Conditions for boosting the privatisation process via the Algiers Stock Exchange are reviewed by University professor and international expert, Dr Abderrahmane MEBTOUL.
The aims of the privatisation, whether partial or total of the Algerian economy do not come to be questioned. The process is a must, however, it needs to be addressed as a matter of urgency. Proposals of strategies are made, notably through my experience as Chairman of the National Council of Privatizations between 1996/1999 complemented by numerous tours in the USA, helping to formulate the conditions for the success of the privatisation process via the Algiers Stock Exchange, to imply clarity in the objectives and means of implementation.
The urgency of a strategic vision
At a time of the coronavirus pandemic and the world going through new socio-economic changes in technological and organisational models including shock waves that according to the IMF, the World Bank, and the OECD, global growth will not be felt before the end of 2021. Furthermore, subject to the control of the epidemic, all domestic companies using the State’s handouts for their survival and all of the state-owned enterprises suffer from a structural deficit. Indebted to banks, some whose production techniques, are obsolete and do not meet new technologies and international standards, it is mentioned in this particular context to address the large budget deficit. The observation is the lack of dynamism of the public sector, the consolidation supported by the public treasury having far exceeded 100 billion dollars at constant prices between 2000/2020. The cost of the numerous restructurings between 1980/1999 and the ensuing remediation period of 2000/2020, resulted in more than 95% of the domestic companies returned to their inception status. Whereas with this, capital-money, it would have been more sensible to create a whole new and performing economic fabric. These are only announcements because, being an eminently political process, any decision on such a sensitive and complicated subject must first have the approval of the Council of Ministers certainly after consultation with the Security Council because it commits national security. Privatisation should not be confused with complementary de-monopolisation, both eminently political, moving towards the disengagement of the State from the economic sphere so that it devotes itself to its role as a strategic regulator in a market economy. Privatisation is a transfer of ownership from existing units to the private sector, and de-monopolisation is about fostering new private investment. The objective of de-monopolisation and privatisation must reinforce the systemic transformation of the transition from an administered economy to a competitive market economy. A legal text is not enough (this is only a means) and becomes a decoy if there are no coherent objectives clearly defined with pragmatism and a return to trust.
Privatisation can only be successful if it is part of a coherent and visible global socio-economic policy and if it is accompanied by a competitive universal and sustained dialogue between the social partners. It should be aimed at putting an end to perpetual legal instability. The renovation of the Ministry of Finance through digitisation of all systems of taxation, banks, land and customs duties would surely put an end to the central and local bureaucracy that as a significant constraint of an administered economy would be best be accompanied by the overhaul of the socio-political system. Also, the decentralisation around large four to five regional poles, not deconcentration would help.
Moreover, the impacts of all trade agreements between Algeria and the European Union, Africa and the Arab world, as well as all international ones would be of a win-win type only if Algeria has public or private companies that are competitive in terms of cost/quality. In any case, all of these agreements have domestically economic, social and political implications.
The four conditions for boosting the privatisation process
Are our managers aware that there is a global privatisation market where competition is perennial, and the determining factor is a demand for goodwill and not just supply? The success of this process to prevent certain predators from being interested only in the real estate of these companies and not in the production tool involving five conditions?
The first condition, its impact on the reduction of the budget deficit where according to the Finance Law of 2021 more than $21.75 billion in 2021, against the 2020 close of $18.60 billion and an overall projected treasury deficit of $28.26 billion, artificially, which is in principle filled by higher production and domestic productivity; to boost non-hydrocarbon exports and contribute to the establishment of a competitive market economy far from any monopoly, whether public or private.
The State, as a regulator and guarantor of social cohesion, especially at a time of budgetary and tensions domestic and at our borders should enforce the contract between employers and employees so that the logic of profit does not undermine the dignity of workers. Nevertheless, never forget that the most incredible moral devaluation in any society is being unemployed or assisted. The important thing is not to work in the national, international or state-private sector, the critical thing for our children is to find a sustainable job within the framework of social protection.
