REVENUE JOURNAL: MANAGEMENT AND ENTREPRENEURSHIP
e-ISSN 3026-1058
Vol 1, No 1, August 2023, 22–26
DOI https://doi.org/10.61650/rjme.v1i1.178

The impact of monetary policy instruments on sustainable development
Osama Abdulsalam Jothr1,* , Ahmed Ibriheem Jummaa2 , Didik Kusno Aji. N3 , and Ambariyani3
1 Presidency of Mustansiriyah University, Iraq
2 Iraqi University, College of Administration and Economics, Iraq
3 Universitas Ma’arif Lampung, Indonesia
* Corresponding author: osama.abdelsalam@uomustansiriyah.edu.iq

KEYWORDS
cash flow
economic growth per capita
monetary policy instruments
sustainable development

ABSTRACT In this research, the effect of monetary policy on five sustainable development indicators
prepared by the United Nations was investigated in Iraq. For this purpose, variables of interest rate,
exchange rate and volume of money in circulation have been used as monetary policy tools and the
indicators have been used such as Proportion of the population living below the international poverty
line (1.1.1), Proportion of population using safely managed drinking water (6.1.1.), Change in water-use
efficiency (6.4.1), Renewable energy (7.2.1), share in the total final energy consumption, and Annual
growth rate of real GDP per capita (8.1.1.). For this purpose, five regressions were estimated using the
Two Stage Least Squares (2SLS) method. The results show that the exchange rate has a positive effect
on indicators of poverty, efficient management of water resources, and economic growth per capita,
and a negative effect on access to safe drinking water. Among other monetary policy instruments, only
currency in circulationhas a positive effect on poverty reduction, and in other cases it has no significant
effect.
© The Author(s) 2023

1. INTRODUCTION
Sustainable development with the aim of reducing the burden on the environment and natural resources seeks to
maintain and create economic growth. Due to the lack of
natural resources and in order to preserve them for future
generations, many countries have sought to achieve sustainable development during the past decades. This purpose is possible through applying and converging programs
and strategies for economic growth and development with
environmental protection and social development policies.
One of the most important measures taken in the world
to achieve sustainable development is the compilation of
the Millennium Development Goals (MSGs) in 2000, which
were not extended in 2015 due to various reasons, including
the inharmonious progress of the Millennium Development
Goals. Because its frameworks were limited to external issues, the lack of all stakeholders’ involvement, especially
in developing countries, and the lack of collective commitment. After that, in 2015, the Sustainable Development
Goals (SDGs) replaced the MSGs, which had been adopted
by the leaders of countries in the United Nations Sustainable Development Summit called River 20+. SDGs include
17 goals, 169 targets, and 231 indicators, which have three
dimensions of sustainable development such as social, economic, and environmental sustainability. Iraq, like other
countries, has implemented various policies to achieve
sustainable development goals. One of the challenges of
achieving sustainable development goals is the policies that

governments apply to achieve economic growth and development which may negatively affect the sustainability of
the environment.

1.1 The Statement of the Problem
Economic policies that handle trade-offs and foster synergy between various objectives are what decision-makers
and stakeholders should ideally develop (Basheer et al,
2022). For instance, reducing poverty and promoting economic growth are two Goals that may have short-term
tradeoffs with climate change mitigation and adaptation efforts, but these actions will likely have long-term positive
effects on many SDGs (Al Mamun et al, 2014; Coondoo &
Dinda, 2021).
Therefore, in order to achieve growth and development
while preserving the environment, policymakers should
consider all aspects of their applied policies. One of the
important economic institutions is the Central Bank which
can influence sustainable development with its policy makings. Central Bank is one of the most important pillars influencing the development path of countries by implementing
monetary policies including controlling the interest rate,
inflation rate, money supply, and exchange rate. Considering the goals and effects of the central bank’s monetary policies that affect private household income, consumption levels, producer behavior, capital asset prices, etc., it can also
indirectly affect the pressure on the environment and natural resources. However, exploring their relationship has
been ignored in economic studies.
Jothr et al. / The impact of monetary

