## 1irqea2023002

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---

### Overview and Outlook
- Real GDP growth: estimated increase of 8 percent in 2022, supported by a 12-percent expansion in oil production.
- Non-oil real GDP: 3.2 percent in 2022; projected 4.2 percent in 2023 and 4.0 percent in 2024.
- Headline inflation (end of period): 4.5 percent in 2022; projected 3.7 percent in 2023 and 2.5 percent in 2024. Core inflation was 4.2 percent as of October 2022.
- Fiscal and external positions (2023): fiscal surplus expected to reach 6.1 percent of GDP; current account surplus expected to reach 8.1 percent of GDP.
- Gross international reserves: US$90.2 billion in 2022; projected US$104.7 billion in 2023 and US$113.2 billion in 2024. Gross international reserves reported as US$105 billion in 2023 (10 months of prospective imports) in summary text.
- Oil sector outlook:
  - Crude oil production: 4.4 million barrels/day in 2022; projected 4.6 million barrels/day in 2023 and 4.7 million barrels/day in 2024 (tables project gradual rise to 5 mbd by 2027).
  - Average crude oil export price: US$96.9/barrel in 2022; projected US$83.1/barrel in 2023 and US$77.8/barrel in 2024.
  - Crude oil exports (US$ billions): 128.9 in 2022; 117.8 in 2023; 114.6 in 2024.

### Key Findings and Recent Developments
- Recovery drivers:
  - Near-doubling of oil investments.
  - Rebound in contact-intensive activities (retail, trade, transportation, hospitality) and construction.
- Inflation dynamics:
  - Subdued inflation despite global price shocks due to significant subsidies and price controls.
- Emergency Law stimulus:
  - Emergency Law for Food Security and Development authorized additional spending of ID 22.2 trillion (5.5 percent of GDP) and set aside ID 2.8 trillion (0.7 percent of GDP) for repayment of overdue bills; total allocation ID 25 trillion.
- Fiscal evolution:
  - Staff estimates headline fiscal surplus of 6.3 percent of GDP in 2022.
  - Non-oil primary deficit widened to -63.0 percent of non-oil GDP in 2022 and is projected -63.3 percent in 2023 and 2024.
- Monetary and external indicators:
  - Broad money growth: 6.6 percent in 2022; projected 20.7 percent in 2023 and 15.3 percent in 2024.
  - Credit to the economy: 9.0 percent in 2022; projected 10.4 percent in 2023 and 9.1 percent in 2024.
  - Current account: 11.6 percent of GDP in 2022; projected 8.1 percent in 2023 and 4.1 percent in 2024.
  - Total external debt: 23.0 percent of GDP in 2022; projected 22.2 percent in 2023 and 21.0 percent in 2024.
  - Exchange rate (dinar per US$, period average): 1450 in 2022 and projected 1450 in 2023 and 2024.

### Vulnerabilities, Risks, and Stress Tests
- Fiscal vulnerability:
  - Non-oil primary fiscal deficit widened from 45 percent of non-oil GDP in 2019 to an estimated 63 percent in 2022 and projected to remain elevated.
- Medium-term outlook risks:
  - Declining global oil prices could turn fiscal and external surpluses into deficits, prompting drawdown of reserves and exhaustion of fiscal savings.
- Downside risk factors:
  - Faster decline in oil prices.
  - Social unrest and political polarization.
  - Escalation of geopolitical tensions.
  - Realization of contingent liabilities, notably in the electricity sector (guarantees estimated at over $21 billion in 2017).
- DSA stress-test highlights:
  - Growth shock: one standard deviation growth shock (8.9 percentage points) would push debt ratio to 66.9 percent of GDP by 2027.
  - Primary balance shock: worsening by 4.0 percentage points of GDP would raise debt to 50.4 percent of GDP by 2025.
  - Real exchange rate shock: one-time 30 percent depreciation in 2023 would increase public debt to 48.6 percent of GDP in 2027.
  - Combined shocks place debt on a rising trajectory.

### Policy Recommendations — Near-term and Medium-term
- Near-term priorities:
  - Protect the vulnerable through adequate indexation of targeted cash transfers and low-income pensions.
  - Avoid a procyclical spending boost in the 2023 budget law; aim to increase savings with a gradual tightening of the fiscal stance.
  - Central Bank of Iraq (CBI) to stand ready to tighten domestic financial conditions if inflation risks materialize (phase out lending initiatives; raise interest rates and reserve requirements as needed).
- Medium-term fiscal framework:
  - Adopt a fiscal rule targeting gradual reduction of the non-oil primary fiscal deficit; build a fiscal stabilization buffer.
  - Contain growth of current expenditures—most importantly the government wage bill—while raising non-oil revenues.
  - Save the bulk of oil windfalls rather than spending them procyclically.
  - Proposed fiscal rule: an annual ceiling on NOPD consistent with reduction by at least 2 percent of non-oil GDP per year; deviations to be gradually compensated over the next four years on a rolling basis, aiming to reduce NOPD by around 10 percent of non-oil GDP over five years; review adequacy every five years.
- Structural reforms to support private sector-led growth:
  - Enhance social safety nets and make pension system more sustainable and equitable.
  - Develop a national employment strategy and create a level playing field in the labor market.
  - Improve electricity sector reliability and stem losses.
  - Restructure state-owned banks and enhance AML/CFT framework.
- Governance and data:
  - Advance anti-corruption agenda: digitalize key public institutions and business processes; expand capacity of the Integrity Commission; improve legal and institutional frameworks.
  - Improve data provision to address serious shortcomings that significantly hamper surveillance.

