## PREFACE — EXECUTIVE SUMMARY and SELECTED SECTIONS ON GUARANTEES MANAGEMENT (content unit: 1irqea2021001)

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### EXECUTIVE SUMMARY — Key findings and short-term priorities
- Iraq is substantially exposed to fiscal risks related to guarantees issued by the State.
- Stock of guarantees related to foreign currency service payments and debt: USD 21.7 billion at end-June 2017.
  - USD 19.4 billion for service payments to independent power producers (IPPs) by State-owned electricity companies.
  - $2.3 billion for debt.
- Domestic guarantees stock remains to be fully assessed.
- Council of Ministers approved procedures in 2017 to tighten controls on approval of State guarantees, but misreporting cases persist.
- Short-term priority areas:
  - Ascertain the existing stock of guarantees.
  - Define a policy framework regulating the issuance of new guarantees.
  - Improve transparency of guarantees and limit their usage to finance extrabudgetary expenditure.
- Key observations:
  - Various government entities and individuals have issued guarantees over the past 15 years.
  - Some data exist but are not systematically aggregated and are unlikely to be exhaustive, especially domestic guarantees.
  - Understanding of specific risks from guarantees is limited.
- High-level recommended actions:
  - Develop a comprehensive guarantees registry and require all stakeholders to provide information.
  - Develop capacity at the Ministry of Finance to understand and assess guarantee risks; dedicate staff and use third-party expertise where needed.
  - Clarify legal status of all guarantees; void guarantees with no legal basis.
  - Define a policy framework for issuing guarantees (mandatory risk assessment, authority of Minister of Finance, duration rules, risk-sharing mechanisms).
  - Implement risk mitigation measures and ensure budget provisions to meet potential claims.
  - Integrate guarantees into overall budget management and improve disclosure in budget documentation.
  - Systematically identify and classify Extrabudgetary Funds (EBFs) based on international standards.

### A. Introduction — context and scope
- In 2016 the government significantly expanded issuance of guarantees in response to shocks (conflict with ISIS and drop in oil prices), mainly to support investment in the electricity sector, military purchases, direct lending by state-owned banks, and repair of the Mosul dam.
- 2017 Debt Directorate survey: at end-June 2017 stock of guarantees related to foreign currency service payments and debt = USD 21.7 billion (12 percent of GDP).
- Misreporting examples:
  - State guarantee on a debt of 1.4 percent of GDP contracted by the National Investment Committee (NIC) in 2013 and 2016 for a housing project in Bismayah was not included in gross public debt at end-December 2016.
  - Authorities later identified five additional guarantees representing 0.8 percent of GDP that were not previously disclosed and the approval of a guarantee that did not follow 2017 procedures.
- Post-ISIS, strong pressure from line ministries to issue guarantees to circumvent budgetary constraints.
- Three short-term priorities (ascertain exposure; regulate issuance; ensure adequate budget provisions).

### B. Ascertain the Magnitude of Iraq's Exposure to Guarantees — situation, analysis, recommendations
- Situation — types and shortcomings:
  - Guarantees issued over the past 15 years include loan guarantees to SOEs and EBFs, borrowing of project companies, PPAs between IPPs and state-owned electricity companies, and guarantees on letters of credit.
  - Guarantees issued under domestic law to Iraqi beneficiaries (domestic guarantees) and under British law to foreign investors (foreign guarantees).
  - Issuance historically not centralized; various officials have issued guarantees.
  - Aggregated information exists for foreign guarantees (Public Debt Office); domestic guarantees information is dispersed and analysis has been unsuccessful.
  - Some guarantees lack clearly stated terms (no maximum amount, no duration limits).
- Analysis — registry design and information collection:
  - A comprehensive guarantees registry should capture:
    - Basic guarantee characteristics (type, beneficiary, duration, etc.).
    - Risk exposure (amount authorized, amount outstanding, risk factors that may trigger guarantees, etc.).
    - Performance (payments made by government).
  - Registry must include all types of guarantees (domestic and foreign; beneficiaries such as SOEs, foreign investors, EBFs; risk types such as debt payment, project termination, payment for electricity).
  - Require reporting from line ministries, subnational governments, EBFs, SOEs, banks, and the Central Bank.
  - Mechanisms should ensure timely reporting on outstanding guarantees and claims.
  - Develop capacity at the Ministry of Finance, supported by third parties, to analyze guarantee agreements and assess risks; dedicate staff over time.
  - Clarify validity of all guarantees and pursue voidance or dispute of guarantees without legal or contractual basis.
- Recommendations (exact wording and timelines):
  - Recommendation 1. Develop, complete, and maintain a comprehensive registry of government guarantees. (General Director Debt Management; January 2020)
  - Recommendation 2. Require all relevant stakeholders to report to Ministry of Finance on existing guarantees and corresponding claims. (General Director Debt Management; September 2019)
  - Recommendation 3. Clarify the validity of guarantees and dispute or pursue the voidance of guarantees with no legal or contractual basis. (General Director Debt Management; March 2020)

### C. Legal framework, current practice, and identified policy gaps
- Current framework and legal provisions:
  - The new GFML, approved by the Council of Representatives in May 2019, requires that "all guarantees to be issued during a fiscal year must be listed in the budget proposal and approved by the Council of Representatives."
  - Within budget limits, only the Minister of Finance, after Prime Minister approval, may issue guarantees and sign guarantee contracts.
  - The Minister of Finance may collect fees from beneficiaries of guarantees, and "the fees shall be set according to the credit risk level."
  - The Ministry of Finance must keep records of guarantees, including "guarantees of loans and debts, letters of credit, counter-guarantees, credit commitments, and other contingent credit facilities." (Article 39 of the General Financial Management Law)
- Identified policy gaps:
  - No policy framework specifying allowed purposes for guarantees; minimum requirements on beneficiaries’ economic and financial standing; requirement to assess risk before issuance; obligations to reimburse government payments; obligations by lenders towards the guarantor; detailed procedures for issuing/recording/monitoring guarantees; role of Public Debt Department in process.
  - Procedures introduced in 2017 (Council of Minister's Decision No. 168) were not always followed.
  - Ambiguity about duration of guarantees; loans rolled over without Ministry approval created uncertainty whether guarantees covered new loans.
  - Some guarantees issued to beneficiaries that still owed the government large sums for payments under old guarantees that had been called.

### D. Risk assessment and capacity building — current practice, analysis, and recommended approach
- Current practice and risks:
  - No risk assessment is required before issuance nor as part of reports on outstanding guarantees.
  - No minimum requirements for loan-guarantee beneficiaries; some beneficiaries had weak economic and financial standing, increasing likelihood of default and government payments.
  - Recovery possibilities under subrogation and indemnity against weak beneficiaries likely negligible.
  - Authorities viewed likelihood of SOEs failing to repay guaranteed debt at "100 percent" (with caveats about whether guarantees are actually called).
  - For guarantees to foreign investors, perceived likelihood of materialization is lower but "no explicit assessment has been made."
  - Ministry of Finance capacity for forward-looking risk assessments is low; staff lack training in accounting, corporate finance, legal implications, risk management, and sector knowledge.
  - Current Guarantee Committee practice (Decision No. 168 of 2017) has tended to decline domestic guarantees and support guarantees to foreign investors based on high-level views.
- Recommended risk assessment practices and capacity building:
  - Require risk assessment prior to issuance and include in reports on outstanding guarantees.
  - Initially use expert judgement and simple criteria to rank risks (e.g., low, moderate, high); over time adopt a standardized, codified methodology (for example, a credit rating methodology).
  - Dedicate staff at the Ministry of Finance and provide on-the-job and formal training in accounting, corporate finance, legal implications of guarantee contracts, risk management, and sector knowledge.
  - Use risk-assessment insights to design mitigation measures, such as:
    - Eligibility criteria (example: Turkey excludes entities rated below a certain level).
    - Risk-based guarantee fees (examples: Colombia, the Philippines, Sweden, Thailand).
    - Partial guarantee coverage tailored by risk (example: Turkey).
    - Budget provisions for potential losses (example: USA).
    - Contributions to a guarantee reserve fund (examples: Colombia, Sweden, Turkey).
- Specific recommendations and timings:
  - Recommendation 4. Draft a Regulation on Federal Government Guarantee Issuances and Guarantee Management, to be approved and issued by the Council of Ministers (General Director Debt Management, May 2020).
  - Recommendation 5. Consider inclusion of the detailed regulatory elements listed above (General Director Debt Management, December 2019 for the initial draft of the regulation).
  - Recommendation 6. Assess the fiscal risks and implications of new guarantees before they are issued. (General Director Debt Management; June 2021)
  - Recommendation 7. Build capacity and develop a standardized methodology for risk assessment. (General Director Debt Management; December 2020)
  - Recommendation 8. Use insights from risk assessment to design risk mitigation measures. (General Director Debt Management; June 2021)