1.2 The Significance of Study
The monetary policy generally tries to control the volume
of the money supply for the purpose of achieving certain
economic goals. The monetary policy of the Central Bank is
to reduce the money supply and increase the interest rate,
in order to reduce the inflation rate, increase the national
currency rate, or reduce the interest rate, by injecting liquidity into the economy to stimulate investment costs and
economic activity in the country (Khalaf, 2021). In general,
any policy related to the supply of money can be considered a type of monetary policy, because monetary policy is
the process adopted by monetary authorities to influence
the amount of money with the goal of achieving prices, total employment, and economic growth (Farhan et al, 2022).
The exchange rate can be stabilized to achieve monetary
stability, which will eventually reflect in price stability. Interest rates are another tool that central banks can employ
to implement monetary policies. to influence the amount
of accessible liquidity in the economy in order to close the
gap between the monetary current and the real one and to
ensure overall economic stability (Farhan et al, 2022). One
method the central bank uses to accomplish a rise or decrease in the number of cash reserves with commercial
banks and the general public is open market operations,
which has an impact on the amount of credit extended by
these banks.
Iraq, like other countries, has taken various measures
to achieve the goals of sustainable development, but due
to the weakness of the institutions, the lack of coherent
and classified statistics has made it difficult to calculate
and measure the SDGs in this country (Hussain, 2020). The
Central Bureau of Statistics of Iraq, in cooperation with the
United Nations, has only collected information on 62 indicators out of all the written indicators of the 2030 Iraqi
Development Document. Among them, the Central Bureau of Statistics has developed 33 indicators while the UN
has compiled 29 indicators. Energy and renewable energyrelated SDGs are among those with many restrictions on
data collection, therefore it is highly challenging to get the
right statistics for these goals.
Despite all of the issues facing Iraq, the 2030 SDGs version for Iraq is built on the principles of promoting sustainable development dimensions, empowering the Iraqi people to build a safe and united nation where everyone has
equal rights, establishing an economic system with diversified social market orientations and stable macroeconomic
indexes, and creating a clean, safe, and sustainable environment for both the present and the future.

1.3 The Purpose of the Study
The aim of this paper is to investigate the impact of monetary policies in Iraq on five SDG goals. Regarding the
available information and based on the research purpose,
desired indicators that have been selected for this study
including Goal.1 (1.1.1: Proportion of the population living
below the international poverty line by sex, age, employment status, and geographic location), Goal.6 (6.1.1: Proportion of population using safely managed to drink water
services, 6.4.1: Change in water-use efficiency over time),
Goal.7 (7.2.1: Renewable energy share in the total final energy consumption) and Goal.8 (8.1.1: Annual growth rate of
real GDP per capita) which each one of them represents
respectively Goal.1 indicates Poverty, Goal. 6 shows Clean
REVENUE JOURNAL: MANAGEMENT AND ENTREPRENEURSHIP 1(1): 22–26

water and sanitation, Goal.7 means Clean energy and Goal.8
represents economic growth.