### Financial Sector, Domestic Conditions, and CBI Initiatives
- Domestic financial conditions:
  - System largely shielded from global tightening due to a relatively closed capital account and negligible external commercial borrowing.
  - Moratorium on loan repayments and lower required reserve requirements introduced early in the pandemic have been phased out.
  - Deposit interest rates rose marginally since mid-2021; lending interest rates declined further.
  - Credit to the private sector grew at an annualized rate of 14 percent in the first nine months of 2022.
- State-owned banks (SOBs):
  - SOBs account for over 80 percent of the banking system.
  - Key weaknesses: large legacy assets, directed lending, political interference, lack of core banking systems, weak accounting, large branch networks.
  - Non-performing loans in SOBs increased from 10 percent to 17.2 percent between 2019 and 2022 Q2.
  - Five largest private banks account for only about a fifth of total private bank assets.
- CBI lending initiatives (historical and augmentations):
  - 2015 initiatives: ID 5 trillion (specialized SOBs and housing fund); ID 1 trillion for SMEs through private banks.
  - Mid-2020 augmentations: first initiative increased by ID 9 trillion (4.5 percent of GDP); second increased by ID 1 trillion (0.5 percent of GDP), later to ID 3 trillion. Lending terms eased; bulk of uptake in real estate.
  - 2021 initiatives: ID 1 trillion for renewable energy; ID 1 trillion for large projects (over ID 20 billion).
  - Allocations and disbursement tables presented in source with sectoral breakdowns (agriculture, industrial, real estate/housing fund, total SOB initiative, SME initiative, renewable energy, large projects).

### Fiscal Priorities, Revenue Mobilization, and Wage Bill Reform
- Revenue diversification findings and staff recommendations:
  - Non-oil revenues account for around 8 percent of total revenues.
  - Past non-oil revenue reforms tended to expire when included only in annual budget laws.
  - Staff-recommended measures:
    - Start with administratively easy measures at well-controlled collection points; reflect revenue policies in stand-alone laws; use IMF and partners' TA.
    - Short-term policy options: make payroll taxes more progressive; raise taxes on oil and oil derivatives; introduce selective sales/excise taxes (luxury goods, hotels, telecom, automobiles, alcohol, tobacco); introduce turnover taxes on retail outlets; remove customs duty exemptions.
    - Administration priorities: reorganize tax administration functionally; implement tax IT systems; strengthen large taxpayer compliance; accelerate ASYCUDA rollout and anti-smuggling efforts.
- Wage bill findings and reform proposals:
  - Government employs nearly 38 percent of the labor force and spends around 40 percent of its annual budget on wages/pensions.
  - Staff-proposed reforms:
    - Complete biometric registration and centralized database of government employees.
    - Replace statutory promotions with performance-based promotions within overall limits.
    - Implement attrition-based employment reduction: average replacement ratio over five years proposed that every three retirees be replaced by one new hire.
    - Strengthen Federal Civil Service Commission (FCSC) gatekeeper role; eliminate laws mandating automatic government employment of university graduates.
    - Align compensation more closely with private sector and productivity; cap non-wage allowances and link future increases to economy-wide productivity.

### Social Protection, Pensions, and Electricity Sector Reforms
- Social safety nets:
  - Fragmented and inefficient: cash transfers, PDS universal in-kind distribution, and pensions comprised almost 30 percent of current expenditures in 2021 (8.7 percent of GDP).
  - An estimated 1.7 million households eligible do not receive cash transfers due to insufficient funding.
  - Staff recommendations:
    - Downsize and phase out PDS by limiting eligibility to those in the social security database; reallocate savings to targeted cash transfers.
    - Expand coverage of targeted cash transfers to all eligible households with regular registry updates.
    - Introduce automatic indexation of cash transfers to inflation.
- Pension system:
  - Non-contributory and legacy pensions require annual outlays of nearly 4 percent of GDP.
  - Staff proposed parametric changes to retirement age, replacement rate, and pension calculation methodology; limit survivor benefits to immediate family; align private and public schemes.
- Electricity sector:
  - Sector recovers about a tenth of its cost and incurs annual losses in excess of 3 percent of GDP (over 6 percent if implicit fuel subsidy included).
  - Staff-recommended actions:
    - Enhance monitoring and transparency of explicit and implicit costs.
    - Implement smart metering, accelerate collection, finance efficiency-enhancing projects (gas capture, renewables), strengthen regulatory framework, and review tariffs toward cost recovery.
    - Maximize productivity of existing assets and reduce technical losses.
  - Authorities prioritize ambitious investment plan to boost generation.

### Climate Change, Long-term Fiscal Strategy, and Investment Needs (Annex V)
- Climate and energy transition uncertainties:
  - More than 70 countries accounting for 75 percent of annual global GHG emissions pledged NZE by mid-century.
  - IEA (2021) prediction in NZE: global oil demand to shrink by 75 percent to 24 mbd by 2050; real oil prices to decline to $25/barrel (2019 prices) if NZE achieved.
- Fiscal anchor and buffers:
  - Staff estimate a fiscal buffer of ID 51 trillion (28 percent of 2022 non-oil GDP) in real terms; ID 59 trillion in nominal terms in 2027 to smooth expenditures with a 90-percent probability.
  - Staff proposed building over two thirds of that buffer: ID 43 trillion in nominal terms by 2027.
  - Long-term scenario: cumulative consolidation of 47 percent of non-oil GDP over 27 years to reach a long-term NOPD of 11 percent of non-oil GDP; three quarters of deficit financed by interest income from net foreign assets projected to reach 250 percent of non-oil GDP by 2050.
- Investment needs for adaptation/mitigation (World Bank preliminary):
  - $233 billion total by 2040:
    - $48 billion for alleviating water scarcity.
    - $144 billion for gas flaring capture and greening electricity sector.
- Climate vulnerabilities and policy imperatives:
  - Average temperatures increased by over 1.5 degrees Celsius over past four decades.
  - Water scarcity: demand-supply gap estimated to reach 15 percent by 2035.
  - Over 90 percent of GHG emissions from energy sector; over half due to fugitive emissions from gas flaring; goal to end gas flaring by 2025.

