Analysis of the impact of public borrowing on some macroeconomic variables in Iraq for the period (2004-2020)

by

Abbas Jawad Ahmed KISHMISH

To the Council of the College of Administration and Economics at the University of Karbala, which is part of the requirements for obtaining a master’s degree in economic sciences

Supervised by:- Prof. Dr.    Hayder Hussain Al Tuma

Abstract

     Over the past four decades, public borrowing, both internal and external, has remained far from the philosophy of borrowing for investment to achieve development, construction and reconstruction as a result of mismanagement of the economic file by the ruling authorities. The development loans associated with the state’s investment projects did not constitute more than 10% of the total Iraqi sovereign debt. Iraq continued to depend on oil revenues to pay off unproductive consumer debts, which wasted decades of development and prosperity for the country and billions of oil dollars. The financial impasse becomes more critical with the expansion of public expenditures beyond the limits of the country’s financial capacity due to government practices and parliamentary legislation that did not take into account the financial aspect when planning and legislation. Rather, previous governments used to pressure investment expenditures or resort to public borrowing in the event that oil revenues did not absorb the total public expenditures. This exacerbated the risks of exposing the economy and the budget to oil revenues on the one hand, and public borrowing on the other. The research attempts to analyze the impact of public borrowing, both internal and external, on some economic variables in Iraq during the period (2004-2020) by tracking trends in the development of the relationship between public borrowing and economic growth, inflation rates, investment and exchange rates during the mentioned period. Modern standard models (ARDL linear regression model) were used to test the short-term and long-term relationship between the mentioned variables. The results concluded that the effects of the internal and external public debt on economic growth, inflation, investment and exchange rates vary during the short and long term, given that most of the studied variables are directly or indirectly related to the movements of oil prices in global markets. The research came out with a number of conclusions and recommendations.