### E. Risk mitigation: current situation and proposed measures
- Current situation:
  - Guarantee limits set in budget law in recent years "have not been adhered to."
  - 2019 budget law includes three guarantees to foreign investors; 2018 budget law specified individual guarantees. Budget laws have not referenced domestic guarantees.
  - Although GFML permits charging fees, "no fees have been charged yet." Authorities refrained from charging SOEs and foreign lenders/investors.
  - Government does not systematically use other mitigation measures (reserve funds, collateral, deductibles, partial guarantees).
  - When guarantees materialize, Government lacks a process to attempt recovery of payments made.
- Proposed mitigation and recovery measures:
  - Declare entities with outstanding arrears ineligible for future government support (including guarantees).
  - Deduct claims from transfers to guarantee beneficiaries (e.g., reducing recurrent subsidies to SOEs or subnational governments by amounts owed).
  - Liquidate collateral if available.
  - Enter into restructuring agreements with guarantee beneficiaries.
- Draft regulatory content recommended (selected elements):
  - Allowed purposes: promote economic development (including disadvantaged regions); promotion of small and medium enterprises; correct market failure; strengthen security of Iraq.
  - Require assessing risks before issuance, monitor frequently, and charge annual guarantee fees "to be set according to the credit risk level."
  - Guarantee agreement provisions: beneficiary commitment to reimburse government for payments; authorization for Government to make direct transfers from beneficiary bank accounts; lender obligations to inform Ministry of Finance of borrower delays; no right to accelerate repayment without Ministry approval.
  - Clarify letters of intent/comfort as government guarantees or legal undertakings.
  - Clarify only Minister of Finance, with Prime Minister approval, may issue guarantees within annual budget limits.
  - All reports on outstanding guarantees to include a risk assessment.
  - All new guarantees not issued in accordance with legal framework to be "null and void."
  - Guarantor must check and approve financial terms of loan agreements.
  - All guarantees must include end dates.
  - As a rule, only partial loan guarantees covering "not more than 80 percent of the loan" shall be issued, with exceptions defined.
  - No new guarantees to entities in financial difficulty (to be defined), or to entities that have not reimbursed the federal government for old guarantees that were called.
  - Transitional provision: requirement to assess credit risks in loan guarantees may not come into force before "January 1, 2021" due to needed capacity building.

### F. Ensure Adequate Budget Provisions to Meet Claims — situation, analysis, recommendations
- Situation:
  - Guarantees used to overcome budget and financing constraints and are similar to extrabudgetary expenditure.
  - Domestic guarantees supported financing of investment and recurring expenditure, including wage bill, of SOEs; SOEs often not expected to comply with reimbursement schedules.
  - Loans mostly provided by public banking sector; in case of default, guarantees were not called and remain on banks’ balance sheets.
  - When a guarantee is called:
    - The State’s payments do not appear in the budget and are treated as an advance that might be reimbursed despite low likelihood of reimbursement.
    - These payments are not reported as budget expenditure, limiting transparency.
    - No systematic assessment of the stock of advances has been undertaken.
- GFML implications:
  - Article 17: advance payments must be settled during the same fiscal year or require allocations from next year’s budget.
  - Art 39.3.b: “The general federal budget shall include provisions to cover the realization of the guarantees [...]” but implementing regulations not yet defined.
  - GFML foresees a global contingency line (max 5percent) to cover unforeseen or urgent expenditure.
  - Article 8.2.d: contingency reserve must not exceed 5 percent of total estimated current and investment expenditures.
- Analysis and proposed provisioning mechanism:
  - Guarantees should be fully integrated into the budget.
  - Proposed simple provisioning mechanism:
    - 100 percent of the expected disbursement for guarantees known to be triggered.
    - 100 percent of the expected disbursement, as a precaution, or the estimated probability of being called when the probability is above 50 percent but not certain.
    - When the probability is below 50 percent, the global contingency line of the budget should cover the risk.
  - Budget documents should disclose:
    - (i) details on existing guarantees,
    - (ii) details on new guarantees to be issued during the budget year,
    - (iii) list of guarantees expected to be called,
    - (iv) explanation of methodology for setting appropriations related to guarantees.
  - Disclosure should follow IMF’s Fiscal Transparency Code.
- Recommendations (12–14):
  - Recommendation 12. When there is no expectation that a called guarantee will be reimbursed to the State, it shall not be presented as a financing transaction but as an expenditure and be included in the budget (General Director Debt Management, September 2019).
  - Recommendation 13. Called guarantees that are known to trigger disbursements during the next year should be included in a specific budget line for 100 percent of the expected disbursement (General Director Debt Management, September 2019).
  - Recommendation 14. Guarantees for which the risk of being called is assessed to be above 50 percent should be provisioned in a specific budget line, with the amount to be provisioned equivalent to the expected probability (e.g. 75 percent) or to 100 percent (as a precaution) (General Director Debt Management, September 2019).

### G. Record, Monitor, and Disclose the Guarantees — situation, analysis, recommendations
- Situation:
  - No central registry centralizing information on guarantees granted by the State of Iraq is yet available.
  - Basic disclosures required by the Fiscal Transparency Code are not achieved: exhaustive list of government guarantees, beneficiaries, and gross exposure are not published at least annually.
  - No information on performance of guarantees until they are triggered; no institutional arrangements to monitor guarantees.
- GFML disclosure requirements:
  - At the start of September each year, a budget statement should include “A list of all guarantees issued by the federal government” (Article 8).
  - Federal financial statements submitted to Board of Supreme Audit by end of April must include “a report on guarantees issued by the federal government during the fiscal year” and “a report submitted by the minister of finance on all loans and guarantees issued by the region, governorates not organized in a region, and governorate councils”.
  - Article 43 requires the Ministry of finance to “keep a record of the debts and guarantees of the federal government”.
  - Article 43.2: regions and public companies shall keep a record of their debts and guarantees and submit updated record monthly to MOF.
- Analysis and procedural recommendations:
  - GFML implementation requires overhaul of recording and monitoring procedures and detailed accounting policies consistent with IMF’s Fiscal Transparency Code, GFSM 2014, and IPSAS.
  - Ministry of Finance’s legal mandate to centralize guarantee information should be complemented by authority to require detailed information from all parties.
  - Registry maintenance and update requirements:
    - Staff at the Public Debt Office with adequate capacity should manage the registry.
    - New guarantees recorded when issued and existing guarantees updated at least every 6 months.
    - At least two staff should have required capacity to manage registry to mitigate key person risk.
- Recommendations (15–18):
  - Recommendation 15. Define standardized report on guarantees to disclose all government guarantees, their beneficiaries, and the gross exposure created by them in the budget statement and the federal financial statements (Task Team, June 2020)
    - Identify the variation of the outstanding stock of each guarantee over the last three years.
    - Identify the called guarantees and the amount actually paid.
    - Identify the amounts to be reimbursed to the State and their variation over the last three years.
  - Recommendation 16. Update the guarantee registry when a new guarantee is issued (General Director Debt Management).
  - Recommendation 17. Undertake a systematic review of the registry at least every six months to ensure its accuracy (General Director Debt Management).
  - Recommendation 18. Over the medium term, build capacity to monitor the guarantees stock and identify related fiscal risks (General Director Debt Management).

