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A new report examining the Iraqi financial sector notes that while the system is still characterized by state-domination and lack of transparency, the financial sector can play a key role in modernizing the Iraqi economy and allowing it to reach its full potential. The report also assesses the impact of recent reforms introduced by the Iraqi government and the Central Bank of Iraq on the performance and soundness of the financial sector, as well as the sector’s contribution to enhancing the country’s economic growth.
This report was initiated at the request of the Iraqi government to get a better understanding of the overall financial sector in Iraq. The main objective of the report was to develop a comprehensive assessment of the financial sector. The report assessed the impact of recent reforms introduced by the Iraqi government and the Central Bank of Iraq on the performance and soundness of the financial sector, as well as the sector’s contribution to enhancing Iraq’s economic growth. It followed a forward-looking developmental approach, identifying key challenges and priority areas of reform moving forward.
This review came at a very opportune time in light of the need to respond to the potential impact on the Iraqi financial sector of the global financial challenges, and the need to ensure that the momentum behind reform efforts does not slow down. Furthermore, with the current political situation in Iraq, there is a need for additional policy guidance to identify new reform priorities, especially now that the first phase of the reform program is coming to closure. Key findings of the report are as follows: (i) Iraq’s financial sector is dominated by the banking system, with most assets held by state-owned banks; (ii) many private banks are in the process of developing modern banking practices, but still need further strengthening and consolidation; (ii) other financial markets are concentrated at the Iraqi Stock Exchange but capitalization is low, and few instruments are traded; (iii) the insurance sector is small, dominated by state owned enterprises, and is not supervised; (iv) weak financial infrastructure is a clear impediment to access to finance; and (v) SME and microfinance is not well developed.
While work should commence on a broad range of issues, some key decisions need to be taken immediately, while others may be implemented over the medium term. Key issues to be addressed up front are the role of state banks and the creation of a level playing field for all banks. This will need to be followed by the early adoption of the proposed permanent Securities Law and steps to turn the insurance Diwan into an effective supervisor. Supporting ongoing efforts will be needed to address financial sector infrastructure, including supervision, credit registry, collateral framework, judicial systems, and accounting and auditing frameworks. A number of the issues raised in this report are already being addressed by the Banking Sector Reform Strategy initiated by the government in 2009.
Loïc Chiquier - Sector Director
Finance and Private Sector Development
Middle East and North Africa Region
The World Bank
Hedi Larbi - Country Director for Iraq
Middle East and North Africa Region
The World Bank
Please Note: CBI Governor Dr. Al Shabibi is scheduled to speak today at 2pm Eastern regarding this review LINK
View the entire PDF Report by Following this Link: http://bit.ly/mSxsVD
