Iraq Economic News and Points to Ponder Tuesday Evening 3-18-25

Monetary Policy In Iraq And Opportunities For Monetary Stability And Digital Transformation
 
Reports  Samir Al-Nusairi   Today, the Emirati economic magazine Investments, widely circulated in the Arab world, Egypt, and North Africa, published an exclusive analytical study prepared by Counselor Samir Al-Nusairi, a member of the World Union of Arab Bankers.
 
The study highlighted several factors, most notably monetary policy, opportunities for monetary stability, and digital transformation.  The study highlighted the economic changes that occurred after 2003, when the need for radical reform of the Central Bank emerged.

A new law was issued, affirming its independence and consolidating its essential role in protecting the country's resources.
 
Defining its tasks in combating money laundering and terrorist financing attempts, which are at the forefront of the challenges facing the Central Bank of Iraq.
 
It also aims to maintain the bank's independence, enable it to perform its mission without government interference, and make it an effective institution that guarantees the interests of society as a whole.
 
In addition to its control over the stability of the exchange rate and management of the money supply, she pointed out that the process of selling foreign currency requires a deep understanding in light of the major accusations the bank is facing without evidence proving the existence of suspicions of corruption, money laundering, or currency smuggling.
 
She added that selling currency is a waste of public funds, as this description does not relate to economic science.
 
She explained that the Central Bank of Iraq is concerned with financial stability, managing the payments system, managing foreign reserves, and licensing and monitoring banks and financial institutions, as it is responsible for establishing preventive controls, in addition to other tasks related to currency issuance and publishing data, indicators, and economic forecasts.
 
And managing monetary policy, which aims to stimulate the national economy, balance the balance of payments, and achieve monetary stability.
 
She noted that monetary stability represents the starting point for economic stability, which requires monetary stability, embodied in the monetary authority's ability to achieve price stability at targeted levels.
 
The study, prepared by "Consultant Samir Al-Nusairi," revealed the challenges facing monetary policy, most notably the rentier economy, which relies on 95% of general budget revenues, and the weak activation of the real sector and other productive sectors.
 
The study pointed out that financing the state's general budget deficit represents the greatest challenge facing monetary policy, and is inversely proportional to the independence of the Central Bank, as this deficit is financed by the bank purchasing treasury bills and rediscounting them.
 
The Central Bank has deducted treasury transfers from the end of 2015 to the present for the purpose of paying salaries and dues to contractors and farmers.

The study pointed out that the financial markets, stock and bond markets, capital markets, and money markets are limited, which misses opportunities to invest local savings and limit the phenomenon of hoarding and withdrawing liquidity to invest it in real sectors.
 
It pointed to the weakness of the banking system, which represents a fundamental pillar of the economy and its main link and an important arm of the Central Bank in achieving monetary stability. It confirmed the dominance of government banks in the sector by more than 80%.
 
There is also the problem of bad debts and credit concentration.
 
There is also weak institutional governance.
 
There is also the exposure to financial shocks due to the decline in real sector activity.
 
The study noted the decline in local investment and the increase in foreign savings.
 
Samir Al-Nusairi, a member of the International Union of Arab Bankers, pointed out that the Central Bank of Egypt began implementing the digital transformation in the banking sector in 2016, with clear phases included in its first, second, and third strategies.
 
Over the past two years, cooperation between the Central Bank and the government, with the personal support and follow-up of the Prime Minister and his chairmanship of the Digital Transformation Committee, has been a fundamental step toward activating and accelerating the transition to a digital government and moving from a cash economy to a digital economy.
 
The amount collected from digital payments reached 7.6 trillion Iraqi dinars in October 2024, up from 2.6 trillion Iraqi dinars in December 2023.
 
The rate of digital transformation and electronic payments increased to 48.5%, compared to 20% in previous years.
 
The study continued that Iraq now has an advanced infrastructure capable of accommodating electronic payment tools and financial services.
 
It will soon transition to digital banks, where smartphones will drive various banking operations.
 
This transformation will facilitate financial access to services for citizens and provide vital data at the national level on the nature of transactions, their content, supervision, and compliance achieved through this comprehensive system.

The study also indicated that banking reform has now entered the transition phase to digital banks, with the Central Bank currently examining and auditing approximately 70 applications to license new digital banks in accordance with the precise controls and conditions adopted by the Central Bank.

This represents a real and promising start for technical banking development in Iraq to bridge the technical gap with countries around the world in this field.
 
The study pointed out that the current phase is witnessing significant development in the electronic payment system through an increase in the number of ATMs, which exceeded 4,000, the number of electronic cards issued exceeded 17 million cards, the number of POS devices reached approximately 63,000 devices, and the number of credit wallets also increased.
 
It explained that the
 
financial inclusion rate rose to 40% after it was 20% two years ago, and that
 
Iraqi banks are currently witnessing qualitative transformations in their banking operations, especially with regard to future banks that will transform from traditional entities to smart digital platforms and issue digital financial identities that facilitate financial transactions without the need for banks.
 
It stated that the financial and banking system will witness a decline in paper currencies to be replaced by digital payments for central banks, and that
 
the Central Bank is moving to create its own digital currency to gradually replace the paper process, as is happening in some central banks around the world.
 
