Bondlady’s Corner – Iraq Economic News and Points to Ponder Saturday AM 12-2-23


Iraq Economic News and Points to Ponder Saturday AM 12-2-23

Tlm724 Administrator Bondlady’s Corner

Specialists: Reconstruction bonds are an important step whose interest should be increased
Money and business  Economy News _ Baghdad  The Ministry of Finance announced its intention to launch the second issuance of reconstruction bonds worth more than one trillion dinars, which can achieve a number of economic results, the most important of which is reducing high inflation rates and closing the budget deficit.
While specialists expressed their support for such steps, they stressed the necessity of raising the value of… The monetary interest specified for those bonds, with the aim of increasing the desire to acquire them, and thus absorbing the citizens’ accumulated cash mass.

The Ministry of Finance’s step comes after the launch of “Emaar” bonds during the previous month of September,
indicating that the new measure comes in implementation of the paragraphs of the government program related to enhancing the development and investment aspects represented by the reconstruction and construction movement that the country is witnessing,
in addition to developing financial and monetary policies and providing opportunities for citizens to contribute to the overall Economic activity through investment in bonds.
Despite the positives achieved by launching financial bonds, specialists believe that the only obstacle to such steps is the possibility that inflation will swallow up the annual interest on assets, and
therefore the interest rates allocated to these bonds should be increased.
The Ministry of Finance stated in a press statement,
“Given the strong demand for trading in national bonds (reconstruction bonds) and the full subscription of the first issuance amount, the Ministry, represented by the Public Debt Department, in cooperation with the Central Bank of Iraq, intends to make the second issuance of reconstruction bonds available at a value of 1.5 ( One trillion Iraqi dinars) and with the same mechanism previous to the first issue.  She added,
“This measure comes in implementation of the paragraphs of the government program related to strengthening the development and investment aspects represented by the reconstruction and construction movement that our dear country is witnessing, in addition to developing financial and monetary policies and providing opportunities for citizens to contribute to the overall economic activity through investment in bonds,” noting that
“these bonds are issued Guaranteed by the Ministry of Finance, the
bond can be acquired by submitting an application to one of the official banks licensed and registered with the Central Bank.

The Ministry called on “investors and citizens to take advantage of the offer and take the initiative to benefit from this investment opportunity,” noting that “the size of this issue will be limited.”  She continued,
“The second issuance of bonds worth one and a half trillion dinars is tradable in the Iraq Stock Exchange,
and is available in two categories, the
first at a price of (500,000) five hundred thousand dinars, with an annual interest of 6% for two years, and the
second at a price of 1,000,000 million dinars, with an annual interest.” 8% for four years.
The Ministry pointed out, according to the statement, that
“purchasing and trading of the bonds offered are exempt from taxes according to what is stated in the General Federal Budget Law No. 13 of 2023.”
In turn, the economic expert, Ali Jalil Obaid, believes that the interest on stocks for a period of 15 days is approximately 7.5%, which is higher than the interest allocated to bonds,
so it was logical to offer bonds with an interest rate of 10% as a minimum in order to avoid the impact of inflation.
Obaid pointed out that the first issue was subscribed to by private banks with high liquidity, and
most of these banks were satisfied and could not freeze much of the liquidity available for this purpose, indicating that
“bonds are traded like stocks in the Iraqi stock market, and
both are subject to the law of supply and demand.”
They are linked to the percentage of distribution of profits and annual interest,” explaining at the same time that
“bonds differ from stocks in that they achieve a fixed annual return.
As for stocks, their return depends on the company’s activity and efficiency, and
it is not required that they be distributed annually, nor is it required that the distribution rate be equal or similar.” every year”.

The speaker stated that the
bond market in Iraq was not promoted and marketed, whether by the Central Bank or by the Iraq Stock Exchange, so you see that the
previous issues were acquired by the banking sector, indicating that the problem with this type of investment is that Inflation can eat up or swallow up annual interest.
In support of the previous opinion, the economic expert, Dr. Mahmoud Dagher, said during a press interview that
“encouraging work with these financial instruments requires that the interest rate be much higher than what was announced on the issue of financial bonds,
because if we subtract the inflation rate from the nominal interest rate, the result will be a low interest rate that does not It encourages and does not encourage engaging in bond purchases, and
therefore banks that have surplus funds in dinars will not resort to buying these bonds.”
While the President of the Iraqi Stock Exchange Investors Association, Dr. Alaa Al-Moussawi, confirmed that
“the issuance of reconstruction bonds comes in implementation of the Federal General Budget Law, which included the Ministry of Finance issuing government bonds to finance the Federal General Budget deficit, as
this step will achieve a package of positive steps in addition to financing… Deficit,
the most prominent of which is withdrawing part of the cash mass held by citizens outside the banking system and
using it to
finance service and investment projects,
providing job opportunities for citizens,
increasing the domestic product and
strengthening the national economy, and
contributing to reducing the rate of inflation by reducing the cash liquidity stored among citizens and
contributing to preventing the prices of goods from rising. And services by reducing the demand for their purchase due to the decrease in cash liquidity among citizens, in addition to
contributing to improving the exchange rate of the Iraqi dinar.”
99 views     Added 11/30/2023 – 8:09 AM

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