### Extra-Budgetary Funds (EBFs) — situation, risks, and disclosure recommendations
- Mission focus: EBFs whose financial transactions (i) represent activities of the central government sector and (ii) are not included in the annual State budget law.
- Typology and need for classification:
  - Distinguish extrabudgetary transactions, extrabudgetary accounts, and extrabudgetary entities.
  - No survey undertaken to classify existing entities per GFSM 2014; some public corporations under Iraqi law likely classify as EBFs under GFSM 2014.
  - Three key characteristics for EBFs: separate legal identity and autonomy; established for specific functions; satisfy criteria to be an institutional unit.
- Implications of unmonitored EBFs:
  - Distortion of macroeconomic and fiscal position assessment, dilution of accountability and control, ad hoc financial management procedures.
  - Recommendation to prepare a comprehensive list of EBFs and classify in line with GFSM 2014, then consolidate with other government financial information.
- Examples and illustrative list (selected items):
  - Special-purpose funds: newly established social security fund for private sector employees; pension fund for public sector employees (contributions = 10% salary deductions, 15% from budget); Pension fund for war victims (= Martyr Fund); higher education fund; environment fund; police fund.
  - Development funds: Social development fund (USD 300 million World Bank loan); Refato fund; Housing Fund (issues include maturity mismatch with Central Bank lending; MoF does not know asset quality); Fund for support of small farmers.
  - Investment funds: None but a SWF is being considered (would require revenue-sharing law or oil law).
  - Contingent (reserve), Stabilization, Sinking funds: None implemented.
- Improved disclosure on EBFs — findings and recommendations:
  - Budget documents should provide information on fiscal activities of the whole central government, including EBFs.
  - Presenting EBFs’ revenues, expenditures, assets, and liabilities in budget documentation for information of the legislature is consistent with IMF’s Fiscal Transparency Code (Principle 2.1.1. Budget Unity).
  - Common requirements should be established for classification, accounting and reporting, internal control, and external audit.
  - Recommendation 19. Prepare comprehensive list of EBFs classified in accordance with GFSM 2014.
  - Recommendation 20. Disclose in the budget documentation EBF’s revenues, expenditures, assets, and liabilities for the information of the legislature.

### Proposed road map, milestones, and governance tasks (selected)
- Registry and information tasks:
  - Adopt template of guarantee registry — Responsibility: General Director Debt Management — Accomplished by: September 2019.
  - Collect information about guarantees available in debt office — Responsibility: General Director Debt Management — Accomplished by: September 2019.
  - Populate registry with some (around 5) guarantees and review format — Accomplished by: October 2019 (TA support: Yes).
  - Collect information about all guarantees from stakeholders — Responsibility: General Director Debt Management — Accomplished by: November 2019.
  - Populate guarantee registry with all guarantees — Accomplished by: December 2019 — Corresponding milestone: Guarantee registry fully populated by end of 2019.
  - Assign responsibility to officer(s) to maintain registry — Accomplished by: January 2020.
- Regulatory and budgeting tasks (selected):
  - Prepare draft Regulation on Government Guarantee Issuances — Accomplished by: December 2019 (TA support: Yes).
  - Draft outline of key provisions of guarantee contract — Accomplished by: March 2020 (TA support: Yes).
  - Cabinet approves the draft Regulation — Accomplished by: May 2020.
  - Define budgetary treatment of called guarantees — Accomplished by: September 2019.
  - Provisions guarantees in the draft 2020 budget — Accomplished by: September 2019 — Corresponding milestone: The 2020 budget includes a provision for guarantees.
- Capacity and methodology tasks:
  - Assign officers with assessing new guarantee proposals — Accomplished by: December 2019.
  - Build capacity of assigned officers to assess guarantee proposals — Accomplished by: December 2020 (TA support: Yes).
  - Develop methodology to systematically assess guarantee proposals and monitor existing risks — Accomplished by: June 2021 — Corresponding milestone: Methodology paper submitted for approval by June 2021.
  - Submit risk assessment reports based on approved methodology to guarantee committee — Accomplished by: November 2021 — Corresponding milestone: New guarantee requests evaluated taking into account risk assessment report by November 2021.

### Proposed template of the guarantees registry — index fields (Annex I)
- Guarantee Characteristics fields to capture:
  - Index
  - Guarantee Scope
  - Guarantee beneficiary (guaranteed entity)
  - Counterparty of guarantee beneficiary (recipient of payment if guarantee materializes)
  - Date of issuance
  - Date of Expiration
  - Issuing authority and individual signing guarantee
  - Governing law of guarantees
  - Legal basis under which guarantee has been issued
  - Guaranteed amount authorized
  - Guaranteed amount outstanding
  - Risk factors that drive materialization of guarantee
  - Terms of guaranteed transaction
  - Risk assessment
  - Performance of guarantee
  - Revenues received by government
  - Payments made by government
  - Risk mitigation measures in place
  - Budget provision for risk materialization for current fiscal year

### Annex II — Selected totals and items provided by Iraqi Delegation (selected figures preserved exactly)
- A. Sovereign guarantees issued to the benefit of the Iraqi public companies — Selected entries (amounts in unspecified unit as in source):
  - 1. Ministry of Finance — Rafidain Bank, Rasheed Bank — 9,046
  - 2. Ministry of Finance — Trade Bank of Iraq (TBI) — 655
  - 3. Ministry of Finance — Central Bank of Iraq — 3,000
  - 4. Ministry of Finance — Rafidain Bank, Rasheed Bank, TBI — 2,284
  - 5. Ministry of Finance — Rasheed Bank — 50
  - 6. Ministry of Finance — Rasheed Bank — 85
  - 7. Ministry of Finance — Rafidain Bank, Rasheed Bank — 92
  - 8. Ministry of Finance — Rasheed Bank — 200
  - 9. Ministry of Finance — Rasheed Bank — 3
  - Total (Section A): 15,415
- B. Guarantees issued in USD in favor of the Ministry of Electricity’s projects — Selected entries and totals:
  - 1. GE American company mpp1 — 366,359,016 $
  - 2. GE American company mpp2 — 194,581,037 $
  - 3. GE American company — 15,039,383 $
  - 4. GE American company Samawah & Dhi Qar — 117,700,000 $
  - 5. Habilitation of first and second units GE American company for the Khor Al Zubair plant — 52,425,715 Euros
  - 6. GE American company Mullah Abdullah — 101,200,000 $
  - 7. Al Musayyib Plant GE American company Al Musayyib Station — 18,459,272 $
  - 8. Qar company / Rmeileh gas power plant / Shatt El Basra gas power plant — 2,250,000,000 $
  - 9. Maysan for Energy — 1,000,000,000 $
  - 10. Amarah company — 200,000,000 $
  - 11. Joud Energy Group — 100,000,000 $
  - 12. Legion contract with the Russian Armored brigade — 559,263,435 $
  - 13. STX South Korean company — 125,000,000 $
  - 14. Siemens German Company — 105,215,897 Euros
  - Total (Section B): 7,924,160,997 US Dollars
- Guarantees for service purchase — listed totals:
  - Mass Group Holding — 11,180,000,000 (USD)
  - Shamara Holding group — 11,180,000,000 (USD)
  - Maysan Company — 600,000,000 (USD)
  - Al Amarah Company — 400,000,000 (USD)
  - Total (Guarantees for service purchase): 23,360,000,000

*International Monetary Fund — PREFACE, EXECUTIVE SUMMARY, and selected sections on guarantees, GFML implications, registry, disclosures, provisioning, and extrabudgetary funds management (content unit: 1irqea2021001).*

### PREFACE _________________________________________________________________________________________ 5

### PREFACE

### EXECUTIVE SUMMARY
- Iraq is substantially exposed to fiscal risks related to guarantees issued by the State.
- Stock of guarantees related to foreign currency service payments and debt: USD 21.7 billion at end-June 2017.
  - USD 19.4 billion for service payments to independent power producers (IPPs) by State-owned electricity companies.
  - $2.3 billion for debt.
- Domestic guarantees stock remains to be fully assessed.
- Council of Ministers approved procedures in 2017 to tighten controls on approval of State guarantees, but misreporting cases persist.
- Short-term priority areas identified:
  - Ascertaining the existing stock of guarantees.
  - Defining a policy framework regulating the issuance of new guarantees.
  - Improving transparency of guarantees and limiting their usage to finance extrabudgetary expenditure.
- Key observations:
  - Various government entities and individuals have issued guarantees over the past 15 years.
  - Some data exist but are not systematically aggregated and are unlikely to be exhaustive, especially domestic guarantees.
  - Understanding of specific risks from guarantees is limited.
- Recommended actions (high-level):
  - Develop a comprehensive guarantees registry and require all stakeholders to provide information.
  - Develop capacity at the Ministry of Finance to understand and assess guarantee risks; dedicate staff and use third-party expertise where needed.
  - Clarify legal status of all guarantees; void guarantees with no legal basis.
  - Define a policy framework for issuing guarantees (mandatory risk assessment, authority of Minister of Finance, duration rules, risk-sharing mechanisms).
  - Implement risk mitigation measures and ensure budget provisions to meet potential claims.
  - Integrate guarantees into overall budget management and improve disclosure in budget documentation.
  - Systematically identify and classify Extrabudgetary Funds (EBFs) based on international standards.