It is also working to establish a data center in Iraq similar to the major centers in the world, considering it in the digital economy the basis for artificial intelligence, applications, big data analysis and the Internet, and that the Central Bank of Iraq has begun promising steps in this direction.     https://economy-news.net/content.php?id=53283    

The Role Of Electronic Payment In Strengthening Our Banking System
 
Dr. Haitham Hamid Mutlaq Al-Mansour
 
In light of the rapid technological developments witnessed worldwide, financial and banking systems are facing radical transformations aimed at enhancing efficiency, transparency, and financial inclusion.
 
Among these transformations, the electronic payment system stands out as a fundamental pillar in reforming banking systems, especially in developing countries like Iraq.

The Iraqi banking system, which has suffered for many years from structural challenges and weak infrastructure, has begun to witness positive transformations thanks to the adoption of electronic payment technologies.
 
Electronic payment affects the banking system in general through:
 
1. Increased confidence in the banking system: Electronic payments enhance customer confidence in the banking system by providing secure and fast payment methods.
 
When individuals feel their financial transactions are secure and easy to conduct, they are more likely to deposit their money in banks rather than keeping it in cash.
 
2. Promoting financial inclusion: Electronic payments facilitate access to banking services for individuals and small businesses, especially in remote areas or areas with a lack of bank branches.
 
When more people can open bank accounts and conduct financial transactions easily,
this leads to increased deposit rates, as
 
depositing money in banks becomes more attractive than keeping it outside the banking system.
 
3. Reducing reliance on cash: In economies that rely heavily on cash, deposit rates are relatively low due to the widespread cash culture.
 
By adopting electronic payments, reliance on cash can be reduced and individuals and businesses can be encouraged to deposit their money in banks, leading to higher deposit rates.
 
4. Improving the efficiency of banking operations: Electronic payments reduce banks' operational costs, as they eliminate the need for traditional branches and their staff.
 
This improvement in efficiency can translate into better returns on deposits, making them more attractive to savers.
 
5. Increased transparency and anti-corruption: Electronic payments enhance transparency in the financial system, as financial transactions become recorded and monitored.
 
This reduces the risk of corruption and tax evasion, enhancing customer confidence in the banking system and encouraging deposits.
 
Global data clearly demonstrates the strong positive relationship between the spread of electronic payments and increased deposit rates in the banking system.

It is noted that countries that have adopted effective electronic payment systems, such as China, India, and Kenya, have seen significant increases in deposit rates, demonstrating the impact of electronic payments on the banking system. This is as follows:
 
1. China:
 
It is one of the most advanced countries in the field of electronic payments, with more than 80% of the population relying on platforms such as Alipay and WeChat Pay.
 
According to World Bank reports, deposit rates in China have increased significantly with the spread of electronic payments, with the deposit-to-GDP ratio reaching more than 180% in 2022.
 
Electronic payments have contributed to increased financial inclusion, with the number of bank accounts increasing from 64% in 2011 to more than 90% in 2022.
 
2. India:
 
Following the launch of the Unified Payments Interface (UPI) system in India, bank deposits increased significantly.
 
In 2022, the deposit-to-GDP ratio reached 75%, up from 60% in 2016.
 
Electronic payments have contributed to an increase in the number of bank accounts from 35% in 2011 to more than 80% in 2022.
 
3. Kenya:
 
Kenya is a pioneer in the use of mobile payments through M-Pesa.
 
Bank deposits have increased from 20% in 2007 to more than 70% in 2022, thanks to the spread of electronic payments and increased financial inclusion.
 
4. Sweden:
 
Sweden is one of the countries with the highest reliance on electronic payments, with cash transactions accounting for less than 1% of total transactions.
 
Meanwhile, the Swedish deposit-to-GDP ratio is around 90%, reflecting high confidence in the banking system.
 
In Iraq, the deposit-to-GDP ratio remains relatively low compared to other countries, recording a 9% decline.
 
However, since 2024, the banking sector has begun to witness a significant decline in the total value of deposits, with a 9% decline from IQD 133.5 trillion in 2023 to IQD 123.5 trillion in 2024.
 
This decline is despite the increase in the number of bank accounts following the widespread adoption of electronic payments, which rose from 23% to approximately 50% in just a few years.
 
This reveals the reasons behind the decline in the value of deposits in the banking system, especially in light of the Central Bank's move to promote electronic payment tools and increase reliance on the banking sector.
 
This poses significant challenges for the government to address, developing medium- and long-term plans, and adopting supportive policies to address these challenges, which include the following:
 
1. Weak technological infrastructure: Iraq's telecommunications and internet networks continue to suffer from quality and coverage issues, hindering the effective implementation of electronic payment systems.
 
2. Low levels of financial literacy: A large portion of the population relies on cash transactions due to a lack of sufficient awareness of the benefits of electronic payment and how to use it.
 
3. Lack of a legal and regulatory framework: The implementation of electronic payment requires clear laws and regulations that govern electronic payment operations, protect consumer rights, and facilitate and enhance the flexibility of payment processes.
 
4. Security concerns: Some individuals still fear the risks of cyber-hacking and data theft, which limits their use of electronic payments.   https://economy-news.net/content.php?id=53398 

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