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His idea goes back decades.. A parliamentary move to activate the Iraqi sovereign fund

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His idea goes back decades.. A parliamentary move to activate the Iraqi sovereign fund

Thursday, March 24, 2022 11:04 PM
National News Center /NNC/

After Iraq has gone through economic crises, sometimes political and security, it seeks to establish the Generations Fund to face the depletion of oil.

This government approach was welcomed by the economic and parliamentary circles because of the benefits it may achieve for the Iraqi economy and for future generations.

The Iraqi government intends to establish the first sovereign wealth fund to be financed from surplus financial budgets with the aim of building a coherent financial barrier that prevents economic collapse, as well as the possibility of investing these funds in reviving the local economy and addressing crises that may arise as a result of falling oil prices.

Parliamentary action to activate the sovereign fund

Today, Thursday, a member of the Sadrist bloc, Raed Al-Fatlawi, called for the necessity of activating the sovereign fund.

Al-Fatlawi said in a statement to the "National News Center": "This fund is supposed to be established at an early date to solve many economic problems and the days of the ISIS war," adding that

"now there is a good opportunity with the oil conditions and the economic situation for Iraq is better in light of a war." Russia and Ukraine, which have been somewhat misguided.”

He continued, "The rise in oil prices is in the interest of Iraq, and this fund is to secure the future of future generations and also fill the lack of services," noting that

"there is a parliamentary movement on this fund to work on it soon."

Al-Fatlawi indicated that "the most important obstacles to the establishment of this fund are political and security ones, and during the past years, between 2014-2021, they did not allow the establishment of the fund due to the lack of financial abundance."

What does the sovereign fund of Iraq provide?

Adviser to the Prime Minister, Mazhar Muhammad Salih, explains to the “National News Center” that “sovereign wealth funds or social wealth funds go to state-owned investments that invest the country’s available cash interests and transfer them to various real estate and financial assets or assets such as stocks, bonds, precious metals, or in Alternative investments such as private equity and hedge funds.

He continued by saying: "Sovereign wealth funds existed in order to maximize the sources of wealth themselves, meaning financing most of the world's sovereign wealth funds from the proceeds of exports of raw materials or oil owned by the state."

And he indicated that, “at the level of Iraq, the effective Financial Management Law No. 6 of 2019 provided the opportunity to invest financial returns that exceed financing expenses, in the fiscal year by establishing a sovereign fund,

in other words, the legal basis is now available through the text of the Administration Law The effective finance itself in this regard and there are no obstacles, and that the law of the Central Bank of Iraq in force through its discreet foreign investment department possesses the means, financial tools and efficient investment management in managing the sovereign fund with the various financial and investment tools available, and similar to its great capabilities in managing the country’s reserves of foreign currency currently, which are Its management is quasi-sovereign wealth fund.”

He pointed out that “despite the foregoing, it can be said and based on the financial management law in force and referred to above, the increase in total revenues (the basis of which is certainly oil revenues),

that is, when it is outside the limits of financing the federal public budget expenditures or exceeds the limits of planned financing, will be subject to provisions Article (19) / Second of the effective Financial Management Law No. (6) of 2019, which states: When the actual revenues exceed the estimates in the Federal General Budget Law for the fiscal year, and after covering the actual deficit, if any, the surplus is provided for use in the budgets of the following years in the (Fund). Sovereign).

This means, in all cases, the generation of official reserves that will be used for spending in the coming years through a sovereign savings fund managed according to the best international practices in managing and investing the official reserves of countries,

and benefiting from the investment returns of those official foreign reserves

or disposing of them in financing the budgets of the coming years and achieving what is called financial sustainability.

Certainly, the priority will go towards the sustainability of financing investment projects that contribute to the development of national income and the economic prosperity of our country.

In other words, if the 2022 fiscal year ends, for example, without approving the general budget (and starting spending with a ratio of 1/12 of the actual current expenditures for the past year), i.e. for the year 2021, the financial returns go to a fund or reserve account that represents the sovereign wealth, and

certainly the priority It will go towards the sustainable financing of investment projects that contribute to the development of national income and the economic prosperity of our country.

Political reasons for not establishing the fund

To this, the expert in economic affairs, Salama Sumaisem, points out, “The Sovereign Fund, before it is formed, needs political management.

Successive governments from 2003 until now must have the political will to rehabilitate this fund once Iraq has experienced great periods of financial prosperity, due to the increase in oil revenues.”

She explained, "Local governments did not think about establishing this fund, stressing that

the issue is political and there is a need to establish a fund there."

Sumaisem added, "There is a proven fact that oil is a wealth that is permeable.

The energy pattern has been transformed into other alternative types, the most important of which is clean energy.

Therefore, the historical responsibility and the students require the establishment of a fund that serves future generations, adding that now it does not exist." through the financial market to finance this fund.”

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