The second condition was a good preparation of a company X for privatisation, assuming transparent communication, as some executives and workers had heard the news in the press, which increased social tensions. Transparency is a fundamental condition for the acceptance of both the population and workers in the spirit of reforms linked to profound democratisation of society. The takeover of companies for executives and workers requires the creation of a risk bank to accompany them because they possess the technological, organisational and commercial know-how a hardcore of skills must constitute the basis of any reliable unit.
The third condition will be to avoid filialisations that were not operating in the past—sticking with bureaucratic power, being the basis for the success of both the partial opening of capital and total privatisation, the wealth in the accounts being often undefining. Lack of an updated land registry poses the problem of the non-existence of reliable title deeds without which no transfer of ownership can be carried out. As there is an urgent need to have transparent real-time accountings of public, private companies, that meet international standards, all measures will be ineffective especially for stock market valuation the actual sale price varies from time to time.
The fourth condition, time overlap of different institutions between selection, evaluations, tender notices, transfer to the stakeholders, then to the Government for the issuance of the final title of ownership would best be not arduous. It may discourage any takeover because mobile capital is invested only where economic and political obstacles are minimal. In this context, it is imperative that long bureaucratic circuits avoid a clearly defined synchronisation and that the current conflicting legal texts should be reviewed, which can lead to endless conflicts, hence the urgent need for their harmonisation with international law. Empowerment will need to be specified where it is necessary to determine who has it to request the undertaking of a privatisation operation. It is vital to prepare the transaction, to organise the selection of the purchaser, to authorise the conclusion of the transaction, to sign the relevant agreements and finally, to ensure that they are carried out correctly.
The four conditions for boosting the Algiers Stock Exchange
In lethargy since its inception, the ASE was built up like a stadium without players through administrative injunctions, like all the loss-making state-owned enterprises.
However, the revitalisation of the stock market implies three conditions.
First, the lifting of environmental constraints gives bureaucratic obstacles that cannot be a reliable purse without competition, avoiding legal instability referring to the rule of law.
Second, a stock exchange must be based on a renovated banking system. However, the Algerian financial system for decades has been the place par excellence for the distribution of the hydrocarbon rent and therefore a considerable challenge of power, and therefore the revitalisation of the stock market necessarily requires the overhaul of the financial system. Indeed, despite the number of private operators, we have a public economy with managed management, all activities whatever their nature feeding on budget flows, i.e. the very essence of financing is linked to the actual or supposed capacity of treasure. It can be considered that the banks in Algeria operate not from local market savings but by the recurrent advances from the Central Bank of Algeria that is refinanced by the public treasury in the form of reorganisation not only for the recent period but having to count the costs of restructuring between 1980/1990. This transformation is not in the scope of the company. However, it moves into the institutional field (distribution of the annuity hydrocarbons), and in this relationship, the Algerian financial system is passive. Bread 90% of these companies its returned to the starting box showing that it is not a question of capital money, real wealth can only assume the transformation of currency stock into capital stock, and there is the whole development problem.
Thirdly, there can be no stock exchange without the resolution of all deeds circulating shares or bonds. The urgency of the integration of the informal sphere cannot be underestimated. Issuing title deeds is vital as there can be no reliable stock exchange without clear and transparent accounting modelled on international standards by generalising audits and analytical accounting in order to determine the cost centres for shareholders. This raises the problem of adapting a socio-educational system, which does not exist as financial engineering. The balance-of-payments services item with foreign exchange outflows between 2010/2019 is between $9/11 billion per year, in addition to foreign exchange outflows from import goods. There are a few rare exceptions; it turns out that accounts Algerian public and private companies from the most important to the simplest in the State that would not pass the most basic audits due diligence. For example, SONATRACH needs new strategic management like the majority of Algerian companies, with clear accounts in order to determine costs by sections, where we are witnessing the opacity of its management which is limited to delivering consolidated global accounts covering the essentials without distinguishing whether the surplus accumulated is due to exogenous factors, international prices or good internal management. As a primer, we propose partial privatisation of a few profitable national champions to initiate the movement to enable the establishment of a stock market index consisting of volume and quality, acting as incubators of companies eligible for the stock exchange and attracting investors looking for financing and know-how.
