The Dilemma of Banking Financing: Are State-Owned Banks a Curb on the Ability of Private Banks to Finance the General Budget in Iraq?
Dr. Hussein Ahmed Dakhil – University of Kerbala
The banking sector (state-owned, private, and foreign banks) in any economy constitutes an essential part of the structural framework of that economy. Its contribution to economic activity and gross domestic product (GDP) varies depending on several factors, primarily consisting of the economic philosophy governing the economy, the objectives of the state's fiscal and monetary policies, its financing capacity, the legal and regulatory frameworks governing its operations, the technological means it adopts to execute its tasks, and
other factors. Due to the widening gap between public revenues and public expenditures, the government was driven toward domestic borrowing and borrowing from local banks to secure operational expenditures, particularly salaries, social protection, and pensions. Domestic debt has witnessed increasing growth over the past few years. Regarding private banks, the avenues of their contribution to government financing are multifaceted,including the purchase of government bonds and treasury bills, direct lending to cover general budget deficits,as well as contributing to the financing of infrastructure and development projects — a reality that provides flexibility to governments in addressing financial pressures. Nevertheless, we observe that the situation in Iraq shows a substantial contribution by state-owned banks to financing the states general budget, contrasted with a very limited contribution by private banks in fulfilling this role.
To further clarify this matter, this paper seeks to demonstrate the role of state-owned and private banks in budget financing, the methods of financing, the contribution percentages of each, the reasons for the limited contribution of private banks, and the key proposed recommendations for enhancing the contribution of
private banks to budget financing.