### Capacity Development, Technical Assistance, and Data Gaps
- Near-term TA priorities:
  - Strengthen FX reserve forecasting capacity.
  - Help implement new PFM law; follow-up TA on cash management, expenditure control, and tax administration.
  - Strengthen national accounts, price, and external sector statistics.
  - Enhance targeting and coverage of social safety nets.
- Medium-term TA priorities:
  - Modernize civil service management.
  - Calibrate pension system.
  - Electricity reform.
  - Develop medium-term fiscal framework and fiscal rules.
  - Introduce sales tax.
  - Restructure state-owned banks.
- Data and statistical shortcomings:
  - Serious shortcomings hampering surveillance due to limited technical capacity and weak IT systems across CSO and CBI.
  - National accounts mainly follow 1968 SNA; quarterly national accounts available 2018Q2–2021Q2.
  - CPI weights from 2012 HSES are outdated; CPI covers only urban areas.
  - External sector data: IIP dissemination suspended starting 2016; net errors and omissions remain high and persistently negative.
  - Customs data and external trade statistics suffer from timeliness and quality issues; ASYCUDA rollout underway but slow.
- Safeguards and exchange arrangements:
  - Most recent safeguards assessment of CBI completed April 2016; capacity constraints noted.
  - Exchange arrangement: de jure and de facto conventional peg; official exchange rate effective December 20, 2020 set at ID 1,460 per U.S. dollar (ID 1,450 plus ID 10 fees).

### Key Selected Statistics and Projections (as presented)
- Real GDP growth: 8.1 percent (2022); 4.2 percent (2023); 3.1 percent (2024); 2.6 percent (2025); 2.4 percent (2026); 2.2 percent (2027).
- Non-oil real GDP growth: 3.2 percent (2022); 4.2 percent (2023); 4.0 percent (2024); 3.8 percent (2025); 3.6 percent (2026); 3.5 percent (2027).
- GDP per capita (US$): 6,468 (2022); 6,220 (2023); 6,205 (2024); 6,199 (2025); 6,229 (2026); 6,283 (2027).
- Oil production (mbpd): 4.44 (2022); 4.63 (2023); 4.74 (2024); 4.83 (2025); 4.91 (2026); 4.97 (2027).
- Iraq oil export prices (US$ per barrel): 96.9 (2022); 83.1 (2023); 77.8 (2024); 74.0 (2025); 71.1 (2026); 68.8 (2027).
- Consumer price inflation (end‑period): 4.5 (2022); 3.7 (2023); 2.5 (2024); 2.0 (2025–2027).
- Fiscal balance (including grants, percent of GDP): 6.3 (2022); 6.1 (2023); 2.3 (2024); -2.1 (2025); -5.9 (2026); -9.2 (2027).
- Non‑oil primary fiscal balance (percent of non‑oil GDP): -63.0 (2022); -63.3 (2023); -63.3 (2024); -63.5 (2025); -63.2 (2026); -63.1 (2027).
- Public debt (percent of GDP): 42.9 (2022); 40.3 (2023); 37.1 (2024); 36.2 (2025); 35.1 (2026); 42.0 (2027) — baseline and alternative projections show vulnerability to shocks; a separate projection reported “Public debt projected to reach 82.1 percent of GDP by 2027” in a specific alternative/scenario table.
- Gross International Reserves (US$ billion, end‑period): 90.2 (2022); 104.7 (2023); 113.2 (2024); 114.1 (2025); 107.5 (2026); 95.0 (2027).
- Broad money growth: 6.6 percent (2022); 20.7 percent (2023); 15.3 percent (2024).
- Credit to the economy (percentage growth): 9.0 (2022); 10.4 (2023); 9.1 (2024).
- Credit to private sector (percent of GDP): 9.7 (2022); 10.8 (2023); 11.4 (2024); 12.0 (2025); 12.5 (2026); 13.0 (2027).
- Banking sector FSIs (selected): regulatory capital to RWA 42.9 (2022Q2); nonperforming loans to total gross loans 18.9 (2022Q2); return on assets 1.1 (2022Q2).

### IMF Engagement, Follow-up, and Capacity Development Coordination
- IMF Article IV consultations: staff discussions held in Amman during November 28–December 6, 2022 and in Baghdad during December 7–9, 2022.
- Staff will continue to support authorities on reform implementation and data improvements.
- Next Article IV consultation expected on the standard 12-month cycle.
- Capacity development and TA to be prioritized where authorities have demand and absorption capacity; coordination with World Bank, UN agencies, and bilateral partners emphasized.

*Source: IRAQ STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION (January 9, 2023) — IMF staff report content unit 1irqea2023002 (text and tables as provided).*

### 3.2 percent in 2022 to 4 percent in 2023, helped by the stimulus from the Emergency Law

### 3.2 percent in 2022 to 4 percent in 2023, helped by the stimulus from the Emergency Law

### Overview and Outlook
- Real GDP growth: estimated increase of 8 percent in 2022, supported by a 12-percent expansion in oil production.
- Non-oil real GDP: 3.2 percent in 2022; projected 4.2 percent in 2023 and 4.0 percent in 2024.
- Headline inflation: 4.5 percent (end of period) in 2022; projected 3.7 percent in 2023 and 2.5 percent in 2024. Core inflation was 4.2 percent as of October 2022.
- Fiscal and external positions in 2023: fiscal surplus expected to reach 6.1 percent of GDP; current account surplus expected to reach 8.1 percent of GDP.
- Gross international reserves: US$105 billion in 2023 (10 months of prospective imports); gross reserves were US$90.2 billion in 2022 and projected US$104.7 billion in 2023 and US$113.2 billion in 2024.
- Oil sector: crude oil production 4.4 million barrels/day in 2022; projected 4.6 million barrels/day in 2023 and 4.7 million barrels/day in 2024. Average crude oil export price: US$96.9/barrel in 2022; projected US$83.1/barrel in 2023 and US$77.8/barrel in 2024. Crude oil exports (US$ billions): 128.9 in 2022; 117.8 in 2023; 114.6 in 2024.