The fourth condition is monetary stability and legal and monetary stability and the resolution of bad debts and debts, with state-owned banks crumbling under the weight of bad debts and the majority of state-owned enterprises in structural deficits, especially for the currency-denominated part involving transparent mechanisms in the event of exchange rate fluctuations. The simultaneous depreciation of the dinar against the Dollar, the main currency of exchange, does not respond to real values because their quotations are inversely proportional, has the essential aim of artificially filling the budget deficit, akin to an indirect tax. Indeed, on October 15, 2020, on the Stock Exchange, the Dollar is quoted at 1.2144 Euro, against 1.16 in June 2020, a depreciation of 5%, allowing a rise in the price of Brent by 5%. In reference to the June 2020 quote, the price of Brent quoted on December 15 at $50 would be $47.5 at constant prices, thus not having experienced a real increase in terms of purchasing power parity against the Euro and thus an increase in the import bill in euros in the same proportions. Thus, the current Government projecting for 2023 about 185 Dinar one Euro and 156 Dinars per Dollar and taking a 50% deviation from the parallel market we will have about 300 Dinars a minimum Euro in 2023 subject to the control of inflation otherwise the gap would be larger. They were compared to more than 200 Dinars in mid-December 2020 with a projection of 240/250 Euros at the end of 2021 in as to open borders and the inevitable increase in interest rates of the banks’ priorities to avoid their bankruptcies. In this case, it is illusory both to attract the savings of emigration via the banks that one wants to install with foreign exchange costs, as to capture the money capital via the informal sphere via Islamic finance. How do you want a trader with this monetary instability to appear on the stock exchange knowing that the value of the dinar will fall by at least 30% if not more in two to three years, depreciating its assets?.
The partial or total privatisation can be the process, with economic, social and political recompositions of power for a controlled liberalisation in order to avoid the squandering of public assets for the benefit of speculators interested mainly in real estate assets. It involves the transparency of specific objectives, the removal of bureaucratic obstacles, land, banks, the informal sphere, taxation, legal and monetary stability, essential criteria for any national investor.
How countries are raising debt to fight COVID and . . . why developing nations face tougher choices by Shamel Azmeh, Lecturer in International Development, Global Development Institute, University of Manchester is about the pandemic that is affecting all countries as described by the World Bank’s article as a heat-seeking missile speeding toward the most vulnerable in society. That metaphor applies not just to the vulnerable in the rich world; the vulnerable in the rest of the world is not more immune.
How countries are raising debt to fight COVID and why developing nations face tougher choices
COVID continues to ravage societies around the world, and a key issue is how governments can afford to fight it. As economies are disrupted, governments are stepping in to increase their spending to bail out companies, pay the cost of health measures, and subsidise workers’ wages.
Before COVID, when people argued that the state should be able to offer free healthcare and free education, among other services, and welfare measures, a standard political response was that state resources were limited. Asked by a nurse in 2017 why her wages hadn’t increased from 2009 levels, then British prime minister, Theresa May, said: “There is no magic money tree that we can shake that suddenly provides for everything that people want.”
Except, a few years later, the government has not only been able to pay the wages of millions, it has also created rescue packages for thousands of firms and offered people vouchers to eat out in restaurants. A number of European countries have also taken the unprecedented step of underwriting the wages of millions of workers in response to the pandemic.
How is the British state and others capable of this radical increase in spending at a time when revenues from taxes are collapsing?
‘Magic money tree’
The answer to this lies in the debt market. Over the past few months, world governments have drastically increased their borrowing to cover the costs of the pandemic. It might appear logical that the cost of credit will go up during uncertain economic times. The reality, however, is that capital often goes to safer sovereign debt during economic downturns, particularly as the equity markets become unstable and volatile.
Over recent months, rather than struggling to find lenders or having to pay more for debt, the governments of the major economies have been awash with credit at historically low rates. In October, the EU, until now a small player in the debt market (as borrowing mostly is by national governments of member states), began a major borrowing campaign as part of the efforts to fight COVID through the SURE programme (Support to mitigate Unemployment Risks in an Emergency) which was created in May.