2. LITERATURE REVIEW
Although there have been many studies on the effects
of monetary policies on the economy, the studies that
have evaluated the effects of monetary policies on sustainable development indicators are very limited. Razika and
Karima (2018) investigated the effect of applying monetary
policies on achieving the goals of sustainable development
in Al Jazeera, and the research results showed that in the period of 2015-2000, despite the application of various monetary policies, indicators of sustainable development, including the number of Internet subscribers, agricultural land,
GDP per capita has increased and the unemployment rate
has decreased (Mohaisen et la, 2023).
(Basheer et al, 2022) investigated the effect of consolidated policies in achieving sustainable development goals
in Egypt. The results of their research showed that applying
different economic, social, and political policies and creating a balance between them will improve SDG indicators,
including reducing inequality, economic growth, and climate change mitigation. (Mathias & Yusuf, 2022) reviewed
monetary policies and sustainable development goals in
Nigeria. They showed that achieving sustainable development depends on creating economic growth. Therefore,
they investigated the effect of monetary policy on economic growth. The results showed that in the long term,
there is a positive relationship between economic growth
and the supply of money and domestic credits. Also, there
is a negative relationship between economic growth and
short-term policy interest rates. Oguntuase (2020) examined the relationship between monetary policy of central
banks in Africa and sustainable development. According
to the type of behavior of banks, countries were divided
into three groups of countries consisting of central banks
with explicit, implicit and without sustainable development
mandates. The findings of the research showed that in order to achieve sustainable development, the central bank
should use radical and proactive policies. (Kiesel’akova
et al, 2020) investigated the effect of monetary policy on
the sustainable development of financial markets and ultimately economic growth for countries in the European region. The study’s findings demonstrated that the asset purchase program, which is a part of monetary policy, had a favorable and stimulating impact on the growth of the goods
and services markets as well as the labor market. In reality, this relationship is related to long-term financial development. (Altunyan et al, 2020) investigated the effect of
economic policy instruments on the growth conditions of
sustainable development in Russia. They suggested that in
order to achieve sustainable development and create social
sustainability, the problem of equitable distribution should
be solved through the application of financial policies. Also,
the central bank should reduce interest rates, increase the
money supply through the issue of securities, and increase
the expenses of the government to invest in education and
health sections. (Ahmed & Karbit, 2022) investigated the
challenges and remedies of sustainable development in Iraq
and suggested that the most important action to achieve
sustainable development is through development in human
and the next generation should be informed about the benefits of using natural resources properly. (Ameen, 2020)
23

investigated people’s awareness of the dimensions of sustainable development in Iraq. The results of the research
showed that people are relatively aware of the aspects of
sustainable urban development and are willing to live in sustainable cities. On the other hand, the results showed the
very low quality of drinking water and the lack of efficient
use of renewable energy. (Orji et al, 2022) examined the relationship between monetary policies and sustainable development in the ECOWAS region. Their results showed
that the application of inflation targeting monetary policies
on the creation of growth and added value in the agricultural sector is heterogeneous and inflexible, and in the industry and service sectors it is negative and homogeneous.
Also, monetary policy has a symmetrical and homogeneous
effect on sustainable economic growth. Qingquan et al.,
(2020) investigated the effect of monetary policy implementation on sustainable development air pollution indicators
in Asian countries. The research results showed that expansionary monetary policy has a positive and long-term
relationship with CO2 emissions. Boneva et al (2021) investigated the effect of the central bank’s monetary policies on
the sustainable development climate change indicator.

3. METHOD
In this research, the period 2002-2019 has been selected
according to the available information to investigate the effect of monetary policies on sustainable development indicators in Iraq. The monetary policy tools that have been
selected include interest rate, currency in circulation, and
exchange rate, also the control variables of the inflation
rate and foreign trade share of GDP have been added to the
model. All information related to monetary policy variables
and control variables was collected from the World Bank
website, as well as sustainable development indicators from
the United Nations website. Therefore, the research model
can be written as follows:
SDGi = αi + β i MPi + γi CVi + ϵi

4. RESULTS AND DISCUSSION
4.1 Estimation, Model, and Analysis of Results
The estimation results of the first model are shown in Table
1. Based on the results, the model shows 95% of the changes
related to poverty, and according to the F-static statistic
= 81.94, the estimated model is completely significant. According to the results, liquidity and exchange rate have a
positive effect on poverty. In fact, the elasticity of poverty
with respect to liquidity is 0.012, meaning that a one percent increase in money in circulation increases the proportion of people living below the poverty line by 0.012%. The
elasticity of poverty with respect to the exchange rate is
equal to 0.05 and it states that a one percent increase in
the exchange rate increases poverty by 0.05%. In fact, with
the increase in liquidity and the decrease in the value of
the national currency, the purchasing power of the people
decreases and the number of poor people in the society increases. The trade volume variable has a negative and significant relationship with poverty. The elasticity of poverty
trade with respect to trade is equal to 0.35 and shows that
with a one percent increase in the volume of trade, the number of people living under the risk of poverty decreases by
0.35%. The reason for this issue can be mentioned that ac24

