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Friday, June 7, 2019

IMF Staff Completes 2019 Article IV Mission on Iraq

May 6, 2019

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision. 
  • Near-term vulnerabilities subsided in 2018, with the budget in surplus and a build-up in central bank reserves. Post-war reconstruction has been limited so far.
  • Fiscal deficits are projected to rise over the medium term, absent policy changes, and it will be hard to sustain capital spending. Growth is likely to slow markedly.
  • Tight control over current spending, particularly wages, and phased measures to boost non-oil revenue would make space for scaling up public investment and building fiscal buffers.

An International Monetary Fund (IMF) team led by Gavin Gray visited Amman from April 26 to May 2, to hold discussions with the Iraqi authorities in the context of the 2019 Article IV Consultation. At the end of the visit, Mr. Gray made the following statement:

“The end of the war with ISIS and a rebound in oil prices provide an opportunity to rebuild the country and address long-standing socio-economic needs. However, the challenges to achieving these objectives are formidable. The economic recovery has been sluggish, post-war reconstruction is limited, and large current spending increases risk placing the public finances and central bank reserves on an unsustainable path. Moreover, combatting corruption is critical to promote the effectiveness of public institutions and to support private-sector investment and job creation.

“Near-term vulnerabilities subsided in 2018, with the budget in surplus and a build-up in central bank reserves. Non-oil growth is expected to increase to 5.4 percent in 2019 on the back of higher investment spending. However, fiscal deficits are projected to rise over the medium term, requiring financing that may crowd out the private sector or erode central bank reserves. In these circumstances, it would be hard to sustain capital spending, and growth would slow markedly.

“Policy changes and structural reforms—including to improve governance—are therefore essential to maintain medium-term sustainability and lay the foundations for inclusive growth.

“Fiscal policy should aim to scale up public investment gradually while building fiscal buffers. To make space for this, staff recommends budgetary savings of around 9 percent of GDP over the medium term through tight control of current spending, particularly public-sector wages, and phased measures to boost non-oil revenue. Setting ceilings on current expenditure in the 2020 budget onwards would strengthen the fiscal framework’s capacity to support higher capital spending and to adapt to oil price shocks. Key reforms should include:  
  • Containing public-sector wages. Spending pressures could be dampened in the short run through compensation measures such as capping allowances, bonuses and other non‑base wage payments, and by not fully replacing retirees. Structural measures will be required over the medium term, based on a functional workforce review as well as deeper civil service reform once new HR management and information systems are in place.  
  • Electricity reforms are key to addressing the weak quality of service and reducing the high budgetary costs, due to modest tariff rates, chronic non-payment of electricity bills, poor maintenance and over-reliance on expensive generation sources, coupled with losses throughout the generation, transmission, and distribution process. It would be important to ensure that the poor and most vulnerable are protected throughout this reform.  
  • Bolstering public financial management. Enhancing the legal framework and improving commitment and other control systems are key to minimizing misuse of public resources and restoring budgetary discipline.  
“In the financial sector, a robust plan to restructure the large public banks coupled with enhanced supervision is essential to secure financial stability and will help promote financial development and inclusion. Strengthening anti-money laundering and countering financing terrorism (AML/CFT) controls and oversight will help prevent Iraq’s financial sector from being misused for the laundering of criminal proceeds and terrorist financing.

“Addressing governance weaknesses and corruption vulnerabilities is critical to achieving the described policy objectives. As a first step, the authorities need to develop a comprehensive understanding of the corruption risks present in Iraq and then implement policies to tackle these risks in a coherent and coordinated manner. The legislative framework needs to be strengthened to effectively prevent officials from abusing their position or misusing state resources. To this end, laws strengthening the asset declaration regime and criminalizing illicit gains should be rapidly adopted. Furthermore, the independence and integrity of bodies involved in combatting corruption should be ensured and the AML/CFT regime should be mobilized to support anti-corruption efforts.
The team will prepare a report that, subject to management approval, is tentatively scheduled to be considered by the IMF’s Executive Board in July 2019.

“The IMF team would like to thank the authorities for the candid and constructive discussions during this visit.”

Monday, June 3, 2019

Iraqi crude exports jump to near-record levels in May

The federal government and KRG both increased their oil sales, combining for the second-highest monthly export average that Iraq has ever posted. Iraqi oil exports from both the federal government and the autonomous Kurdistan Regional Government (KRG) increased in May, combining for 4.086 million barrels per day (bpd) – the second-highest monthly average ever.

The federal government reported selling an average 3.572 million bpd – a more than 3 percent increase from April – commanding an average sale price of $66.683 per barrel and earning $7.384 billion, the largest monthly haul since last October.

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Published Monday, June 3rd, 2019

Saturday, June 1, 2019

Dual Class LLCs

Dual class limited members cannot vote on everyday operational matters.

Limited liability companies are business structures legally distinct from their owners. To form an LLC, you file articles of organization with your secretary of state. LLC owners are called members. A dual LLC refers to a dual class LLC, which is a proposed Internal Revenue Service designation for a business that organizes as a multi-member LLC then defaults to tax treatment as a partnership.

Dual Class LLC

A dual class LLC is a special LLC that is classified as a limited partnership for tax purposes by the IRS. Instead of only one type of membership, or ownership, interest, if you operate a dual class LLC, your LLC has two types. Your dual class LLC’s general members function akin to a limited partnership whose general partners are open to full liability and actively run and manage the business. Limited partners contribute capital but play a passive role with no or little participation in management, and a dual class LLC’s limited members do the same.

Self-Employment Tax

A dual class LLC got its name because it offers two classes of membership interests. A dual class allows members of LLCs who default to tax treatment as a general partnership to avoid self-employment taxes. Under this proposed IRS rule, your LLC’s general members are subject to self employment taxes but its limited partners are not. Instead, your LLC’s non-managing members enjoy taxation similar to that of S corporation shareholders.


Congress never finalized this IRS rule therefore the dual class LLC rule is not in effect. The IRS’ general stance is if taxpayers comply with the most recent proposed rules, limited members will avoid IRS difficulties regarding any self-employment tax avoidance. Without a finalized rule, the IRS ultimately determines who is or is not considered a passive member from a tax perspective. Therefore, if you are an LLC member with elimination of self-employment taxes as your goal, consider consulting with an experienced LLC business service specialist and CPA to properly structure your dual class LLC.


Snake River Homes, LLC is a newly formed residential development firm with five members that chooses to operate as a dual class LLC. Two members are managing members, active in running the business. The other three members are passive members who simply contributed money to the LLC for investment purposes. The operating agreement that clearly designates two class levels, general and limited, and defines the responsibilities and rules governing each. The two general members contribute $20,000 each and agree to provide services worth $60,000 the first year. The three limited members contribute $80,000 in cash. The two general members will be subject to self-employment tax because of their involvement in the business but the three limited partners would not.