The first sale of bonds worth €17 billion was met with what some described as “outrageous demand”, with investors bidding a total of €233 billion to buy them. This intense competition was for bonds that offered a return of -0.26% over ten years, meaning that an investor who holds the bond to maturity will receive less than they paid today.
The EU is not the only borrower that is effectively being paid to borrow money. Many of the advanced economies have been in recent years and months selling debt at negative rates. For some countries, the shift has been dramatic. Even countries such as Spain, Italy and Greece that were previously seen as relatively risky borrowers, with Greece going through a major debt crisis, are now enjoying borrowing money at very low rates.
The reason for this phenomenon is that while these bonds are initially bought by “traditional” market actors, central banks are buying huge quantities of these bonds once they are circulated in the market. For a few years now, the European Central Bank (ECB) has been an active buyer of European government bonds – not directly from governments but from the secondary market (from investors who bought these bonds earlier). This ECB asset purchase programme was expanded to help weather the COVID crisis, with the ECB spending €676 billion on government bonds from the start of 2020 until September.
Other central banks in the major advanced economies are following the same strategy. Through these programmes, those central banks encourage investors to keep buying government bonds with the knowledge that the demand for those bonds in the secondary market will remain strong.
Not everybody, however, enjoys a similar position in the debt market. While the rich economies are being chased by investors to take their money, the situation is radically different for poorer countries. Many poor countries have limited access to the credit market and rely instead on public lenders, such as the World Bank.
In recent years, this pattern began to change with a growing number of developing countries increasing their foreign borrowing from private lenders. Developing countries, however, are in a structurally weaker position than richer peers. The smaller scale of their capital markets mean that they are more reliant on external financing. This reliance means that developing countries rely on raising money in foreign currency, which increases the risk to their economies.
As many developing countries have less diversified exports with a higher percentage of commodities, the price decline in commodities in recent months has increased those risks. As a result, developing countries face a significantly higher cost of borrowing compared to the richer economies.
A few large developing countries, such as Indonesia, Colombia, India and the Philippines, have begun to follow the policy adopted by the advanced economies of buying government bonds to fund an expanding deficit. The risks of doing this, however, are higher than the richer economies, including a decline in capital inflows, capital flight and currency crises. A report by the rating agency S&P Global Ratings illustrated the differences between those two economies:
Advanced countries typically have deep domestic capital markets, strong public institutions (including independent central banks), low and stable inflation, and transparency and predictability in economic policies. These attributes allow their central banks to maintain large government bond holdings without losing investor confidence, creating fear of higher inflation, or triggering capital outflow. Conversely, sovereigns with less credible public institutions and less monetary, exchange rate and fiscal flexibility have less capacity to monetise fiscal deficits without running the risk of higher inflation. This may trigger large capital outflows, devaluing the currency and prompting domestic interest rates to rise, as seen in Argentina over parts of the past decade.
While the reaction of the market to this approach by developing countries has been muted so far, the report argued, this situation might change. Developing countries who do this could “weaken monetary flexibility and economic stability, which could increase the likelihood of sovereign rating downgrades”.
In July, following the participation of Ethiopia, Pakistan, Cameroon, Senegal and the Ivory Coast in a World Bank-endorsed G20 debt suspension initiative, the rating agency Moody’s took action against those countries arguing that participation in this scheme increased the risk for investors in bonds issued by these countries, leading to some developing economies avoiding the initiative in order not to send a “negative signal to the market”. Zambia is on the verge of being the first “COVID default” and other developing countries could face a similar situation in coming months.
As a result of these dynamics, many developing countries are facing the tough choice of giving up any economically costly health measures or facing serious fiscal and economic crises. Access to credit has become a defining factor in the ability of governments to respond to the pandemic. As a result of access to cheap credit, developed economies are so far able to take such health measures while limiting the social and economic impact of the pandemic. Many developing countries do not have this luxury. Not everyone gets to shake the branches of the magical money tree.
The pandemic has helped boost digital marketplaces in the region, opines Muhammad Chbib, CEO at Tradeling.