cording to the theories of international trade, foreign trade
always adds to people’s well-being, and one of its effects is
reducing the number of people under the risk of poverty.
Based on the results of the model, it shows 60% of the
changes related to the consumption of healthy drinking water, and according to the F-static statistic = 7.39, the estimated model is quite significant. According to the results,
the exchange rate has a negative effect on the proportion of
people who use safe drinking water. The elasticity of people’s access to drinking water compared to the exchange
rate is -0.44, which means that a one percent increase in
the exchange rate decreases the access to drinking water
by 0.44%. Other monetary policy tools have no effect on
sustainable development indicator 6.1.1. Among the control variables, the inflation rate has a negative effect on the
availability and use of safe drinking water with a coefficient
of -4.43, and it shows that each percentage increase in inflation reduces the consumption of safe drinking water by
4.43%.
In fact, providing access to safe drinking water requires
investment and providing related infrastructure, which increases the investment costs with the increase in exchange
rate and inflation and has a negative effect on the provision
of safe drinking water.
Based on the results of the model, it shows 95% of the
changes related to the correct management of water resources, and according to the F-static statistic = 32.59, the
estimated model is quite significant. Based on the results,
the exchange rate has a positive effect on the correct management of water resources. The exchange rate elasticity
coefficient is equal to 6.92, which means that a one percent increase in the exchange rate causes a 6.92 percent
improvement in water resources management.
In fact, with the increase of the exchange rate in order
to prevent the increase and save the costs related to the
management of water resources, the management of these
resources is improved. Both control variables included in
the model have a significant effect on water resources management. Trade volume has a negative effect on water
resources management and inflation has a positive effect.
The elasticity of water resources management compared
to trade and inflation is equal to -0.097 and 0.06, respectively, which shows that with a one percent increase in the
share of foreign trade compared to GDP, water resources
management increases by 0.97%, which can be due to the
diffusion of water-saving technologies and the reformation
of industry composition (Ahmed & Karbit, 2022)(Kagohashi,
2015). And with a one percent increase in the inflation rate,
water resources management improves by 0.06%, which
can be attributed to the effect of these two variables on
water resources management costs. An increase in foreign
trade causes an increase in foreign exchange earnings and
a decrease in the exchange rate, and as a result, a decrease
in water resources management costs, and an increase in
inflation causes an increase in management costs in the water sector.
Based on the results of the model, it shows 58% of the
changes related to the use of renewable energy and according to the F-static statistic = 5.78, the estimated model is
quite significant. Based on the results, none of the monetary policy variables affect the amount of renewable energy use, but the control variables have a significant effect
on those two. Like the research of (Zhang et al, 2021), the
elasticity of the share of renewable energy consumption
Jothr et al. / The impact of monetary

with respect to foreign trade is positive and is equal to 0.41,
which shows that a one percent increase in foreign trade
causes a 0.41% increase in the use of renewable energy. The
reason for this can be mentioned that the increase in foreign trade increases the possibility of importing capital and
intermediate goods related to renewable energies and the
conditions for the use of renewable energies increase. The
elasticity of renewable energy use compared to inflation is
-0.3, which shows that with a one percent increase in inflation, the share of renewable energy use will decrease by
0.3%. Since renewable energies are very nascent and have
not been exploited on a large scale, therefore, the increase
in inflation increases their exploitation costs and their use
decreases.
Based on the results of the model, it shows 50% of the
changes related to the growth of GDP per capita, and according to the F-static statistic=4.07, the estimated model
is completely significant. According to the results, the exchange rate has a positive effect on GDP per capita growth.
There are different views on how the exchange rate affects
economic growth, which can generally be said that the increase in the exchange rate is due to the decrease in the
value of the national currency and the increase in exports
(Karahan, 2020). As well as, exerting pressure on efficiency
improvement and technological progress via workers’ motivation, education and capital intensity increase economic
growth (Ping, 2011). But if the exchange rate exceeds a certain threshold value, its further increase will have a negative effect on economic growth. In this model, the elasticity of economic growth per capita with respect to the
exchange rate is 0.99, which means that a one percent increase in the exchange rate increases economic growth by
0.99%.
Both control variables included in the model affect economic growth. The share of foreign trade in relation to
GDP has a positive effect on economic growth, which is
in accordance with the research of (Hallaert, 2010)Abedin
(2021), and its estimated coefficient is equal to 3.63, which
shows that with a one percent increase in foreign trade,
economic growth is 3.63% increase. Inflation rate also has a
negative effect on economic growth per capita and it shows
that each one percent increase in inflation reduces the consumption of economic growth by 2.43%. I
n fact, the increase in inflation causes a decrease in economic growth by increasing investment costs and decreasing investment efficiency (Ahmed & Karbit, 2022)(Nazari &
Barzegar, 2011).

