The extension of the Opec agreement to cut oil production for another year means Iraq’s economy has to work even harder in 2018. Oil revenues account for 95 per cent of Iraq’s economy, and in the aftermath of the conflict with Islamic State in Iraq and Syria (Isis) that ravished much of the country, it is early days for the reconstruction work needed.

The herculean task of rebuilding the country – estimated to cost $100bn – means leading economists and bankers such as Faisal al-Haimus, chairman and acting CEO of government-owned Trade Bank of Iraq (TBI), will have to stay extremely focused on the task of restoring and stabilising financial services across the country.
“Our priority is to support the reconstruction of the liberated areas,” Al-Haimus, who assumed his post in June 2016, tells MEED. “We are the first bank that re-opened a branch in Ramadi in Anbar province once it was liberated [from Isis] … this is an example of how fast we are in responding to the needs of our citizens in those areas.”

Major achievements

Founded in 2003, TBI was set up by the Finance Ministry in conjunction with a foreign consortium led by the US’ JPMorgan. It is a 100 per cent state-owned entity established with a mandate to facilitate Iraq’s local and international trade, at a time when the country was coming to the end of the UN’s oil-for-food programme.

The bank is proud of its recent achievements. Over the past 18 months, it has received ISO 9001 certification for its trade finance and remittance products; opened four branches across the country; conducted a $350m syndicated loan for the Electricity Ministry; and co-managed Iraq’s first $1bn eurobond sale, along with industry heavyweights such as JPMorgan, Germany’s Deutsche Bank and US’ Citigroup.

In 2016, the bank grew its profits by 267 per cent to reach $454m. More recently, TBI received a mandate, along with Bahrain-based Ahli United Bank and Deutsche Bank, to raise a $2bn loan for the Karbala refinery, the country’s first new refinery in three decades. It is also set to co-manage the country’s second eurobond sale in 2018, alongside Deutsche Bank and Citigroup, which will be twice the size of its first eurobond venture.

While trade finance dominates its products, the bank is also keen to expand its corporate and retail services. TBI is helping the Iraqi government implement an electronic payroll system by setting up bank accounts for government employees to enable bank salary transfers. Al-Faisal says 100,000 accounts are expected to have been set up by the end of 2017.

While this number represents just a fraction of total government employees, it is significant progress given that there were only 2,500 government employees with bank accounts during the same period the previous year.

“Our business is a living example of an Iraqi institute that is actively involved in building a better future for the country,” Al-Haimus says.

Beyond Iraq

The CEO says the time is ripe for the bank to set its sights beyond Iraq. In 2017, TBI set up a representative office at the Abu Dhabi Global Market (ADGM) and applied for a licence with the Saudi Arabia Monetary Authority (Sama) to open a fully fledged branch in the kingdom.

“Opening a representative office [in Abu Dhabi] … will enable us to better interact with our correspondent banks,” Al-Haimus says. “[It presents] a good opportunity for us to collaborate and continue to interact with them on potential opportunities, and also for our staff to be able to obtain an experience in international banking outside of Iraq.”

About 80 of TBI’s more than 400 correspondent banks are understood to be domiciled at ADGM and Dubai International Financial Centre.

The executive says one of the bank’s top priorities is supporting projects or transactions that involve private sector players in line with TBI’s strategy to expand its customer base, which is currently dominated by government entities and ministries.

By offering financial services to private sector companies, as well as to small- and medium-sized enterprises, Iraq could attract more foreign direct investments, according to Al-Haimus. It also helps safeguard TBI’s revenues and profits from “periodic cyclicity and dependence on only one source of income [oil]”.

Fiscal consolidation

The executive strongly supports the view of Iraq’s Central Bank governor Ali Al-Alaq that the country’s ongoing fiscal consolidation will help sustain Iraq’s economy over the long term.

A “programmed fiscal consolidation” is one of the conditions set by the Washington-based IMF for the $5.34bn three-year standby arrangement with Iraq, which was signed in July 2016. The loan will be distributed in 13 tranches until June 2019.

According to the IMF, implementing fiscal consolidation measures will help Iraq eliminate its annual budget deficit, which stood at 14 per cent of GDP in 2016, and bring its balance of payments back to surplus within four years’ time.

Adopting prescribed fiscal measures, which include compliance with stringent auditing processes, is expected to help the Iraqi government avoid incurring unnecessary expenditures in the future. Even the decision to set the fiscal breakeven price for oil at $43 a barrel, which is relatively low compared with other Opec states, is in line with the goal of controlling government expenditures and costs.

While there is a proposal from Iraq’s parliament to increase the fiscal breakeven oil price to $46 a barrel, the country’s economic policymakers say that, if approved, the additional $3 a barrel should be used solely to cover budget deficits and pay back public debts, which the IMF estimates to reach ID145.3tn ($122.5bn) in 2017, equivalent to about 67 per cent of the country’s GDP.

Fighting inflation

Amid the fiscal changes and consolidation, Iraq does not intend to discontinue its practice of selling or auctioning US dollars, in spite of criticisms that the system has contributed to money laundering activities in the past.

Al-Haimus defends the policy, saying it has a stabilising effect on the Iraqi dinar, which helps investments coming into the country.

“It is the right mechanism to manage currency price … without it, the country will suffer from runaway inflation,” he says.

Jun 2016–present: Chairman and acting CEO, Trade Bank of Iraq

Nov 2013-May 2015: CEO, Bank of Baghdad (subsidiary of Burgan Bank)

Jan 2011-Oct 2013: Head of wholesale banking, Standard Chartered Middle East