7 November 2020
The pandemic has propelled the use of e-commerce in the region and globally. What are the key trends you have seen? The most significant trend is the growth of homegrown capabilities in e-commerce in the region. Globally, while e-commerce has been recording strong growth – accelerated no doubt by the pandemic – the region has witnessed a transformational growth in the evolution of the digital economy. Not only have our homegrown companies demonstrated strong resolve to meet the needs of the people and support them, we have seen a tremendous amount of entrepreneurship – with new startups entering the market and building their own niche.
The second trend is more consumers warming up to the possibilities offered by e-commerce. While digital commerce was gaining momentum, one of the factors that has stymied its growth in the region is the relatively lower credit card penetration in some markets. There have also been typical concerns associated with conducting everyday business online. However, one thing the pandemic has brought about is the adoption of digital payments and the increased confidence of consumers to shop online and conduct e-commerce transactions.
In the B2B e-commerce space, how high is the penetration in the GCC market? Has it grown significantly this year? While B2B e-commerce was evolving at a slower pace compared to consumer-oriented digital business, this year has witnessed a real transformation. I believe it is a case of supply and demand. What matters is that in the new reality, business customers too want to access products and services easily, quickly and efficiently. We see a growth in the B2B marketplace – here in the UAE – and growing enquiries from across the GCC.
Which are the verticals within the sector where you see most scope for growth? It is really a matter of bringing more options to the customer, whatever the vertical. Customers like to shop around and feel they get value for money and exemplary service. But it is also a matter of sourcing new products and services that aren’t in the region yet.
For those entering the digital B2B industry, what are the main challenges? The main challenges are finding the right talent with expertise and insights into the B2B sector, which is a different terrain compared to B2C e-commerce. An in-depth understanding of the global market is essential in addition to knowledge of the trading dynamics. You must be flexible and agile to overcome any unprecedented situation. It is also a matter of understanding the customer – the B2B customer is very different from the B2C customer.
Our priority is making the customer journey seamless, taking away their pain points and streamlining processes to ensure efficiencies that save them time and money.
Tradeling launched in April, in the midst of the lockdown – how was your experience? Do you have any immediate plans to expand? We created Tradeling during the pandemic to connect regional and global suppliers to MENA-based business demand. Today, we have close to 400 suppliers from over 25 countries with gross merchandising value increasing from zero to a high two-digit million figure in just three months.
The key to overcoming the challenges was to enhance market confidence and we took decisive steps in this regard. Today, we have gone from a team of 40 to nearly 100 people and we continue to hire.
From logistics to financing support to ensuring a fully secure payment gateway, we are the first of our kind B2B platform across the region. This is our USP and this integrated approach to business has enabled us to address the challenges.
Looking ahead, what is the future of digital marketplaces in the region? Digital marketplaces constitute the future of retail and in the new reality, they will record a stronger rate of growth compared to brick-and-mortar retail. But the key for success is to define your own unique niche for the marketplace; increasingly, we see online aggregators trying to capitalise on the opportunity, which will only lead to market fragmentation. What we need is bold, innovative ideas that will help accelerate the momentum of e-commerce growth in the region.COVID-19DIGITAL MARKETPLACEE-COMMERCEGCCTRADELING
Iraq’s Prime Minister inherited a series of fiscal crises. As his interim government struggles to avert a complete economic collapse, austerity measures may come at the expense of much-needed reforms.
Since taking office, Iraqi Prime Minister Mustafa al-Kadhimi has faced a series of fiscal and security crises amid collapsing public services and protests. The collapse in global oil prices due to the coronavirus pandemic and the Saudi-Russia oil price war caused Iraq to face an internal solvency crisis as early as June. This fiscal crisis has short and long-term implications. In the short-term, Baghdad continuously struggles to pay public sector salaries, which required the state to borrow from the Central Bank over the summer. With low oil revenue, the state’s monthly profits are covering just over 50 percent of its expenses. In the longer-term, Iraq faces a looming macro-fiscal state collapse—potentially within the next year.