### GUARANTEES MANAGEMENT — A. Introduction
- In 2016 the government significantly expanded issuance of guarantees in response to shocks (conflict with ISIS and drop in oil prices), mainly to support investment in the electricity sector, military purchases, direct lending by state-owned banks, and repair of the Mosul dam.
- During 2009-2011 various authorities issued guarantees; Ministry of Finance has limited information on them and related fiscal risks.
- 2017 Debt Directorate survey: at end-June 2017 stock of guarantees related to foreign currency service payments and debt = USD 21.7 billion (12 percent of GDP).
- 2017 Council of Ministers measures included a formal assessment process of guarantee requests by the executive and improved disclosure of new guarantees within the annual budget law.
- Misreporting examples:
  - State guarantee on a debt of 1.4 percent of GDP contracted by the National Investment Committee (NIC) in 2013 and 2016 for a housing project in Bismayah was not included in gross public debt at end-December 2016.
  - Authorities later identified five additional guarantees representing 0.8 percent of GDP that were not previously disclosed and the approval of a guarantee that did not follow 2017 procedures.
- Post-ISIS, there is strong pressure from line ministries to issue guarantees to circumvent budgetary constraints.
- Six key areas to strengthen guarantees management identified; three short-term priorities (Figure 1):
  1. Ascertain magnitude of exposure — gather data and develop a guarantees registry.
  2. Regulate issuance of new guarantees — clarify objectives and protect State interests.
  3. Ensure adequate budget provisions — improve transparency and limit use of guarantees to finance extrabudgetary expenditure.

### GUARANTEES MANAGEMENT — B. Ascertain the Magnitude of Iraq's Exposure to Guarantees
Situation
- Guarantees issued over the past 15 years include:
  - Loan guarantees to State-Owned Enterprises (SOEs) and extrabudgetary funds (EBFs) such as the Housing Fund.
  - Borrowing of project companies.
  - Guarantees of power purchase agreements (PPAs) between IPPs and state-owned electricity companies.
  - Guarantees on letters of credit.
- Guarantees issued under domestic law to Iraqi beneficiaries (domestic guarantees) and under British law to foreign investors (foreign guarantees).
- Historically issuance not centralized; various officials (Ministry of Finance officials, Minister of Finance, Council of Ministers) have issued guarantees.
- Some aggregated information exists for foreign guarantees (Public Debt Office), but domestic guarantees information is dispersed and analysis has been unsuccessful.
- Understanding of specific risks is limited; some guarantees lack clearly stated terms (no maximum amount, no duration limits).
- Authorities may misunderstand legal structure of guarantee agreements (example: suggestion that a guarantee was issued to benefit General Electric (GE) as the borrower).

Analysis
- A comprehensive guarantees registry should be developed by the Ministry of Finance capturing:
  - Basic guarantee characteristics (type, beneficiary, duration, etc.).
  - Risk exposure (amount authorized, amount outstanding, risk factors that may trigger guarantees, etc.).
  - Performance (payments made by government).
- The registry should include all types of guarantees issued by the Government (domestic and foreign; beneficiaries such as SOEs, foreign investors, EBFs; and risk types such as debt payment, project termination, payment for electricity).
- All relevant stakeholders should be required to provide information on guarantees and corresponding claims to the Ministry of Finance, including line ministries, subnational governments, EBFs, SOEs, banks, and the Central Bank.
- Consider mechanisms to ensure timely reporting on outstanding guarantees and claims from materialized guarantees (e.g., reporting within a specific period to uphold legitimacy).
- Develop capacity at the Ministry of Finance, supported by third parties, to analyze guarantee agreements and assess risks; dedicate staff over time.
- After information collection and analysis, clarify validity of all guarantees and pursue voidance or dispute of guarantees without legal or contractual basis.

Recommendations (exact wording and timelines as provided)
- Recommendation 1. Develop, complete, and maintain a comprehensive registry of government guarantees. (General Director Debt Management; January 2020)
- Recommendation 2. Require all relevant stakeholders to report to Ministry of Finance on existing guarantees and corresponding claims. (General Director Debt Management; September 2019)
- Recommendation 3. Clarify the validity of guarantees and dispute or pursue the voidance of guarantees with no legal or contractual basis. (General Director Debt Management; March 2020)

*International Monetary Fund — PREFACE, EXECUTIVE SUMMARY, and beginning of GUARANTEES MANAGEMENT (content unit: 1irqea2021001)*

### 16.      The new framework for issuing government guarantees is sound in respect of

### 1irqea2021001 - 16.      The new framework for issuing government guarantees is sound in respect of 

### Current framework and legal provisions
- The new GFML, approved by the Council of Representatives in May 2019, requires that "all guarantees to be issued during a fiscal year must be listed in the budget proposal and approved by the Council of Representatives."
- Within the limits approved in the budget, only the Minister of Finance, after approval by the Prime Minister, may issue guarantees and sign guarantee contracts.
- The Minister of Finance may collect fees from beneficiaries of guarantees, and "the fees shall be set according to the credit risk level."
- The Ministry of Finance must keep records of guarantees, which include "guarantees of loans and debts, letters of credit, counter-guarantees, credit commitments, and other contingent credit facilities." (Article 39 of the General Financial Management Law)

### Identified policy gaps and legal clarity issues
- No policy framework has been defined specifying:
  - Allowed purposes for guarantees;
  - Minimum requirements on the economic and financial standing of beneficiaries;
  - Requirement to assess the risk before issuance;
  - Obligations by beneficiaries to reimburse government payments under guarantees;
  - Obligations by lenders towards the guarantor (the government);
  - Detailed procedures for issuing, recording, and monitoring guarantees;
  - The role of the Public Debt Department of the Ministry of Finance in the process.
- The procedures for issuing guarantees introduced in 2017 by Council of Minister's Decision No. 168 were not always followed.
- Ambiguity exists about the duration of guarantees; examples include loans rolled over without Ministry of Finance approval where "it was uncertain whether the guarantee covered the new loan or not."
- Some guarantees have been issued to beneficiaries that still owed the government large sums for payments under old guarantees that had been called.

### Risk assessment: current practice and analysis
- Currently, no risk assessment is required before issuance of a guarantee, nor as part of reports on outstanding guarantees.
- Risk assessment is essential to:
  - Avoid future budget shocks;
  - Determine guarantee fees to be paid by beneficiaries;
  - Better understand fiscal risk.
- There are no minimum requirements for loan-guarantee beneficiaries; mission team noted some beneficiaries had weak economic and financial standing at the outset, making default and government payment likely.
- Recovery possibilities under subrogation and indemnity rights against weak beneficiaries are likely negligible.
- The likelihood of SOEs failing to repay guaranteed debt is viewed at "100 percent" by authorities (with caveats about whether guarantees are actually called).
- For guarantees to foreign investors, the perceived likelihood of materialization is lower, but "no explicit assessment has been made."
- Capacity for analyzing guarantee proposals is low; Ministry of Finance staff lack training for forward-looking risk assessments, accounting, corporate finance, legal implications of guarantee contracts, risk management, and sector knowledge.
- Current Guarantee Committee practice (Decision No. 168 of 2017) has recommended issuance based on high-level views; practice has been to decline domestic guarantees and support guarantees to foreign investors.

### Recommended risk assessment practices and capacity building
- Risk assessment should be required prior to issuance and included in reports on outstanding guarantees.
- Initially, risk assessment may use expert judgement and a few criteria to rank risks (e.g., low, moderate, and high).
- Over time, develop a standardized, codified methodology — for example, a credit rating methodology — to improve sustainability, comparability, and reduce subjectivity.
- Dedicated staff at the Ministry of Finance need capacity building through on-the-job and formal training in:
  - Accounting;
  - Corporate finance;
  - Legal implications of guarantee contracts;
  - Risk management;
  - Sector knowledge.
- Use risk-assessment insights to design risk mitigation measures, such as:
  - Eligibility criteria for new guarantees (example: Turkey excludes entities rated below a certain level);
  - Risk-based guarantee fees (examples: Colombia, the Philippines, Sweden, Thailand);
  - Partial guarantee coverage tailored by risk (example: Turkey);
  - Budget provisions for potential losses (example: USA);
  - Contributions to a guarantee reserve fund (examples: Colombia, Sweden, Turkey).