### Key Findings and Recent Developments
- Recovery drivers: near-doubling of oil investments and rebound in contact-intensive activities (retail, trade, transportation, hospitality) and construction.
- Inflation dynamics: subdued inflation despite global price shocks due to significant subsidies and price controls.
- Emergency Law stimulus: Emergency Law for Food Security and Development authorized additional spending of ID 22.2 trillion (5.5 percent of GDP) and set aside ID 2.8 trillion (0.7 percent of GDP) for repayment of overdue bills; total allocation ID 25 trillion.
- Fiscal evolution: staff estimates headline fiscal surplus of 6.3 percent of GDP in 2022, while the non-oil primary deficit widened to -63.0 percent of non-oil GDP in 2022 and is projected -63.3 percent in 2023 and 2024.
- Monetary indicators: broad money growth 6.6 percent in 2022; projected 20.7 percent in 2023 and 15.3 percent in 2024. Credit to the economy 9.0 percent in 2022; projected 10.4 percent in 2023 and 9.1 percent in 2024.
- External metrics: current account 11.6 percent of GDP in 2022; projected 8.1 percent in 2023 and 4.1 percent in 2024. Total external debt 23.0 percent of GDP in 2022; projected 22.2 percent in 2023 and 21.0 percent in 2024.
- Exchange rate: exchange rate (dinar per US$; period average) 1450 in 2022 and projected 1450 in 2023 and 2024.

### Vulnerabilities and Risks
- Underlying fiscal vulnerability: non-oil primary fiscal deficit widened from 45 percent of non-oil GDP in 2019 to an estimated 63 percent in 2022 and is projected to remain elevated.
- Medium-term outlook: with gradually declining global oil prices, fiscal and external current account balances are expected to turn into deficits, leading to renewed financing pressures, drawdown of foreign exchange reserves, and exhaustion of fiscal savings.
- Downside risk factors: faster decline in oil prices; social unrest; escalation of geopolitical tensions; realization of contingent liabilities, notably in the electricity sector.
- Structural fragilities: dependence on oil revenues; weak institutions and governance; large government wage bill; limited non-oil revenue mobilization.

### Policy Recommendations
- Near-term priorities:
  - Protect the vulnerable through adequate indexation of targeted cash transfers and low-income pensions.
  - Avoid a procyclical spending boost in the 2023 budget law and aim to increase savings with a gradual tightening of the fiscal stance.
  - Central Bank of Iraq should stand ready to tighten domestic financial conditions if inflation risks materialize (phase out lending initiatives; raise interest rates and reserve requirements as needed).
- Medium-term fiscal framework:
  - Adopt a fiscal rule targeting gradual reduction of the non-oil primary fiscal deficit and build a fiscal stabilization buffer to manage oil price volatility and ensure long-term sustainability.
  - Contain growth of current expenditures—most importantly the government wage bill—while raising non-oil revenues to create space for priority social and development spending.
  - Save the bulk of the oil windfall rather than spending it procyclically.
- Structural reforms to support private sector-led growth:
  - Enhance social safety nets, including making the pension system more sustainable and equitable.
  - Develop a national employment strategy and create a level playing field in the labor market.
  - Improve electricity sector reliability and stem losses.
  - Revitalize the financial sector through restructuring of state-owned banks and continued enhancement of the AML/CFT framework.
- Governance and data:
  - Continue advancing the anti-corruption agenda: digitalize key public institutions and business processes; expand capacity of the Integrity Commission; improve legal and institutional frameworks for anti-corruption efforts.
  - Improve data provision to address serious shortcomings that significantly hamper surveillance.

### Staff Engagement and Follow-up
- IMF engagement: Article IV discussions held in Amman during November 28–December 6, 2022 and in Baghdad during December 7–9, 2022. Staff will continue to support authorities’ efforts on reform implementation and data improvements.
- Expected timetable: next Article IV consultation is expected to take place on the standard 12-month cycle.

*Source: IRAQ STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION (January 9, 2023).*

### 9.      Domestic financial conditions have been relatively accommodative. Iraq’s financial

### 9.      Domestic financial conditions have been relatively accommodative. Iraq’s financial

### Domestic financial conditions and credit
- Iraq’s financial system has been largely shielded from tightening global financial conditions given its relatively closed capital account and negligible external commercial borrowing.
- The moratorium on loan repayments and lower required reserve requirements, which were introduced early in the pandemic, have been phased out.
- Since bottoming in mid-2021:
  - deposit interest rates rose marginally,
  - lending interest rates declined further.
- Credit to the private sector grew at an annualized rate of 14 percent in the first nine months of 2022, helped by fiscal loosening and augmentation of CBI lending initiatives.
- CBI support measures introduced in the early stages of the pandemic (moratorium on loan repayment and lower required reserve requirements) have been phased out.

### State-owned banks (SOBs) and financial intermediation
- Iraq’s SOBs collectively account for over 80 percent of the banking system.
- Key banking sector weaknesses:
  - Large legacy assets,
  - Past directed lending practices,
  - Political interference,
  - Lack of core banking systems,
  - Large branch networks,
  - Weak accounting practices.
- Non-performing loans in SOBs increased from 10 percent to 17.2 percent between 2019 and 2022 Q2.
- Private banks remain small and play a limited role in intermediation, relying on currency exchange, commission-based services, and short-term trade finance.
- Five largest private banks account for only about a fifth of total private bank assets.
- Authorities’ supervisory actions:
  - CBI and Ministry of Finance developed an action plan to improve lending practices,
  - Introduced approval requirements for loans over ID 1 billion,
  - Developed new by-laws to enhance corporate governance (awaiting approval by the State Council).

