The Iraqi Finance Minister talks about positive indicators regarding the 2021 budget

1,119 Policy 01/24/2021 17:11

Baghdad today – Baghdad

Finance Minister Ali Allawi confirmed that Iraq is negotiating with the International Monetary Fund with the aim of obtaining a loan of 6 billion dollars to save its economy mired in problems, while he gave positive indications regarding the 2021 budget deficit and linking it to high oil prices.

Iraq, the second largest producer in the Organization of the Petroleum Exporting Countries (OPEC), expects a budget deficit in 2021 of 71 trillion dinars ($ 49 billion), according to Bloomberg Agency that interviewed the minister.

The American agency quoted Ali Allawi, that once the Iraqi parliament approved the spending plan for 2021, the government will be able to request rapid financing of two billion dollars from the emergency financing mechanism created by the International Monetary Fund for the benefit of countries affected by the repercussions of the Corona virus.

Allawi said that “Iraq can then request a second, low-cost loan of $ 4 million K dollars from the International Monetary Fund’s government reform program.”

The US agency stated that financing the International Monetary Fund would cover a small part of the expected deficit in the budget, but it would “reduce the severity of the depletion of Iraq’s foreign exchange reserves.”

Last year, the Iraqi government had to borrow more than $ 25 billion from the central bank in order to pay the salaries of public sector employees and meet other financial requirements.

The bond market

“Bloomberg” pointed out that the Iraqi government also plans to rely on other financing tools to help cover the deficit. Allawi said that once the budget is approved, the government will also move to issue domestic bonds worth $ 5 billion.

Regarding international bonds, the Iraqi Minister of Finance said that “international loans are somewhat expensive,” adding: “I do not know if there is a desire to buy Iraqi bonds. Returning to these markets now remains difficult.”

“Bloomberg” said that the average yield of Iraq’s dollar bonds is 8.3%, adding that it is among the highest levels of any government in the world, according to Bloomberg Barclays indicators.

Economic crisis

Iraq’s economy has suffered since the collapse of global oil prices due to the Coronavirus pandemic. Although oil prices have recovered during the recent period, Iraq is still struggling to cover its costs and avoid the exacerbation of the fiscal deficit.

And last year, Iraq exceeded the production limits agreed upon with other oil exporters in the “OPEC +” group, in order to collect the liquidity its economy needs. 

But Iraq is committed to compensating for the excess production over the past months, according to the Iraqi Finance Minister, who assured Bloomberg that “Iraq will respect the quota set for oil production within the OPEC + coalition” because it helps reduce the risk of price collapse. ”

Allawi praised Saudi Arabia’s sudden production cut by one million barrels this month, which helped oil prices rise.

Optimism for the future

Allawi said that Iraq’s budget deficit may shrink by 25% this year if oil prices remain around their current levels of $ 55 a barrel.

The International Monetary Fund expects the Iraqi economy to contract by 12% in 2020 – the highest rate among OPEC countries, and have experienced a budget deficit of 22% of GDP.

Iraq devalued its currency last year by the largest amount ever, to reduce pressure on public finances at a time when it is trying to secure billions of dollars in foreign aid.

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