Today, an exclusive analytical study prepared by Counselor Samir Al-Nusairi, a member of the International Federation of Arab Bankers, was published, examining several critical factors affecting the economic landscape in the Arab countries, particularly Egypt and North Africa. The study highlights important aspects such as monetary policy, opportunities for monetary stability, and digital transformation, providing insights into the economic variables that have emerged since 2003. It underscores the urgent need for fundamental reforms within the Central Bank of Iraq, emphasizing its independence and confirming its primary role in safeguarding the nation’s resources.
The study addresses the central bank’s responsibilities in combating money laundering and financing terrorism, which are at the forefront of challenges it faces. Maintaining the institution’s independence is crucial for it to operate effectively without government intervention, thereby serving the interests of society as a whole. Additionally, the central bank plays a significant role in ensuring exchange rate stability and managing the monetary supply. The report also critiques the current process of foreign currency sales, which is perceived by some as a misallocation of public resources, asserting that such allegations lack economic validation. The Central Bank of Iraq is tasked with ensuring financial stability, managing the payments system, overseeing foreign reserves, and regulating banks and financial institutions, while also implementing preventative controls and disseminating vital economic data and forecasts.
The primary aim of monetary policy is to stimulate the national economy, balance the payments, and achieve monetary stability. The study emphasizes that achieving critical stability is essential for establishing long-term economic stability, necessitating that the monetary authority maintain price stability within targeted levels.
Counselor Al-Nusairi’s analysis reveals that Iraq’s dependence on a rentier economy, with 95% of public budget revenue derived from oil, presents significant challenges. The weak activation of the real sector and other productive industries hampers the financing of the state’s budget deficit, which negatively correlates with the independence of the central bank, particularly when the deficit is financed through the bank purchasing treasury transfers.
Since the end of 2015, the Central Bank has acquired treasury transfers to pay salaries, contractor dues, and agricultural payments. The study also scrutinizes the limited state of the financial markets, including stock and bond markets, which inhibits the effective utilization of local savings and leads to liquidity drains that are not channeled into productive sectors. It highlights the weaknesses within the banking system, which is critical to the economy and a key component for achieving monetary stability. Government banks dominate this sector with an 80% share, contributing to issues such as troubled debt, inadequate credit focus, and weak institutional governance, resulting in substantial financial challenges due to dwindling real sector activity.
Al-Nusairi also pointed out the progress made toward digital transformation in Iraq’s banking sector, a process initiated by the Central Bank in 2016 and further supported through distinct strategic phases. Recently, collaboration between the Central Bank and the government, under the guidance of Prime Minister Mohammed Shia Sudani and the Digital Transformation Committee, has accelerated the shift toward a digital economy. The volume of digital payments surged to 7.6 trillion Iraqi dinars by October 2024, up from 2.6 trillion in December 2023, marking a growth to 48.5% in digital transactions compared to 20% in previous years. Iraq now boasts an advanced infrastructure capable of supporting electronic payment solutions and financial services, with projections that smartphones will soon facilitate various banking operations. This shift not only simplifies citizens’ access to financial services but also generates vital transaction data at a national level.
The study notes a pivotal stage in banking reform, with the Central Bank currently evaluating approximately 70 applications for new digital banks, adhering strictly to established regulations. This initiative marks a promising leap toward technological advancement in banking operations aimed at bridging the technical gap with global standards. The number of automated cashiers exceeded 4,000, and over 17 million electronic cards have been issued. The presence of POS devices has increased to around 63,000, contributing to a rise in financial inclusion from 20% to 40% over the past two years. The banking system in Iraq is witnessing transformative changes, particularly concerning the transition of traditional banks to smart digital platforms, leading to the potential decline of cash transactions in favor of digital payments.
Furthermore, the Central Bank is pursuing the establishment of a digital currency, aligning with global central bank practices. It is also working towards developing a data center in Iraq, similar to major global facilities, with the objective of leveraging artificial intelligence and big data analytics as part of its digital economy strategy. These initiatives reflect the Central Bank of Iraq’s commitment to embracing modern financial technologies and bridging the gap with international standards.
