsidies shall be calculated from the amounts allocated to the government departments and public sector companies by the end of the fiscal year 2018 in accordance with the accounting standards used to calculate the final disbursement.

The excess or overpayment amounts on this basis shall be considered as an advance payment on the grant account allocated to the department or unit per year financial 2019.

((Chapter II))
expenditure and deficit
Article (2) First: Expenses – The amount of (133107616412) thousand dinars (one hundred and thirty three trillion and one hundred and seven billion six hundred and sixteen million and four hundred and twelve thousand dinars). For the fiscal year 2019 including, the amount of internal and external debt installments of (10792690780) thousand dinars (ten trillion seven hundred and ninety-two billion nine hundred and ninety-nine million seven hundred and eighty thousand dinars), distributed according to (field / 3 total expenditures) of (Table / Ministries) attached to this law.

1- The amount of (33048506408) thousand dinars (three and thirty trillion and forty-eight billion five hundred and six million and four hundred and eight thousand dinars) for project expenditures to be distributed according to (field /

2 expenditures of investment projects) from (Table / B expenditures by ministries) attached to this law. Including the amount of (5671236000) thousand dinars (five trillion and six hundred and seventy-one billion and two hundred and thirty-six million dinars) through foreign loans and (444432000) thousand dinars (four hundred and forty-four billion and four hundred and thirty-two million dinars) through borrowing from the Iraqi Trade Bank

(A) Current expenditures of (Table A / B expenditures by ministries) attached to this law, including the amount of the internal debt installments The exterior of (10792690780) thousand dinars (ten trillion seven hundred and ninety – two billion six hundred and ninety million seven hundred and eighty thousand dinars) the amount of benefits (4534073555) thousand dinars (four trillion five hundred and thirty – four billion seventy – three million five hundred and fifty – five thousand
dinars.)

3 The sum In the amount of (200000000) thousand dinars (m A billion dinars) contingency reserve within the provisions of other expenses for the budget of the Federal Ministry of Finance out of the allocations mentioned in item (I-2) referred to above.

4) An amount of (2 billion) thousand dinars (two trillion dinars) is allocated for the reconstruction and development of projects in all governorates.

The
Governor shall submit the plan for the reconstruction of the governorate and the districts and sub-districts approved by the Council of the province, depending on the plans drawn from the councils of districts and districts to the Federal Ministry of Planning for the purpose of study and approval to take into account the most affected areas within the province and to allocate allocations to maintain districts and Nau
Pass People of the
Presidency of the Republic

based on what passed the House of Representatives and approved by the President of the Republic and based on the provisions of subsection (I) of Article (61) and item (iii) of Article 73 of the Constitution.

The following law was issued:Law No. () of 2019
Federal Budget Law of the Republic of Iraq for the fiscal year 2019
((Chapter I))
Revenues

Article 1 First-a- Federal budget for the fiscal year / 2019 revenue is estimated at the amount (105 569 686 870) thousand dinars (one hundred and five trillion five hundred and sixty – nine billion six hundred and eighty – six million Tmnmaip seventy thousand dinars) as Shown in (Table A / Revenues as per the preparation) attached to this law.

B) Calculation of the revenues from the export of crude oil based on the rate of (56) dollars (fifty six dollars) per barrel and an export rate of 3880000 barrels per day (three million eight hundred thousand barrels per day), including (250000) barrels per day (two hundred and fifty) Thousand barrels per day) for the quantities of crude oil produced in the Kurdistan region on the basis of the exchange rate (1182) dinars per dollar and all revenue is actually achieved a final revenue for the state treasury.

Second: The ministries and entities not affiliated with the Ministry and the provinces and the Kurdistan Regional Government are obliged to record all amounts of cash grants obtained under the memorandums of understanding with foreign governments or institutions as final revenues of the Federal General Treasury. The Federal Ministry of Finance shall reallocate them for the purposes granted for them in coordination with the Federal Ministry of Planning.

Third: The amounts donated to ministries and entities not connected to the Ministry, the provinces and the Kurdistan Regional Government shall be recorded after their acceptance by the Federal Minister of Finance as final revenue to the Federal General Treasury, provided that the Federal Minister of Finance allocates them to the appropriations of the Ministry or the entity not connected to the Ministry of Disbursement.

The amounts of grants or donations from foreign governments and institutions to ministries and entities not affiliated with the Ministry, the governorates, the provincial councils and the KRG under the memorandums of understanding or the private sector shall be recorded as final revenues for the Treasury, whether these grants and contributions are in the form of technical assistance or projects Training courses), with their guesswork being recorded in the records of the ministry or the non-affiliated with the ministry or the regions and governorates and the provincial councils concerned.

Acceptance of cash or in kind grants and re-allocation in coordination between the beneficiaries and Of the Federal Ministries of Planning and Finance.

Fifth: The amounts of grants and unused subsidies shall be calculated from the amounts allocated to the government departments and public sector companies by the end of the fiscal year 2018 in accordance with the accounting standards used to calculate the final disbursement. The excess or overpayment amounts on this basis shall be considered as an advance payment on the grant account allocated to the department or unit per year financial 2019.

((Chapter II))
expenditure and deficit
Article (2) First: Expenses – The amount of (133107616412) thousand dinars (one hundred and thirty three trillion and one hundred and seven billion six hundred and sixteen million and four hundred and twelve thousand dinars).

For the fiscal year 2019 including, the amount of internal and external debt installments of (10792690780) thousand dinars (ten trillion seven hundred and ninety-two billion nine hundred and ninety-nine million seven hundred and eighty thousand dinars), distributed according to (field / 3 total expenditures) of (Table / Ministries) attached to this law.

1- The amount of (33048506408) thousand dinars (three and thirty trillion and forty-eight billion five hundred and six million and four hundred and eight thousand dinars) for project expenditures to be distributed according to (field / 2 expenditures of investment projects) from (Table / B expenditures by ministries) attached to this law.

Including the amount of (5671236000) thousand dinars (five trillion and six hundred and seventy-one billion and two hundred and thirty-six million dinars) through foreign loans and (444432000) thousand dinars (four hundred and forty-four billion and four hundred and thirty-two million dinars) through borrowing from the Iraqi Trade Bank

(A) Current expenditures of (Table A / B expenditures by ministries) attached to this law, including the amount of the internal debt installments The exterior of (10792690780) thousand dinars (ten trillion seven hundred and ninety – two billion six hundred and ninety million seven hundred and eighty thousand dinars) the amount of benefits (4534073555) thousand dinars (four trillion five hundred and thirty – four billion seventy – three million five hundred and fifty – five thousand
dinars.)

3 The sum In the amount of (200000000) thousand dinars (m A billion dinars) contingency reserve within the provisions of other expenses for the budget of the Federal Ministry of Finance out of the allocations mentioned in item (I-2) referred to above.

4) An amount of (2 billion) thousand dinars (two trillion dinars) is allocated for the reconstruction and development of projects in all governorates.

The
Governor shall submit the plan for the reconstruction of the governorate and the districts and sub-districts approved by the Council of the province, depending on the plans drawn from the councils of districts and districts to the Federal Ministry of Planning for the purpose of study and approval to take into account the most affected areas within the province and to allocate allocations to maintain Cadaver and nouveau.

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