### Box 1 — CBI Lending Initiatives
- 2015 initiatives:
  - ID 5 trillion, channeled through specialized SOBs and the housing fund, to support real estate, industrial, and agricultural sectors;
  - ID 1 trillion to finance small and medium enterprises through private banks.
- Uptake:
  - Demand for real estate financing very strong; uptake in other sectors limited.
- Mid-2020 augmentations:
  - First initiative increased by ID 9 trillion (4.5 percent of GDP);
  - Second increased by ID 1 trillion (0.5 percent of GDP), later increased to ID 3 trillion.
  - Lending terms eased, with interest rates as low as zero for the housing sector.
  - Bulk of uptake continued to be in real estate sector.
- 2021 initiatives:
  - ID 1 trillion allocated for renewable energy projects;
  - ID 1 trillion allocated for large projects (over ID 20 billion).

- Allocations and disbursement table highlights (in billions of Iraqi dinars, until September 2022):
  - Agriculture: Initial Allocation 1,666; Adjustment (1,493); Adjusted Allocation 173; Disbursement 571; Remaining 162; New Allocation 500; Disbursement from new allocations 423; Cumulative allocations 573; Cumulative disbursement 366; Remaining allocations 207 (table format preserved in source).
  - Industrial: Initial Allocation 1,666; Adjustment (1,307); Adjusted Allocation 359; Disbursement 161; Remaining 198; New Allocation 1,000; Disbursement from new allocations 169; Cumulative allocations 1,359; Cumulative disbursement 330; Remaining allocations 1,029.
  - Real Estate / Housing Fund and total initiative figures provided in source tables (including Total SOB initiative: Initial 5,000 (2,000); Adjusted 3,000; Disbursement 2,636; Remaining 364; New Allocation 9,282; Disbursement from new allocations 5,984; Cumulative allocations 12,282; Cumulative disbursement 8,620; Remaining allocations 3,662).
  - SME initiative, Renewable Energy initiative, Large Projects initiative figures are presented in the source tables.

### Outlook and risks
- Near-term outlook:
  - Real GDP growth expected to moderate to 4.2 percent in 2023,
  - Oil production averaging 4.6 million barrels per day (mbd) for the year,
  - Real non-oil GDP growth projected at 4.2 percent.
  - Fiscal and current account balances projected to post surpluses of 6.1 and 8.1 percent of GDP, respectively.
  - Foreign exchange reserves projected to rise to US$105 billion (10 months of prospective imports).
  - Public debt expected to decline slightly to 40 percent of GDP.
- Medium-term vulnerabilities (staff baseline assumptions: sluggish structural reforms; oil prices gradually decline in line with IMF’s October 2022 WEO):
  - Growth and inflation expected to moderate.
  - Oil output projected to gradually reach 5 mbd.
  - Non-oil real GDP growth expected to moderate toward potential of 3.5 percent, constrained by electricity shortages, water scarcity, limited access to credit, security concerns, labor market challenges, and difficult business environment.
  - Overall fiscal balance projected to turn into a deficit around 2025 as current expenditures—driven by the wage bill—surpass one third of GDP.
  - Without significant reforms, non-oil primary fiscal deficit (NOPD) would remain above 63 percent of non-oil GDP.
  - Fiscal savings would be exhausted and the declining trend in the government debt-to-GDP ratio would reverse, though overall debt burden would remain manageable (Annex III).
  - External position: current account deficit projected to emerge starting 2026; reserves to peak at $114 billion in 2025 and decline to $95 billion (8 months of prospective imports) by 2027.
- Risks (Annex IV):
  - Stronger global recovery and oil prices could support larger surpluses; deeper global slowdown could reduce oil revenues.
  - Insistent demands for government jobs and subsidies could aggravate fiscal vulnerabilities.
  - Sanctioning of Russian energy companies could disrupt oil production (Russian companies involved in around 13 percent of Iraq’s oil and own 60 percent of the oil pipeline connecting Kurdistan and Turkey).
  - Stronger pass-through of global inflation and new COVID-19 waves could disproportionately affect the vulnerable and reduce domestic demand.
  - Realization of contingent liabilities (estimated at $21 billion in 2017) could weigh on debt sustainability (Annex III).
  - Political polarization, social unrest, and escalation of regional tensions could dampen sentiment and paralyze policy making.
- Climate and energy transition vulnerability (Annex V):
  - Over the past four decades, Iraq’s average temperatures increased by over 1.5 degrees Celsius.
  - Growing water scarcity and more frequent extreme weather events exacerbate electricity shortages and reduce potential output, particularly in agriculture.
  - Acceleration of global efforts to stem greenhouse gas emissions could trigger a precipitous contraction of global demand for oil.

### Policy priorities and recommendations
- Immediate priority: address the cost-of-living crisis.
  - If inflation risks materialize, staff emphasized tightening domestic financial conditions, including:
    - phasing out CBI’s lending support programs,
    - raising interest rates and reserve requirements,
    - containing domestic drivers of inflation.
  - Staff recommended tightening the fiscal stance in 2023 to save the bulk of the oil windfall and avoid a procyclical spending boost that could exacerbate inflation pressures.
  - 2023 budget law should provide adequate indexation of targeted cash transfers and low-income pensions to protect the vulnerable from rising cost of living.

- Enhancing the fiscal framework — three key objectives for coming years:
  - Strengthening resilience to oil price volatility.
  - Making space for critical expenditures (social spending, post-war reconstruction, meeting the SDGs, adapting to climate change, ending gas flaring, boosting electricity generation).
  - Ensuring long-term fiscal sustainability amid a global energy transition.

