Mechanisms of fiscal discipline and the role of the central bank in facing systemic risks-An analytical study of the banking sector in Iraq for the period(2004-2021)

A Thesis Submitted By

Ahmed Abdul-Jabbar Sabah

To The Council of Management and Economic College

University of Karbala

In Partial Fulfillment of the Requirements For The

Degree of Master of Science in Economics

Supervisor By

Asst. Prof. Dr. Sarmad Abdul-Jabbar Al-khairallah

The Iraqi economy is one of the rentier economies that depend mainly on oil exports where the oil sector constitutes the largest part of the gross domestic product which is offset by twice the output of the rest of the other sectors of the economy. which worked to significant structural imbalances in the gross domestic product despite Iraq achieving large financial surpluses as a result of selling oil for most of the study period ( 2004-2021).

The study aims to clarify the effectiveness of fiscal discipline mechanisms in facing systemic risks, through the possibility of using some macroeconomic variables on the Iraqi banking system and analyzing the relationship between fiscal discipline rules and systemic risk indicators represented by macro-prudential tools in Iraq. The importance of the study comes in light of the internal and external economic fluctuations that the Iraqi economy is exposed to, assuming that the effectiveness of financial control mechanisms through the use of macro-prudential policies works to achieve economic stability standard, based on statistical data in Iraq for the period (2004-2021), The researcher reached several conclusions, including that the relationship between the independent and dependent variables of the time series of the unit root is unstable and stabilized after taking the first differences, and the existence of a long-term equilibrium relationship. When conducting the (ARDL) test, it was found that the relationship between GDP and the independent variables had a significant effect on the model. The independent variables (RE, IE, GR) in the model explained the dependent variable (GDP) by (99%). Liquidity and financial rules have a significant impact, and that the independent variables .The model explained the dependent variable by (92%). The researcher recommends adopting the rules of financial control in financial operations in order to support economic stability, as well as anticipating crises before they occur, as macroeconomic policies require a stable financial system. And the need to apply as much macro-prudential policies as possible and develop them to ensure the stability of the Iraqi financial sector and avoid any future risks.

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A Thesis Submitted By

Ahmed Abdul-Jabbar Sabah

To The Council of Management and Economic College

University of Karbala

In Partial Fulfillment of the Requirements For The

Degree of Master of Science in Economics

Supervisor By

Asst. Prof. Dr. Sarmad Abdul-Jabbar Al-khairallah

The Iraqi economy is one of the rentier economies that depend mainly on oil exports where the oil sector constitutes the largest part of the gross domestic product which is offset by twice the output of the rest of the other sectors of the economy. which worked to significant structural imbalances in the gross domestic product despite Iraq achieving large financial surpluses as a result of selling oil for most of the study period ( 2004-2021).

The study aims to clarify the effectiveness of fiscal discipline mechanisms in facing systemic risks, through the possibility of using some macroeconomic variables on the Iraqi banking system and analyzing the relationship between fiscal discipline rules and systemic risk indicators represented by macro-prudential tools in Iraq. The importance of the study comes in light of the internal and external economic fluctuations that the Iraqi economy is exposed to, assuming that the effectiveness of financial control mechanisms through the use of macro-prudential policies works to achieve economic stability standard, based on statistical data in Iraq for the period (2004-2021), The researcher reached several conclusions, including that the relationship between the independent and dependent variables of the time series of the unit root is unstable and stabilized after taking the first differences, and the existence of a long-term equilibrium relationship. When conducting the (ARDL) test, it was found that the relationship between GDP and the independent variables had a significant effect on the model. The independent variables (RE, IE, GR) in the model explained the dependent variable (GDP) by (99%). Liquidity and financial rules have a significant impact, and that the independent variables .The model explained the dependent variable by (92%). The researcher recommends adopting the rules of financial control in financial operations in order to support economic stability, as well as anticipating crises before they occur, as macroeconomic policies require a stable financial system. And the need to apply as much macro-prudential policies as possible and develop them to ensure the stability of the Iraqi financial sector and avoid any future risks.