The state is struggling to cover its monthly expenses. Over successive governments, the size of the public sector has grown to the point that Iraq needs to spend more than its total revenue on basic payments—public sector salaries, pensions, food aid, and welfare—to keep a majority of Iraq’s population out of destitution. In 2019, oil revenue averaged $6.5 million per month, and with modest non-oil revenues (largely customs, well less than $1 billion per month), this covered operational expenses with a small amount left over for capital spending. Since the recovery of oil prices after the March collapse, Iraq’s monthly oil revenues have averaged just over $3 billion/month, hitting a high of $3.52 billion in August. In testimony before parliament in September, Finance Minister Ali Allawi revealed that with revenues at these levels, the government was still borrowing 3.5 trillion Iraqi Dinars (IQD) — just over $3 billion—from the Central Bank each month.
On October 10, as Iraq’s cash crunch became more acute, Allawi explained that state employee compensation rose from 20 percent of oil revenues in 2005 to 120 percent today. To help the public understand why the government of such an oil-rich country was broke, he explained that a government of this size should have at least $15 to 20 billion in funds to pay monthly expenses on an ongoing basis, but when this government took office, only about $1 billion was available. This is in part due to weak revenues, the result of low oil prices and Iraq’s adherence to OPEC’s limitations on oil exports. In the past, Iraq’s oil exports have reached 3.5 million barrels per day (bpd), yet they decreased to 2.5 million bpd in recent months. Prominent figures, including former oil minister Ibrahim Bahr al-Ulum, have argued in favor of leaving the OPEC agreement unilaterally. Yet Allawi, speaking before Parliament, explained that while he agreed that OPEC’s quota formula was unfair, Iraq needs the OPEC agreement to keep oil prices from collapsing. More recently, according to the Iraq Oil Report, the government has signaled that it may try to thread the needle by increasing exports by 250,000 barrels per day to satisfy critics—an amount above its quota, but still about 750,000 barrels per day below peak production, and thus hopefully too small an increase to incur Saudi retaliation.
Iraq’s monthly oil revenue to collapsed from $6.2 billion in January to just $1.4 billion in April. The figure recovered to $2.9 billion in May and has gradually improved since, but in August was still just $3.5 billion. Since the government only had about $3 billion in expendable reserves in May, it became clear that Iraq could not pay state employees in June. Salaries over the summer were paid as money became available. As late as July 28, the prime minister’s spokesman admitted that employees at the Culture & Antiquities Ministry (apparently the lowest priority), were still waiting to be paid.
The government saw this crisis coming and began preparing the public for austerity. Finance Minister Allawi made multiple public appearances, describing Iraq’s situation as dire and arguing for radical reform. In particular, he predicted that the government, while protecting base salaries, would make large cuts to employee benefits and other costs. On June 9, the cabinet followed through when it voted to implement a series of austerity measures, including cutting benefits, cutting unessential spending, and capping income from “double-salary” payments. Kadhimi’s advisor Hisham Daoud described the new policies as “not enough but only a start” toward reform.
Kadhimi, with no electoral base or political base of his own, has faced the fiscal crisis with a weak hand. This became clear when Parliament overwhelmingly rejected the government’s austerity policies on June 10, one day later. Even MPs friendly to the government described the government’s measures as premature, suggesting that they should try to raise revenue through customs first. Parliament eventually passed a borrowing law on June 24 to allow the government to borrow just enough to make basic payments. This law, however, prohibited the government from cutting benefits. Previously, the cabinet had the authority to cut benefits because, unlike salaries set by law, benefits were set by previous cabinet decrees. Thus, Parliament made the long-term problem worse.
In July, protests resurged in Baghdad as a result of the fiscal crisis. The shortage of money caused Iraq’s electricity shortage to worsen dramatically. Outgoing Electricity Minister Luay al-Khatteeb attributed the decline to two factors: lack of maintenance and the suspension of planned electricity projects.