### Risk mitigation: current situation and analysis
- Guarantee limits have been set in budget law in recent years, but "they have not been adhered to."
- The 2019 budget law includes three guarantees to foreign investors; the 2018 budget law specified individual guarantees. Budget laws have not included reference to domestic guarantees.
- Domestic guarantees have been issued beyond guarantees specified in budget laws and authorized by the Ministry of Finance or Council of Ministers.
- Although the 2019 GFML permits charging guarantee fees, "no fees have been charged yet." Authorities refrained from charging SOEs and foreign lenders/investors.
- The Government does not systematically use other risk mitigation measures (guarantee reserve funds, collateral, deductibles, partial guarantees).
- When guarantees materialize, the Government lacks a process to attempt recovery of payments made.
- Recommendations for recovery measures include:
  - Declaring entities with outstanding arrears ineligible for future government support (including guarantees);
  - Deducting claims from transfers to guarantee beneficiaries (e.g., reducing recurrent subsidies to SOEs or subnational governments by the amount owed to Government);
  - Liquidating collateral if available;
  - Entering into restructuring agreements with guarantee beneficiaries.

### Draft regulatory content recommended (Recommendation 5 elements)
- Purposes allowed for guarantees:
  - Promote economic development, including development of disadvantaged regions;
  - Promotion of small and medium enterprises;
  - Correction of market failure where creditworthy borrowers may not have access to credit markets;
  - Strengthen the security of Iraq.
- Requirement to assess risks before issuance, monitor outstanding guarantees frequently, and charge beneficiaries annual guarantee fees "to be set according to the credit risk level."
- Guarantee agreement provisions:
  - Clear commitment by the beneficiary to reimburse the government for all payments under the guarantee;
  - Authorization for the Government to make a direct transfer from any bank account of the beneficiary when collecting its recourse claim;
  - Undertaking by the lender to immediately inform the Ministry of Finance of any borrower delays;
  - No right of the lender to accelerate repayment of the loan without the approval of the Ministry.
- Clarify that letters of intent, letters of comfort, or similar letters, or approval by the government of borrowing by another entity, "be considered a government guarantee or any other form of legal undertaking of the government."
- Clarify that only the Minister of Finance, with Prime Minister approval, is mandated to issue guarantees within limits set in the annual federal budget law (subject to legal checking by an Iraqi legal expert).
- All reports on outstanding government guarantees to include a risk assessment.
- All new guarantees not issued in accordance with the legal framework to be "null and void."
- Clarify delegation of the Minister of Finance's power to issue guarantees and sign contracts.
- Guarantor (Ministry of Finance) must check and approve the financial terms of the loan agreement.
- All guarantees must include end dates.
- As a rule, only partial loan guarantees covering "not more than 80 percent of the loan" shall be issued, with possible exceptions clearly defined.
- No new guarantees to be issued to entities in financial difficulty (to be defined), and to entities that have not reimbursed the federal government for old guarantees that were called.
- Transitional provisions: requirement to assess credit risks in loan guarantees may not come into force before "January 1, 2021" due to needed capacity building.

### Specific recommendations and timings
- Recommendation 4. Draft a Regulation on Federal Government Guarantee Issuances and Guarantee Management, to be approved and issued by the Council of Ministers (General Director Debt Management, May 2020).
- Recommendation 5. Consider inclusion of the detailed regulatory elements listed above (General Director Debt Management, December 2019 for the initial draft of the regulation).
- Recommendation 6. Assess the fiscal risks and implications of new guarantees before they are issued. (General Director Debt Management; June 2021)
- Recommendation 7. Build capacity and develop a standardized methodology for risk assessment. (General Director Debt Management; December 2020)
- Recommendation 8. Use insights from risk assessment to design risk mitigation measures. (General Director Debt Management; June 2021)

*International Monetary Fund — Iraq mission chapter on government guarantees*

### 42.      Recommendation 9. Set binding limits for all guarantees in future budget laws and

### 1irqea2021001 - 42.      Recommendation 9. Set binding limits for all guarantees in future budget laws and

### Recommendations (9–11)
- Recommendation 9. Set binding limits for all guarantees in future budget laws and establish the necessary mechanisms to enforce them. (Director Budget; November 2019)
- Recommendation 10. Define risk mitigation measures in the Government’s guarantee policy (e.g. recovery of payments made, guarantee fees, time and value limits, etc.). (General Director Debt Management; May 2020)
- Recommendation 11. Include obligations on guarantee beneficiaries aimed at mitigating risks in guarantee agreements. (General Director Debt Management; June 2020)

### F. Ensure Adequate Budget Provisions to Meet Claims — Situation
- Guarantees have been used to overcome budget and financing constraints and are similar to extrabudgetary expenditure.
- Domestic guarantees issued to support financing of investment and recurring expenditure, including wage bill, of SOEs.
- SOEs were often not expected to comply with reimbursement schedules as they were not generating enough cash flows.
- Loans were mostly provided by public banking sector; in case of default, guarantees were not called by the public banks and remain on banks’ balance sheets.
- Public banks conducted quasi-fiscal activities by funding SOEs operations.
- Direct subsidies or capital injection would have been more transparent and less risky in most discussed examples of domestic guarantees.

- When a guarantee is called:
  - The State’s payments do not appear in the budget and are treated as an advance that might be reimbursed despite low likelihood of reimbursement given financial position of public corporations outside the oil sector.
  - These payments are not reported as budget expenditure, limiting transparency of budget implementation.
  - No systematic assessment of the stock of advances has been undertaken.

- GFML (General Federal Financial Management Law) implications:
  - Article 17: “[...] advance payments made by a spending unit in a specific fiscal year must be settled during the same fiscal year. Otherwise, the settlement of such payments shall require allocations from the budget of the following fiscal year”.
  - Regularization of existing stock of advances may require a multi-year approach given limited budget space.
  - Art 39.3.b of the GFML: “The general federal budget shall include provisions to cover the realization of the guarantees [...]” but implementing regulations are not yet defined.
  - GFML foresees a global contingency line (max 5percent) to cover unforeseen or urgent expenditure to “cover contingency or unexpected expenditures incurred after the general federal government budget law is legislated”, which might be used to cover unexpected guarantee calls.
  - Article 8.2.d of GFML: “The contingency reserve for the fiscal year for unexpected contingencies that arise after the general federal budget law is issued. The contingency reserve must not exceed 5 percent of total estimated current and investment expenditures allocated in the general federal budget.”

### F. Ensure Adequate Budget Provisions to Meet Claims — Analysis
- Guarantees should be fully integrated into the budget, as foreseen by the GFML.
- Decisions about cash spending and guarantees should be made jointly as part of a comprehensive budget.
- Guarantees should be an explicit budget choice rather than a tool to circumvent budget controls or create short-lived budgetary space.

- Proposed provisioning mechanism (simple, for limited capacity contexts):
  - 100 percent of the expected disbursement for guarantees known to be triggered,
  - 100 percent of the expected disbursement, as a precaution, or the estimated probability of being called when the probability is above 50 percent but not certain,
  - When the probability is below 50 percent, the global contingency line of the budget should cover the risk.

- Budget documentation disclosure improvements:
  - Budget documents should provide:
    - (i) details on the existing guarantees for information,
    - (ii) details on new guarantees to be issued during the budget year for approval by Parliament,
    - (iii) the list of guarantees expected to be called,
    - (iv) the explanation of the methodology for setting appropriations related to guarantees.
  - Information related to guarantees should be published in accordance with practices defined by the IMF’s Fiscal Transparency Code.