the characteristics of sustainable development is the development of environmental health and flexibility. The importance of people in achieving sustainable development
and paying attention to people as the focus of development and efforts to establish areas of participation; Paying attention to the people and meeting their basic and
basic needs, including suitable housing, health and suitable technology for everyone; attention to internal development within the framework of natural resource limitations;
Helping the poor and destitute; Because there is no other
way for this group to destroy and pollute the environment;
Trying to achieve social justice and equality within and between generations and trying to establish economic justice.
The first hypothesis is accepted. The exchange rate
and the currency in circulation (liquiditiy) has the positive
impact on increasing the poverty. The second hypothesis as accepted. The exchange rate negatively affects the
access to drinking water The third hypothesis is accepted.
The results indicate the positive impact of exchange rate on
water-use efficiency. The results of the fourth model indicate that none of the monetary policy tools affect the renewable energy consumption, while the control variables,
foreign trade positively and inflation negatively affect it.
The fifth hypothesis is accepted and the exchange rate positively affect the real growth of GDP per capita. Finally,
it can be said that the interest rate has no effect on SDG
goals. Generally, the exchange rate has a positive effect
on indicators of poverty, efficient management of water resources, and economic growth per capita, and a negative
effect on access to safe drinking water. Among other monetary policy instruments, only currency in circulation has
a positive effect on poverty reduction, and in other cases
it has no significant effect. Therefore, in sustainable educational development, it is through direct and active participation, relying on a holistic approach. The components
of such development must be understood and communicated as specific and identifiable entities. On the one hand,
this training should include policy makers, decision makers,
planners, designers, and implementers, and on the other
hand, it should include those who realize development, i.e.
the people. Considering the results, in order to achieve the
SDG goals, the management of the exchange rate depreciation is recommended since it has the negative impact on
sustainable development goals. The contractionary monetary policies are recommended to avoid the growth of the
number of the population below the poverty line.

4.2 Discussion

5. CONCLUSION

Sustainable development is one of the economic terms and
is the meeting point of society, economy and environment.
Sustainable development is a combination of two words
that unites two different aspects of economic, industrial
progress and environmental quality in one symbol of sustainable development. The sustainable development always includes the following topics in its discussions: the
interconnection of the environment and economic development; Paying attention to the people as the axis of development and efforts to establish areas of participation; Paying attention to meeting the basic and basic needs of the
people; attention to internal development within the framework of natural resource limitations; Helping the poor and
destitute and trying to achieve social justice and trying to
establish economic justice has been emphasized. One of

The results of the research indicate a long-term balance
between certain indicators of sustainable development and
economic growth in Iraq during the duration of the study.
This demonstrates the research hypothesis, Many economic, social and environmental indicators that show low
growth rates excluding per capita GDP decreased during
the duration of the study, Through the implementation of
sustainable development indicators to Iraq, Iraq has the capacity to achieve sustainable development by expanding
welfare investments such as those from infrastructure, education and health, The results of the study showed a longterm balance between some indicators of sustainable development and economic growth in Iraq during the duration of
the study, because the wrong correction parameter is negative and moral at a lower level (1%). The parameter indicates

REVENUE JOURNAL: MANAGEMENT AND ENTREPRENEURSHIP 1(1): 22–26

25

a return to balance during (0.002) of time, i.e., changes in
sustainable development indicators lead to changes in economic development indicators.

6. ACKNOWLEDGEMENT
Thank you to Presidency of Mustansiriyah University, Iraqi
University, College of Administration and Economics, Iraq
and Ma’arif Lampung University (Umala) for the support in
this study.

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