- Risk- and rules-based fiscal approach recommended:
  - Continued fiscal saving for short-term stabilization and long-term sustainability.
  - Contain current expenditures while raising non-oil revenues to create fiscal space and improve shock adjustment capacity.
  - Formulate medium-term policies to reduce dependence on oil.
  - Proposed fiscal rule:
    - Based on an annual ceiling on NOPD consistent with its reduction by at least 2 percent of non-oil GDP per year.
    - Deviations from the rule to be gradually compensated over the next four years, on a rolling basis, aiming to reduce the NOPD by around 10 percent of non-oil GDP over a five-year period.
    - Rule’s adequacy to be reviewed every five years.

- Medium-term macroeconomic reform framework (staff proposal under baseline oil price projections):
  - Facilitate augmenting fiscal savings for stabilization to ID 43 trillion—over two thirds of the level calibrated to enable smooth government expenditures amid oil price volatility without depleting fiscal savings with a 90-percent probability (ID 59 trillion, see Annex V).
  - Maintain public debt on a declining trajectory.
  - Achieve adjustment through combination of current expenditure restraints and non-revenue measures, allowing gradual scaling up of non-oil public investments and enhancement of social safety net.

- Public financial management improvements recommended:
  - Better macro-fiscal planning, budget preparation and execution, and strategic medium-term approach.
  - Improve non-oil investment planning, project selection, and transparent execution.
  - Implement framework for managing government guarantees, monitor contingent liabilities, and avoid extra-budgetary expenditures.
  - Accelerate strengthening of cash management and forecasting and implement a comprehensive commitment control system to limit expenditure arrears and improve budget execution.
  - Establish a Treasury Single Account and accelerate implementation of an Integrated Financial Information Management System (IFMIS).

### Key statistics and projections (selected from source tables)
- Credit growth: 14 percent (annualized, first nine months of 2022).
- Non-performing loans in SOBs: 10 percent (2019) → 17.2 percent (2022 Q2).
- Five largest private banks: about a fifth of total private bank assets.
- Near-term macro projections:
  - Real GDP growth: 4.2 percent (2023).
  - Oil production: 4.6 million barrels per day (mbd) (2023 average).
  - Real non-oil GDP growth: 4.2 percent (2023).
  - Fiscal balance surplus: 6.1 percent of GDP (2023 projection).
  - Current account surplus: 8.1 percent of GDP (2023 projection).
  - Foreign exchange reserves: US$105 billion (2023 projection; 10 months of prospective imports).
  - Public debt: 40 percent of GDP (2023 projection).
- Medium-term projections and scenarios (selected):
  - Oil output projected to gradually reach 5 mbd.
  - Potential non-oil growth: 3.5 percent.
  - Fiscal savings targets: ID 43 trillion (proposed), ID 59 trillion (calibrated for 90-percent probability buffer).
  - Contingent liabilities estimate: $21 billion (2017).
  - Historical/climate change: average temperatures increased by over 1.5 degrees Celsius over past four decades.

*Source: IMF staff — chapter 9 of the Iraq report (text and tables as provided).*

### 20.      The authorities broadly agreed with these priorities while citing pent-up spending

### 1irqea2023002 - 20.      The authorities broadly agreed with these priorities while citing pent-up spending pressures as a key obstacle to progress in the near term.

### Fiscal priorities and near-term constraints
- Authorities expected to enunciate their 2023 budget plans in early 2023.
- Government program aims: strengthening public finances and reducing dependence on oil.
- Significant near-term spending pressures cited from:
  - unfulfilled promises made after the 2019 protests;
  - legally mandated hiring of certain university graduates;
  - large investment and social needs;
  - continued enrollment into non-contributory pension schemes.
- Authorities saw limited scope for savings in the near term.

### Baseline and Staff-Proposed Reform Scenarios (2019–27) — key fiscal indicators (as reported)
- Overall Fiscal Balance (In percent of GDP): series shown for 2019–2027 comparing Reform and Baseline scenarios (graphical).
- Non-oil Primary Fiscal Balance (In percent of non-oil GDP): series shown for 2019–2027 comparing Reform and Baseline scenarios (graphical).
- Current Account Balance (In percent of GDP): series shown for 2019–2027 comparing Reform and Baseline scenarios (graphical).
- Net Government Debt 1/ (In percent of GDP): series shown for 2019–2027 comparing Reform and Baseline scenarios (graphical).
- 1/Net government debt is total government debt net of TX reserves.

### B. Diversifying Government Revenues — findings and staff recommendations
Findings:
- Non-oil revenues account for around 8 percent of total revenues.
- Past non-oil revenue reforms were introduced in annual budget laws and automatically expired.

Staff-recommended medium-term approach:
- Start with measures easy to administer at better-controlled collection points (e.g., public sector entities, border crossings, easy-to-monitor points of sale) and gradually expand with administrative capacity improvements.
- Reflect revenue policies in stand-alone laws to avoid automatic expiration.
- Use IMF and international partner TA to support design of revenue mobilization strategy.

Short-term policy options recommended by staff:
- Make payroll taxes more progressive by increasing the rate applicable to higher-income groups and applying such taxes to total earnings, including allowances.
- Raise taxes on oil and oil derivatives to promote greater energy efficiency.
- Introduce selective sales and excise taxes on items such as luxury goods, hotels, telecom services, automobiles, alcohol and tobacco.
- Introduce turnover taxes on retail outlets.
- Remove exemptions from customs duties.

Administration and enforcement priorities:
- Improve tax administration organizational structure along functional lines.
- Implement a tax information technology (IT) system.
- Strengthen compliance by large taxpayers.
- Accelerate digitalization of customs procedures and complement with stronger cross-border management and anti-smuggling initiatives.
- Align customs valuation, classification, and other procedures with international standards.
- Modernize customs law and re-engineer business processes for automation.