- Table: Iraq: Level of Practices for Guarantees Disclosure in the Budget Documents (Principle: The government’s guarantee exposure is regularly disclosed and authorized by law)
  - Basic Practice: All government guarantees, their beneficiaries, and the gross exposure created by them are published at least annually.
  - Good Practice: All government guarantees, their beneficiaries, and the gross exposure created by them are published at least annually. The maximum value of new guarantees or their stock is authorized by law.
  - Advance Practice: All government guarantees, their beneficiaries, the gross exposure created by them, and their probability of being called are published at least annually. The maximum value of new guarantees or their stock is authorized by law.
  - Source: Fiscal Transparency Code, IMF (2014)

### F. Ensure Adequate Budget Provisions to Meet Claims — Recommendations (12–14)
- Recommendation 12. When there is no expectation that a called guarantee will be reimbursed to the State, it shall not be presented as a financing transaction but as an expenditure and be included in the budget (General Director Debt Management, September 2019).
- Recommendation 13. Called guarantees that are known to trigger disbursements during the next year should be included in a specific budget line for 100 percent of the expected disbursement (General Director Debt Management, September 2019).
- Recommendation 14. Guarantees for which the risk of being called is assessed to be above 50 percent should be provisioned in a specific budget line, with the amount to be provisioned equivalent to the expected probability (e.g. 75 percent) or to 100 percent (as a precaution) (General Director Debt Management, September 2019).

### G. Record, Monitor, and Disclose the Guarantees — Situation
- Information related to guarantees remains very limited, impairing active management of related fiscal risks.
- No central registry centralizing information on guarantees granted by the State of Iraq is yet available; rules should ensure such a registry is exhaustive and up to date.
- Basic disclosures required by the Fiscal Transparency Code are not achieved: an exhaustive list of government guarantees, their beneficiaries, and the gross exposure created by them are not published at least annually.
- No information is available regarding performance of guarantees until they are triggered, limiting proactive fiscal risk management.
- No institutional arrangements have been set up yet to monitor the performance of guarantees.

- GFML disclosure improvements:
  - At the start of September each year, a budget statement should be prepared and include “A list of all guarantees issued by the federal government” (cf. Article 8 of the GFML).
  - Statement should also include “the fiscal risks facing fiscal policy in the coming period”.
  - Federal financial statements shall be submitted to the Board of Supreme Audit by the end of April of the year following the end of the fiscal year and include “a report on guarantees issued by the federal government during the fiscal year” and “a report submitted by the minister of finance on all loans and guarantees issued by the region, governorates not organized in a region, and governorate councils”.
  - Article 43 of the GFML requires the Ministry of finance to “keep a record of the debts and guarantees of the federal government”.
  - Article 43.2 of the GFML: “The region, governorates not organized in a region, and public companies shall keep a record of their debts and the domestic loans, short-term loans, and guarantees granted to them. The updated record with this information shall be submitted to the MOF at the end of each month.”

### G. Record, Monitor, and Disclose the Guarantees — Analysis
- Effective GFML implementation should improve guarantee information but requires overhaul of recording and monitoring procedures.
- Law’s general requirements should be complemented by detailed accounting policies and procedures to ensure proper recording and reporting on guarantees.
- Contents of reports and statements must be defined; international standards (IMF’s Fiscal Transparency Code, the 2014 GFSM, IPSAS) provide guidance.
- The Ministry of Finance’s legal mandate to centralize guarantee information should be complemented by authority to require detailed information from all parties to guarantees.
- Reporting requirements could be included in guarantee contracts and made mandatory by guarantee policy framework.
- Registry maintenance and update requirements:
  - Staff at the Public Debt Office with adequate capacity should be dedicated to managing the registry.
  - New guarantees should be recorded when issued and information on existing guarantees updated at least every 6 months (e.g. including the amount outstanding, the performance of the guarantee beneficiary, and any potential changes in guarantee agreement or the underlying transaction guaranteed).
  - To manage key person risk, at least two staff should have the required capacity to fulfill these tasks.

### G. Record, Monitor, and Disclose the Guarantees — Recommendations (15–18)
- Recommendation 15. Define standardized report on guarantees to disclose all government guarantees, their beneficiaries, and the gross exposure created by them in the budget statement and the federal financial statements (Task Team, June 2020)
  - Identify the variation of the outstanding stock of each guarantee over the last three years
  - Identify the called guarantees and the amount actually paid
  - Identify the amounts to be reimbursed to the State and their variation over the last three years
- Recommendation 16. Update the guarantee registry when a new guarantee is issued (General Director Debt Management)
- Recommendation 17. Undertake a systematic review of the registry at least every six months to ensure its accuracy (General Director Debt Management)
- Recommendation 18. Over the medium term, build capacity to monitor the guarantees stock and identify related fiscal risks (General Director Debt Management)

### Extra-Budgetary Funds Management — Situation and Analysis
- Mission focused on EBFs whose financial transactions (i) represent activities of the central government sector and (ii) are not included in the annual State budget law.
- EBFs can provide economic benefits and coexist with the budget, but need firm control to avoid undermining budget credibility, coherence, or increasing fiscal risks.

- Typology highlights:
  - Extrabudgetary transactions: all revenues, expenditures and financing transactions excluded from the budget.
  - Extrabudgetary accounts: bank arrangements for extrabudgetary revenues and expenditures.
  - Extrabudgetary entities: organizations engaged in extrabudgetary transactions with separate bank accounts and financial management procedures; sometimes legally independent of government ministries and departments.

- Need for systematic identification and classification of EBFs based on international standards (GFSM 2014).
  - No survey undertaken to classify existing entities per GFSM 2014.
  - Some public corporations under Iraqi law likely classify as EBFs under GFSM 2014.

- Three key characteristics used to define EBFs:
  - They are government entities with a separate legal identity and substantial autonomy, including discretion over the volume and composition of their expenditures and a direct source of revenue, such as earmarked taxes;
  - They are most often established to carry out specific functions (e.g., road construction or nonmarket production of health or education services);
  - They satisfy the criteria to be an institutional unit.

- Implications of unmonitored EBFs:
  - Distortion of assessment of overall macroeconomic and fiscal position, including (i) size of the central government sector, (ii) contribution to aggregate demand, investment and saving, and (iii) tax pressure.
  - Dilution of accountability and control; ad hoc financial management procedures; centralization of fiscal data for reporting may be challenging.
  - A comprehensive list of EBFs should be prepared and classified in line with GFSM 2014; once data are reliable, consolidate with other government financial information for fiscal analysis and reporting.

### Examples and Illustrative List of Potential EBFs (Table 2 highlights)
- Special-purpose funds:
  - Newly established social security fund for private sector employees (contributions collected from employers and employee to a smaller degree and government contributions); extends loans to individuals (e.g. unemployed); large
  - Pension fund for public sector employees (contributions = 10% salary deductions, 15% from budget); large
  - Pension fund for war victims (= Martyr Fund)
  - Higher education fund (contributions = fees collected at universities (e.g. adult education programs; fees for certificate issuance); funds operational costs of universities; small
  - Environment (revenues =earmarked environmental taxes + fines for violation of standards (e.g. at slaughterhouses)); managed by Ministry of Health and Environment
  - Police fund (small)

- Development funds:
  - Social development fund (law not yet ratified by gov't); financed with USD 300 million loan from World Bank (IDA); to support social programs to poor and vulnerable populations; working in 3 governorates
  - [until 2003] Development Fund
  - "Refato" fund to reconstruct damaged areas affected by terrorism; funded with budget allocations -> not large amounts; loans contracted by government from WB at USD 750m, KfW at EUR 500m; fund has no borrowing authority; fund coordinates activities
  - Housing Fund; lends to citizens; partially financed by Ministry of Finance primarily and loans by Central Bank guarantee by MoF at 2% interest rate; charges 3-4% interest rates to borrowers; also borrows from commercial banks; Fund faces problems in servicing loans of Central Bank (maturity mismatch; CB lends for 5 yrs, Fund lends at 15 yrs); Central Bank loan is still in the grace period so gov't guarantee has not yet been called; MoF does not know about asset quality of Fund's loan portfolio; Fund's risk mitigation: either mortgage or credit default insurance (policies sold by 3 public insurance companies)
  - Fund for the support of small farmers; doesn't seem to be functional; initiallly at Ministry of Agriculture then brought to MoF and Agriculture Bank (a public bank); [information available to mission limited]

- Investment funds:
  - None but a SWF is being considered (would have to be established in revenue-sharing law or oil law)

- Contingent (reserve) funds:
  - None. Only contingency reserve in budget

- Stabilization funds:
  - None

- Sinking funds:
  - Has been discussed for repayment of FX loans to IFIs and redemption of Eurobond but not implemented yet

- Miscellaneous extrabudgetary accounts, including secret funds:
  - None identified

_International Monetary Fund: Iraq selected sections on guarantees, GFML implications, registry, disclosures, provisioning, and extrabudgetary funds management._

### 68.      Improved disclosure on EBFs should support enhanced budget transparency. The

### 1irqea2021001 - 68.      Improved disclosure on EBFs should support enhanced budget transparency. The

### Improved disclosure on EBFs — key findings and recommendations
- Finding: Budget documents should provide information on the fiscal activities of the whole of the central government, including EBFs, to ensure stakeholders have a more complete picture of fiscal operations.
- Finding: Including EBFs in the budget documentation could involve presenting information on their revenues, expenditures, assets, and liabilities for the information of the legislature, rather than including the expenditure of these entities in the appropriation bill for approval by the legislature.
- Finding: This approach would be consistent with the good practice as defined by the IMF’s Fiscal Transparency Code (Principle 2.1.1. Budget Unity – Good Practice: Budget documentation incorporates all gross revenues, expenditures, and financing by central government ministries, agencies, and extrabudgetary funds).
- Finding: Common requirements should be established for classification of expenditure and revenue, accounting and reporting, internal control, and external audit, using either the budget system itself or comparable parallel procedures.
- Finding: The mission encouraged the delegation to consider using the EBFs typology as a framework for collecting data on the main characteristics of their EBFs and reporting this information within the budget documents.