The government has a few possible, but politically difficult, fixes at its disposal. They could cut the subsidy of roughly $1 billion per month to private electricity consumption, which exists because the ministry only collects a fraction of consumer payments. Finance Minister Allawi pointed out that “people don’t pay their electricity bills” and that “95 percent” of consumption costs was absorbed by the state, asserting that “electricity is not a constitutional right.” Yet such an effort will recall former prime minister Haider al-Abadi’s experience trying to extract electricity payments in 2017, which precipitated a strong protest movement. So far, Kadhimi has shown no sign of pushing the issue. His published comments during a cabinet meeting devoted to the electricity issue focused on “reducing bureaucracy” and improving maintenance, sidestepping the fact that maintenance workers have to be paid.
Iraq’s fiscal crisis comes on the heels of the political crisis of the outgoing government, which left the country without a budget for most of 2020. In such cases, Iraqi law allows the government to spend one twelfth of the previous year’s actual spending each month. Since this year’s revenues have been low, it never had the money to spend that much and simply spent what it had on basic payments. In September, the government released a budget for 2020 and the planned deficit was large—well over 100 percent—so as with past budgets much of the deficit will likely not be spent. The total anticipated revenues are 67.4 trillion dinars, or $57 billion, compared with proposed expenditures of 148.6 trillion dinars, or $125.7 billion. Oil revenue in 2019 was $78.5 billion yet is projected to be just $49.3 billion for 2020. The government withdrew the bill just two days after it arrived in parliament.
In September the government ran out of money, having used up the borrowing authority from the June bill. Given the population’s overwhelming dependence on state salaries, this brought the short-term financial problems to the fore. Furthermore, Parliament refused to authorize the new borrowing authority Allawi sought because the government had not submitted a “reform plan.” Thus in early October the government released a “White Paper” reform plan. The plan draws a broad and long path to reform that does not directly address the immediate crisis, except to the extent that its publication formally satisfies Parliament’s precondition for new borrowing.
An important part of Allawi’s efforts was his advocacy of Iraq accepting an International Monetary Fund “Stand-By Agreement” (SBA) which might be the only way to prevent a fiscal collapse next year. The agreement would also require spending cuts that parliament has already rejected. Allawi stressed that the IMF would not require cuts to programs protecting the poor, but rather to public sector compensation that, in Allawi’s view, Iraq needed to cut anyway.
This set the stage for a new debacle as the government then sent a new borrowing law to Parliament only to condemn it. A member of Parliament on the Finance Committee criticized the figures in the bill as irresponsible. Given the parliament’s role in aggravating the crisis, this was grandstanding. The looming parliamentary elections, due no later than 2022 and possibly earlier, are driving the political theater. Parliament will presumably pass an amended version of the government’s borrowing bill to allow the government to pay salaries. In the meantime, with salaries being paid late, disposable income is squeezed, further damaging an already weak economy. But Iraq could face a much worse scenario in 2021, as the IMF’s updated forecast for Brent oil prices projects $46.70 per barrel. Iraq’s Central Bank, which rescued the government over the summer, relies on a steady flow of dollars from oil revenues and given current prices range from $40 to $45, reserves are gradually declining. According to financial analyst Ahmed al-Tabaqchali, at current oil prices the Central Bank can continue to print money to fund the government “for about eight or nine months.”
In terms of immediate steps, at a minimum, a devaluation of the Iraqi dinar (long pegged at 1,182 to the dollar) seems likely in 2021. This would relieve some pressure on the Central Bank and make the government’s expenses cheaper (since its income is in dollars), but it would also drive up inflation over time. The bigger threat is that by mid-to-late 2021, the Central Bank will no longer be able to support the government, forcing austerity through non-payment of operational expenses, including salaries.
It is clear that the government needed to adopt a policy of cutting public sector expenses while increasing its capital investment in agriculture and industry and devoting more resources to education and health. Kadhimi’s reform measures in June were too little, too late. Still, the austerity that Parliament has resisted will be inevitable if oil prices do not rise dramatically in the months to come. A key priority from an international point of view is that the IMF, as a condition for its loans, impose upon Iraq the reforms for which Allawi has been advocating and which parliament has so rejected. It does not seem likely that reform will come to Iraq by any other means.
Kirk H. Sowell is the publisher of the biweekly newsletter Inside Iraqi Politics (www.insideiraqipolitics.com). Follow him on Twitter @uticarisk.
