Iraq expects to step up T-bill activity in 2010
* Secondary T-bill market to boost banks' liquidity
* Also plans to create new forex markets
* Sees return to budget surplus in 2012
BAGHDAD, March 10 - Iraq expects to step up its treasury bill activity in 2010 to help plug continuing budget deficits and foster a secondary treasury market, the Central Bank and Finance Ministry said in a submission to the IMF.
Iraq also wants to promote the development of foreign exchange markets outside the framework of regular dollar auctions currently conducted by the Central Bank, including an interbank market and dinar forward market, the submission said.
The country's letter of intent to the International Monetary Fund can be accessed at http://www.imf.org/External/NP/LOI/2010/irq/020810.pdf.
In the submission for a $3.6 billion standby arrangement, dated Feb. 8, Iraq said the country only now emerging from years of sectarian slaughter that followed the 2003 U.S.-led invasion would not return to a budget surplus until 2012.
"As our financing needs in 2010 will still be substantial, we will step up our efforts to mobilize domestic financing through the Treasury bill market," Iraq's Central Bank head and finance minister wrote.
"To that end, we will conduct regular auctions, and refrain from cancellations, while allowing interest rates to be determined by the market. This will have additional benefits by determining a benchmark interest rate, while the development of a secondary market for treasury bills will allow banks to improve their liquidity management." They said the country planned to introduce a sales tax, as a precursor to a Value Added Tax, "in the coming years".
Iraq's gross domestic product expanded by 4 percent in 2009 compared with almost 10 percent the year before, the submission reported. GDP growth would rise to almost 7 percent this year and 7.5-8.0 percent in 2011 and 2012, it said.
That improvement would be rooted in an increase in Iraqi oil output to 3.1 million barrels per day by 2012, from around 2.5 million bpd now, and exports of 2.5 million bpd, compared to just over 2 million bpd now.
Amongst other things, the submission said Iraq's central bank planned to create a foreign exchange market outside the framework of regular dollar auctions now conducted by the bank. The bank uses the auctions to set the exchange rate, which has been held at 1,170 dinars per dollar for many months.
"To improve the functioning of foreign exchange auctions, we plan to develop organized exchange markets outside the central bank, including an interbank foreign exchange market," it said.
"Our aim is to establish a forward market in Iraqi dinars in the near future."
Forward Market
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Market dealing in commodities, currencies, and securities for future (forward) delivery at prices agreed-upon today (date of making the contract). In commodity and currency markets, forward trading is used as a means of hedging against sharp fluctuations in their prices. See also futures market.
Commodity ~
Reasonably homogenous good or material, bought and sold freely as an article of commerce. Commodities include agricultural products, fuels, metals, etc., and are traded in bulk on a commodity exchange or on spot market.
The forward market is the over-the-counter financial market in contracts for future delivery, so called forward contracts. Forward contracts are personalized between parties (i.e., delivery time and amount are determined between seller and customer).
The forward market is a general term used to describe the informal market by which these contracts are entered into. Standardized forward contracts are called futures contracts and traded on a futures exchange.
It should not be confused with the futures market.