- Recommendations:
  - Recommendation 19. Prepare comprehensive list of EBFs classified in accordance with the concepts set out in the GFSM 2014 framework
  - Recommendation 20. Disclose in the budget documentation EBF’s revenues, expenditures, assets, and liabilities for the information of the legislature

### Proposed road map for guarantees management — structure and tasks
- Objective: Ascertain guarantee exposure, regulate new issuance, ensure adequate budgeting, ensure proper recording/monitoring/disclosure, develop risk mitigation measures, and evaluate guarantee proposals and risks.
- Selected tasks, responsibilities, and deadlines (as presented):
  - Adopt template of guarantee registry (related to Recommendation 1) — Responsibility: General Director Debt Management — Accomplished by: September 2019 — TA support: No
  - Collect information (including relevant documentation) about guarantees available in debt office (Recommendation 1) — Responsibility: General Director Debt Management — Accomplished by: September 2019 — TA support: No
  - Analyze 1-2 sample guarantee contracts to understand specific risks borne by government (Recommendation 1) — Responsibility: General Director Debt Management — Accomplished by: October 2019 — TA support: Yes
  - Populate guarantee registry with some (around 5) guarantees and review format of registry (Recommendation 1) — Responsibility: General Director Debt Management — Accomplished by: October 2019 — TA support: Yes
  - Collect information about all guarantees from various stakeholders (ministries, SOEs, central bank, banks, agencies, EBFs etc.) (Recommendation 2) — Responsibility: General Director Debt Management — Accomplished by: November 2019 — Note: All stakeholders have been requested to provide information about guarantees under their purview by September 2019 — TA support: No
  - Analyze in detail all guarantee contracts to understand government's risks (Recommendations 1 and 3) — Responsibility: Task team — Accomplished by: January 2020 — TA support: Yes
  - Populate guarantee registry with all guarantees (Recommendation 1) — Responsibility: General Director Debt Management — Accomplished by: December 2019 — Corresponding milestone: Guarantee registry fully populated by end of 2019 — TA support: No
  - Validate information in guarantee registry and clarify open issues (Recommendation 1) — Responsibility: Task team — Accomplished by: January 2020 — TA support: Yes
  - Assign responsibility to officer(s) to maintain and update registry (Recommendation 1) — Responsibility: General Director Debt Management — Accomplished by: January 2020 — TA support: No

- Selected regulatory and budgeting tasks:
  - Prepare a draft Regulation on Government Guarantee Issuances, based on the new General Financial Management Law (Recommendation 4) — Responsibility: General Director Debt Management — Accomplished by: December 2019 — TA support: Yes
  - Draft outline of key provisions of guarantee contract (Recommendation 5) — Responsibility: General Director Debt Management — Accomplished by: March 2020 — TA support: Yes
  - Submit the draft regulation to key stakeholders for comments — Accomplished by: January 2020 — TA support: No
  - Consider comments and prepare final draft — Accomplished by: March 2020 — TA support: Yes
  - Submit final draft to the Cabinet for approval — Accomplished by: April 2020 — Corresponding milestone: The Regulation is submitted — TA support: No
  - Cabinet approves the draft Regulation — Accomplished by: May 2020 — TA support: No

- Budgeting and disclosure milestones:
  - Define the budgetary treatment of called guarantees (Recommendation 12 to 14) — Responsibility: Accounting, Budget, and Audit Bureau — Accomplished by: September 2019 — TA support: No
  - Identify called guarantees that are known to trigger disbursements in 2020 (Recommendation 13) — Responsibility: General Director Debt Management — Accomplished by: September 2019 — TA support: No
  - Identify guarantees for which the risk of being called is assessed to be above 50% but below 100% in 2020 (Recommendation 14) — Responsibility: General Director Debt Management — Accomplished by: September 2019 — TA support: No
  - Provisions guarantees in the draft 2020 budget (Recommendation 14) — Responsibility: Budget — Accomplished by: September 2019 — Corresponding milestone: The 2020 budget includes a provision for guarantees — TA support: No
  - Include in the draft 2020 budget a list of guarantees issued by the federal government (Recommendation 15) — Responsibility: Debt, Budget — Accomplished by: September 2019 — TA support: No
  - Insert in the budget execution report the list of all government guarantees, their beneficiaries, and the gross exposure created by them (Recommendation 15) — Responsibility: Debt, Accounting, Budget — Accomplished by: June 2020 — Corresponding milestone: The 2019 budget execution report includes an annex on guarantees — TA support: No
  - Develop standardized periodic reports on guarantees and a schedule of publication (Recommendation 15) — Responsibility: Task Team — Accomplished by: June 2020 — TA support: Yes

- Risk mitigation and evaluation:
  - Set overall limit on all guarantees in budget law and adhered to it (Recommendation 9) — Responsibility: Director Budget — Accomplished by: November 2019 — Corresponding milestone: No guarantees have been issued in 2020 beyond authorization in budget law — TA support: No
  - Specify obligations of guarantee beneficiaries to government in templates for guarantee agreements (Recommendation 11) — Responsibility: General Director Debt Management — Accomplished by: March 2020 — TA support: Yes
  - Take measures to support government in recovering materialized guarantees and include them in guarantee agreements and regulation (Recommendations 5, 10 and 11) — Responsibility: Accounting — Accomplished by: June 2020 — Corresponding milestone: Guarantee agreement signed between government and guarantee beneficiary with obligations on beneficiary — TA support: No
  - Specify time and value limits in guarantee agreements (Recommendations 5 and 10) — Responsibility: General Director Debt Management — Accomplished by: June 2020 — TA support: No
  - Set a guarantee fee policy (Recommendations and 10) — Responsibility: General Director Debt Management — Accomplished by: April 2020 — TA support: No

- Capacity and methodology:
  - Assign officers with assessing new guarantee proposals (Recommendation 7) — Responsibility: General Director Debt Management — Accomplished by: December 2019 — TA support: No
  - Build capacity of assigned officers to assess guarantee proposals (Recommendation 7) — Responsibility: General Director Debt Management — Accomplished by: December 2020 — TA support: Yes
  - Submit simple risk assessment for new guarantees to guarantee committee established under Council of Ministers Decision No. 168 of 2017 (Recommendation 6) — Responsibility: General Director Debt Management — Accomplished by: December 2020 — TA support: No
  - Develop methodology to systematically assess guarantee proposals and to monitor evolution of risks of existing guarantees (Recommendation 6) — Responsibility: General Director Debt Management — Accomplished by: June 2021 — Corresponding milestone: Methodology paper to codify risk assessment methodology submitted for approval by June 2021 — TA support: Yes
  - Submit risk assessment reports based on approved methodology to guarantee committee (Recommendation 6) — Responsibility: General Director Debt Management — Accomplished by: November 2021 — Corresponding milestone: New guarantee requests are evaluated taking into account risk assessment report by November 2021 — TA support: No
  - Set up a policy on how risk assessment will be used in designing risk mitigation measures (e.g. risk-based guarantee fees, budgeting, reserve fund, etc.) (Recommendation 8) — Responsibility: General Director Debt Management — Accomplished by: June 2021 — TA support: Yes