 In most of these comments, Allawi gives the figures in Iraqi dinars. I have converted them to dollars. Thus, he said, for example, that the Finance Ministry had 1.3 trillion IQD when he came into office. This is slightly over $1 billion.
 When a family received a payment for a deceased breadwinner and receives another government benefit.
 Testimony by the finance minister and discussion of the budget starts at 1:38:00.
 In the previously cited video from Parliament on September 8, he refers to the IMF briefly around 2:25:00, then again around 2:48:00, and once more near then end of the four-hour video in response to an MP attacking the IMF option.
 The reading begins at 00:09:00 and the comments referred to in the text follow.
 Author interview conducted on October 28, 2020 via Skype.More on:
On 27 August 2020, OXFAM found that all MENA billionaires’ wealth increased by $10 billion, enough to pay Beirut blast repair bill.
The 21 billionaires in the Middle East and North Africa (MENA), all of them men, saw their wealth increase by nearly $10 billion since the start of the COVID-19 crisis, almost double the estimated amount required to rebuild Lebanon’s shattered capital, while 45 million more people in the region could be pushed to poverty as a result of the pandemic, a new Oxfam report revealed today.
“The pandemic has exposed the deep inequalities and massive failures in our economic systems, leaving millions in the region without jobs, healthcare, or any kind of social security, while allowing billionaires to add more than $63 million to their fortunes each and every day since the beginning of the pandemic,” said Nabil Abdo, Oxfam in MENA’s senior policy advisor.
“Unless governments immediately prioritize people over profits and the rich pay their fair share, millions more will be pushed to the brink of poverty and denied their basic rights. For too long profit has been prioritized at the expense of the public good and safety. The result of this could not be starker in the aftermath of the catastrophic explosion in Beirut, which has further exposed the fragility of the economy and will only exacerbate existing inequalities.”
Governments in the region need to act quickly and raise revenues to protect the most vulnerable in society. In Lebanon, if a 5 percent solidarity net wealth tax had been introduced last year, $3.7 billion in tax revenues would have been generated to help rebuild the electricity and water infrastructure and provide services to keep people safe in the aftermath of the blast.
Before the virus hit, the MENA region was already one of the most unequal in the world; and COVID-19 has further deepened the gap between the rich and the poor. 76 percent of the region’s income goes to just 10 percent of the population, with 37 billionaires owning as much wealth as the poorest half of the adult population.
If Jordan, Lebanon, Egypt and Morocco had implemented a two percent wealth tax from 2010, these countries could have raised $38 billion in tax revenues, which could have been invested in improving public healthcare and rebuilding social protection systems.
At the same time, measures to protect the poor have fallen short. It is estimated that only 11 percent of stimulus packages in the region focused on social protection and health measures. Against this backdrop, an estimated 89 percent of the region’s 16 million informal workers have been severely affected by pandemic measures. Foreign investment is also projected to drop by 45 percent and 1.7 million people are expected to lose their jobs, 700,000 of them women, costing $42 billion in lost wages.
“The crushing austerity in recent years could have been avoided if the wealthiest in the region had paid more tax, a cost they can easily afford. This alternative could have given countries more flexibility on their spending policies and crucially, seen the region enter the coronavirus crisis with less inequality and debt”, added Abdo.
To avoid millions more being pushed to the brink of poverty, the region’s governments must urgently adopt deliberate inequality-busting policies like healthcare and education for all, and must raise the minimum wage and taxing wealth fairly to build better, more equal economies and societies.
Oxfam’s calculations are based on the most up-to-date and comprehensive data sources available. Figures on the very richest in society come from Forbes’ Billionaires List and Forbes‘ Real-Time Billionaires ranking. We compared the net wealth of MENA billionaires on March 18, 2020, to their net wealth on August 16, 2020.
PWC has estimated the cost of damage to 30-40 destroyed buildings, 3,400 uninhabitable buildings and a total of 40,000 buildings affected by the blast to be $5 billion.
Roslyn Boatman in Tunis, Tunisia | firstname.lastname@example.org | +216 21359002
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