Authorities’ views on revenue mobilization:
- Authorities recognized mobilizing non-oil revenues and enhancing customs administration as key priorities.
- A new customs law has been drafted to align with international standards; authorities sought IMF assistance with its review.
- Authorities are rolling out the Automated System for Customs Data (ASYCUDA) with UNCTAD assistance; rollout expected to be completed during the next two years.
- Authorities expect boosting customs revenues (0. 6 percent of non-oil GDP in 2022) by as much as fifty percent over the medium term.
- Prospects for other non-oil revenue measures seen as less certain given heightened social tensions and past difficulties in securing Parliamentary approval.

### C. Reining in the Government Wage Bill — findings and staff proposals
Findings:
- Iraq’s government employs nearly 38 percent of the labor force, spending around 40 percent of its annual budget.
- Government wage bill expanded rapidly as large groups of daily and contractual workers and university graduates were admitted into the civil service.
- A hiring freeze, implemented as part of the 2021 budget, temporarily interrupted the trend.

Staff-proposed multi-pronged wage bill reform:
- Complete biometric registration and create a centralized database of government employees with detailed and regular reporting by each agency on workforce size by grade, type of employment and compensation, retirements, hiring, and promotions.
- Replace statutory promotions with performance-based ones within an overall limit to reduce wage drift.
- Implement an attrition-based employment reduction strategy and eliminate redundant positions; staff proposed that over the next five years, on average, every three retirees be replaced with one new hire.
- Enhance gatekeeper role of the Federal Civil Service Commission (FCSC) in approving hiring decisions and align approvals with budget planning and execution; eliminate provisions in laws that mandate automatic government employment of university graduates.
- Align compensation more closely with the private sector and productivity, e.g., cap maximum size of non-wage compensation (allowances) and link future wage increases to economy-wide productivity gains.
- Prepare a blueprint for comprehensive civil service reform with TA from international partners to be executed over the medium term.

Authorities’ views on payroll control:
- After adding over 100 thousand employees to the civil service in 2022, the government intends to halt hiring of daily and contractual workers.
- FCSC plans biometric registration of civil servants and is strengthening the hiring process.
- Weak private sector job creation and high youth unemployment seen as key obstacles to deeper payroll reforms.
- Authorities expected wage bill pressures to continue amid demands for substantial cost-of-living adjustment (after a two-year wage freeze), hiring requests from local governments, and legally guaranteed public employment of various university graduates.

### Labor market conditions (Box 2) — key statistics and distortions
- 2021 Labor Force Survey (first in over a decade) findings:
  - Overall unemployment rate: 16.6 percent.
  - Labor force participation: under 40 percent.
  - Median monthly earning: ID 614,000 (US$423).
- Youth and women:
  - Only about a quarter of Iraq’s youth participate in the labor market and over 35 percent of them are unemployed.
  - Of only 11 percent of working-age women who participate in the labor force, 28 percent are without jobs.
  - Employed women typically hold at least a university degree and occupy professional positions.
  - Less than 5 percent of women with primary education participate in the labor market (70 percent among men).
- Public sector dominance:
  - Share of public sector employment in Iraq: 37 percent (highest among MENA countries in comparison group).
  - Over two thirds of all employed women work for the public sector.
  - Private sector employment dominated by men; more than a half of private jobs accounted by the informal sector and concentrated in construction, transportation, and trade.
  - Government jobs show average wage premium of over 120 percent (even higher when accounting for more generous pension benefits).

Staff recommendation on labor reforms:
- Develop a national employment strategy with active labor market policies to increase labor force participation, remove obstacles for private employment (especially among women), address mismatches between educational curricula and private sector skills, strengthen the pension system, and reduce informality.

### D. Strengthening Social Safety Nets — findings and recommendations
Findings:
- Iraq’s social safety net is fragmented and inefficient: cash transfers, the Public Distribution System (PDS) universal in-kind food distribution, and the pension system.
- These systems comprised almost 30 percent of current expenditures in 2021 (8.7 percent of GDP).
- An estimated 1.7 million households identified as eligible do not receive cash transfer assistance due to insufficient funding.
- PDS consumes 1.4 percent of GDP and covers almost the entire population.

Staff recommendations:
- Significantly downsize the PDS and gradually phase it out by limiting eligibility to those in the social security database; use savings to augment the budget for targeted cash transfers.
- Expand coverage of targeted cash transfers to include all eligible households with regular updates of the population registry and targeting criteria to avoid harming the most vulnerable.
- Introduce automatic indexation of cash transfers to inflation.

Pension system findings and proposals:
- Significant expansion of public pension benefits with unchanged contributions threatens financial sustainability of the State Pension Fund (SPF).
- Non-contributory pensions and “legacy pensions” require annual budget outlays of nearly 4 percent of GDP.
- Public pension system more generous than private sector, disadvantaging private employment.
- Staff, with ILO and World Bank, presented a blueprint for a medium-term pension reform strategy to be issued separately.
- Initial parametric changes proposed to improve financial sustainability: affect retirement age, replacement rate, and methodology for calculating pension benefits.
- Limit survivor benefits to immediate family members to contain future cost of non-contributory schemes.
- Reforms should align pension schemes for private and public sectors to facilitate labor mobility and private employment.

Authorities’ views on social protection:
- Authorities studying options to strengthen social safety net; Emergency Law already raised assistance under PDS and cash transfers.
- Eligibility for PDS assistance currently limited to those with monthly incomes below ID 1.5 million; increased food rations to those in the social security database noted.
- Authorities agreed on need for pension reforms but cited formidable political economy constraints.
- Authorities saw improved collection of pension contributions, particularly in state-owned enterprises, as a short-term area for progress.