### Proposed template of the guarantees registry — index fields (Annex I)
- Guarantee Characteristics:
  - Index
  - Guarantee Scope
  - Guarantee beneficiary (guaranteed entity)
  - Counterparty of guarantee beneficiary (recipient of payment if guarantee materializes)
  - Date of issuance
  - Date of Expiration
  - Issuing authority and individual signing guarantee
  - Governing law of guarantees
  - Legal basis under which guarantee has been issued
  - Guaranteed amount authorized
  - Guaranteed amount outstanding
  - Risk factors that drive materialization of guarantee
  - Terms of guaranteed transaction
  - Risk assessment
  - Performance of guarantee
  - Revenues received by government
  - Payments made by government
  - Risk mitigation measures in place
  - Budget provision for risk materialization for current fiscal year

### Annex II — Information on guarantees provided by the Iraqi Delegation (selected totals and items)
- A. Sovereign guarantees issued to the benefit of the Iraqi public companies — Selected entries:
  - 1. Ministry of Finance — Rafidain Bank, Rasheed Bank — 9,046 — Remarks: Guarantees for the loans offered by Rafidain and Rasheed banks to the benefit of public State-owned companies in view of paying the salaries, pursuant to Council of Ministers Decisions No. (50) for the year 2011 and (409) for the year 2014
  - 2. Ministry of Finance — Trade Bank of Iraq (TBI) — 655 — Remarks: Loan guarantee of 600 million dollars to the benefit of the Ministry of Electricity since 2014, pursuant to Council of Ministers Decision No. 314 for the year 2014
  - 3. Ministry of Finance — Central Bank of Iraq — 3,000 — Remarks: Guarantee presented to the Central Bank to provide lending to private companies, knowing that what has been lent to date amounts to 2200 billion Dinar
  - 4. Ministry of Finance — Rafidain Bank, Rasheed Bank, TBI — 2,284 — Remarks: Guarantee of around 200 billion Dinar for the advances offered by the three banks to the benefit of the National Investment Commission
  - 5. Ministry of Finance — Rasheed Bank — 50 — Remarks: Guarantee to the benefit of the Ministry of Transportation for the preparation of designs for the construction of the Karbala Airport. Pursuant to Council of Ministers Decision No. 309 for the year 2009
  - 6. Ministry of Finance — Rasheed Bank — 85 — Remarks: Guarantee to the benefit of the Ministry of transportation for the preparation of designs for the construction of Al-Faw port, pursuant to Council of Ministers Decision No. 309 for the year 2009
  - 7. Ministry of Finance — Rafidain Bank, Rasheed Bank — 92 — Remarks: Guarantee by equal shares from Rafidain and Rasheed banks for the housing loan, pursuant to Council of Ministers Decision No. 384 for the year 2012
  - 8. Ministry of Finance — Rasheed Bank — 200 — Remarks: Guarantee to the benefit of the Real Estate Bank for loans granted to citizens
  - 9. Ministry of Finance — Rasheed Bank — 3 — Remarks: Guarantee to the benefit of the Public company for Textile Industries to buy raw materials, pursuant to Council of Ministers Decision No. 67 for the year 2008
  - Total (Section A): 15,415

- B. Guarantees issued in USD in favor of the Ministry of Electricity’s projects — Selected entries and totals:
  - 1. Ministry of Finance — GE American company mpp1 — 366,359,016 $ — Maturity dates and installments listed (e.g., 30/9/2017, 30/12/2017, …) — Installment + interest amounts each: 45,794,876,99 repeated eight times — Remarks: Sovereign guarantee No. 924 issued on 5/5/2016 to ensure the settlement … eight quarterly installments starting September 2017
  - 2. Ministry of Finance — GE American company mpp2 — 194,581,037 $ — Multiple maturity dates and installment + interest amounts (e.g., 15,799,247,54; 14,311,015,15; …; 8,826,009,18) — Remarks: Sovereign guarantee No. 2466 issued on 28/12/2016 … guarantee amount was modified … to (194) million dollars
  - 3. Ministry of Finance — GE American company — 15,039,383 $ — Remarks: Sovereign guarantee issued on 14/5/2017 to finance the importation of chemicals …
  - 4. Ministry of Finance — GE American company Samawah & Dhi Qar — 117,700,000 $ — Installment entries: 29,018,863; 29,018,863; 29,748,869; 29,748,869 — Remarks: Sovereign guarantee No. 1064 issued on 14/5/2017 in favor of financing the project of the Samawah and Dhi Qar power plants
  - 5. Ministry of Finance — Habilitation of first and second units GE American company for the Khor Al Zubair plant — 52,425,715 Euros — Multiple installment + interest amounts (e.g., 8,426,143,59; 6,510,140,67; …) — Remarks: Sovereign guarantee No. 1062 issued on 14/5/2017 … amount modified … to 52 million Euros
  - 6. Ministry of Finance — GE American company Mullah Abdullah — 101,200,000 $ — Remarks: Sovereign guarantee issued on 14/5/2017 to ensure the financial liabilities for the habilitation of the Mullah Abdullah plant, but has not done so far
  - 7. Ministry of Finance — Al Musayyib Plant GE American company Al Musayyib Station — 18,459,272 $ — Multiple installment + interest amounts (e.g., 5,259,116,23; 2,265,894,94; …) — Remarks: Sovereign guarantee issued on 14/5/2017 to ensure the financial liabilities for the habilitation of Al Musayyib plant
  - 8. Ministry of Finance — Qar company / Rmeileh gas power plant / Shatt El Basra gas power plant — 2,250,000,000 $ — Remarks: Sovereign guarantee No. 181 issued on 27/1/2016 and No. 119 for a year on 14/12/2017
  - 9. Ministry of Finance — Maysan for Energy — 1,000,000,000 $ — Remarks: Guarantee issued as per Council of Ministers Decision No. 268 for the year 2018 … Guarantee No. (1530) on 25/7/2018
  - 10. Ministry of Finance — Amarah company — 200,000,000 $ — Remarks: Guarantee issued as per Council of Ministers Decision No. 268 for the year 2018; Guarantee No. (2609) on 23/12/2018
  - 11. Ministry of Finance — Joud Energy Group — 100,000,000 $ — Remarks: Sovereign guarantee issued on 15/5/2017 to ensure the liabilities of the Ministry of Electricity stemming from the provision of fuel
  - 12. Ministry of Finance — Legion contract with the Russian Armored brigade — 559,263,435 $ — Maturity dates: 1/6/2016, 1/6/2020, 1/6/2021 — Installment + interest: 200,000,000; 200,000,000; 159,000,000 — Remarks: Sovereign guarantee of 559,263,435 issued on 29/11/2016 … settlement begins on 1/6/2019 and ends on 1/6/2021; Guarantee No. (2255) on 29/11/2016
  - 13. Ministry of Finance — STX South Korean company — 125,000,000 $ — Remarks: Financing, habilitating and operating of plants affiliated to the Ministry of Electricity … Guarantee No. 1809 on 20/8/2018, issued by the 2018 Budget Law … financing bank is Standard Chartered
  - 14. Ministry of Finance — Siemens German Company — 105,215,897 Euros — Remarks: Sovereign guarantee issued to finance the Rmeileh gas power plant and the Dawra / Rasheed gas power plant … Guarantee No. 2714 on 27/12/2017 … financing bank is Standard Chartered, with the guarantee of the German Export Guarantee Agency
  - Total (Section B): 7,924,160,997 US Dollars

- Guarantees for service purchase — listed totals:
  - Ministry of Finance — Mass Group Holding — 11,180,000,000 (USD) — Remarks: This guarantee was signed on 18/11/2015 as per Council of Ministers Decision No. 90 of 2014
  - Ministry of Finance — Shamara Holding group — 11,180,000,000 (USD) — Remarks: This guarantee was signed on 9/7/2015 as per Council of Ministers Decision No. 90 of 2014
  - Ministry of Finance — Maysan Company — 600,000,000 (USD) — Remarks: As per Council of Ministers Decision No. 268 of 2018, Guarantee No. (1530) on 25/7/2018
  - Ministry of Finance — Al Amarah Company — 400,000,000 (USD) — Remarks: As per Council of Ministers Decision No. 268 of 2018, Guarantee No. (2609) on 23/12/2018
  - Total (Guarantees for service purchase): 23,360,000,000

*Source: Extracted content from the supplied IMF chapter/section.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1irqea2021001.pdf_