The Iraqi authorities and the staff of the International Monetary Fund (IMF) held discussions in Amman from March 5–17, 2017 on the 2017 Article IV Consultation and the second review of Iraq’s 36-month Stand-By Arrangement (SBA) approved by the IMF Executive Board on July 7, 2016.
The SBA aims to restore fiscal and external balance and to improve public financial management while protecting social spending. The first review under the SBA was completed on December 5, 2016.
Mr. Christian Josz, Mission Chief for Iraq, issued the following statement:
“Iraq has been hard hit by the conflict with ISIS and the plunge in global oil prices since 2014. The government has responded to the fiscal and balance of payments crisis with a large but necessary fiscal adjustment supported by financial assistance from the international community.
In 2016, real GDP growth was sustained at 11 percent supported by a large increase in oil output that benefited from past oil investments. Nevertheless, the non-oil economy experienced an 8 percent contraction due to the conflict and the fiscal consolidation.
In 2017, economic activity is expected to remain muted due to a 1.5 percent contraction in oil production under the agreement reached by the Organization for Petroleum Exporting Countries, and only a tepid recovery of the non-oil sector.
Further reforms to create fiscal space for inclusive growth, strengthen the business environment, reduce corruption and repair the banking sector are needed to support private sector-led growth and diversification of the economy.
“The plunge in oil prices has driven the decline of Iraq’s gross international reserves from $53.7 billion at end 2015 to the still comfortable level of $46.5 billion at the end of December, 2016.
Fiscal pressures remain significant with the government deficit remaining at 12 percent of GDP in 2016, due to continuing weak oil prices and rising humanitarian and security spending.
Total public debt increased from 32 to 64 percent of GDP during 2014-16. Credit growth decelerated and non-performing loans in state-owned and private banks increased significantly in 2016.
“The authorities have maintained the exchange rate peg which remains a key nominal anchor. Medium term growth prospects remain modest driven by projected flat oil production and investments in the face of the revenue constraint and modest pickup in non-oil growth supported by the expected improvement in security and implementation of structural reform.
Further reforms to create fiscal space for inclusive growth, strengthen the business environment, reduce corruption and repair the banking sector are needed to support private sector-led growth and diversification of the economy once post- ISIS reconstruction is underway.
Risks remain high, arising primarily from uncertainty in the oil price outlook, security and political uncertainties, and administrative weaknesses.
“The Iraqi authorities and IMF staff started discussions on the second review of the SBA. These discussions will continue during the upcoming IMF and World Bank Spring Meetings from April 21–23, 2017 in Washington, DC.