### E. Fixing the Electricity Sector — findings and reform priorities
Findings:
- Electricity sector recovers only about a tenth of its cost and incurs annual losses in excess of 3 percent of GDP (over 6 percent of GDP if the implicit fuel subsidy is factored in).
- Lack of reliable access to electricity is a major constraint to private sector development and a source of social discontent.
- Demand for electricity is projected to grow with increasing population and rising temperatures, making continuation of past trends unsustainable.

Staff-recommended sectoral strategy elements:
- Enhanced monitoring and transparency of the sector’s explicit and implicit costs to inform fiscal planning and avoid arrears.
- Sustained efforts to improve collection supported by accelerated implementation of smart metering, especially for large consumers, to enhance cost recovery and facilitate tariff restructuring.
- Finance investment needs by prioritizing efficiency-enhancing projects, including gas capture and renewable energy.
- Strengthen regulatory framework for private sector participation and review tariff structure to reach cost recovery over the medium term.
- Maximize productivity of existing assets and reduce technical losses.

Authorities’ view:
- Authorities agreed with priorities but saw fixing the electricity shortage as the most pressing priority and are focused on an ambitious investment plan to boost generation.

### F. Enhancing Financial Stability — findings and priorities
Findings and priorities:
- Restructuring large state-owned banks (SOBs) would support private sector development.
- Key priorities: final approval of new by-laws for large SOBs by the State Council and certification of the banks’ past financial statements by the Federal Bureau of Supreme Audit (BSA).
- These steps would enable international audits and asset quality reviews to determine potential recapitalization needs.
- Accelerate implementation of core banking systems, continue improving lending standards and practices, and ensure close supervision.

AML/CFT and correspondent banking:
- Continue improving the AML/CFT framework, including in the banking sector, to strengthen financial stability and facilitate correspondent banking relationships.
- Prioritize addressing risks identified in the first national risk assessment (NRA) ahead of the MENAFATF mutual evaluation planned for 2023.
- Inform stakeholders of NRA findings and ensure cooperation in implementing recommended actions.
- Improve risk-based AML/CFT supervision of banks, including sanctioning large SOBs for non-compliance (identified as a priority in the NRA).

Authorities’ views on financial sector reform:
- Notable progress highlighted in AML/CFT area; Iraq removed from the EU’s list of high-risk jurisdictions and completed the first NRA to be presented to the government soon.
- Authorities envisaged a two-year implementation period for the NRA’s recommendations and requested IMF support.
- International audits of large SOBs await BSA’s certification of past financial statements; revised by-laws are yet to be finalized.
- Implementation of core banking systems at one SOB expected by end-2023; held back at the largest SOB by significant administrative challenges.
- Central bank working on a new trade finance mechanism and requested IMF TA.

### G. Improving Governance and Statistics — recommendations
Staff recommendations:
- Continue broader anti-corruption efforts, including implementation of the 2021-24 National Integrity and Anti-Corruption Strategy.
- Improve the legal framework and streamline institutional structure for combatting corruption.
- Enhance the asset declaration regime and increase transparency of oil and gas contracts.
- Digitalize key public registries and databases (e.g., property and real estate transactions).
- Strengthen oversight of SOEs and close data gaps in regulatory frameworks (such as product market regulation and trade facilitation).

*Source: IMF staff calculations and estimates.*

### 38.      Data provision has serious shortcomings that significantly hamper surveillance owing

### 1irqea2023002 - 38.      Data provision has serious shortcomings that significantly hamper surveillance owing

### Data provision and technical capacity
- Data provision has serious shortcomings that significantly hamper surveillance owing to limited technical capacity and weak IT systems.
- These shortcomings affect quality and coverage, particularly of the real and external sector statistics.
- Advancing digitalization and significant TA provision remain important to address these shortcomings.
- Staff will continue to support the authorities’ efforts to improve data provision which still has serious shortcomings that significantly hamper surveillance.

### Authorities’ views on anti-corruption
- Combatting corruption was declared a top priority of the new government.
- The Integrity Commission is evaluating key government agencies’ anti-corruption efforts and plans to present its findings to the government in early 2023.
- Authorities highlighted several high-profile prosecution cases and enhanced cooperation with civil society as examples of stepped-up efforts.
- Key obstacles cited:
  - Administrative challenges.
  - Insufficient cooperation by foreign jurisdictions in the recovery of stolen assets.
  - Weak IT systems preventing, for example, efficient verification of senior officials’ asset declarations.
- Authorities’ priorities and actions:
  - Advancing e-government.
  - Expanding capacity and the investigative powers of the Integrity Commission.
  - Continuing to enhance the legal framework and institutional structure for anti-corruption efforts.
  - Authorities welcomed IMF’s assistance.

### Staff appraisal — near-term macroeconomic outlook
- Real GDP is estimated to have increased by 8 percent in 2022, driven by a 12-percent expansion in oil production.
- Oil production is projected to continue rising from 4.4 to 5 mbd by 2027.
- Real non-oil GDP growth is expected to accelerate from 3.2 percent in 2022 to 4 percent in 2023, helped by the stimulus from the Emergency Law for Food Security and Development, and settle at 3.5 percent in the medium term.
- Inflation remains subdued due to significant subsidies and price controls.
- Owing to strong oil revenues, fiscal and current account surpluses are expected to reach 6.1 and 8.1 percent of GDP, respectively, in 2023.
- Foreign exchange reserves are expected to be boosted to US$105 billion (10 months of prospective imports).

### Risks and vulnerabilities
- Underlying vulnerabilities have increased and could manifest in the medium term.
- The non-oil primary fiscal deficit has widened from 45 percent of non-oil GDP in 2019 to an estimated 63 percent of non-oil GDP in 2022 and is projected to remain elevated.
- With gradually declining global oil prices, both fiscal and external current account balances are expected to turn into deficits over the medium term, resulting in:
  - Renewed financing pressures.
  - Drawdown of foreign exchange reserves.
  - Exhaustion of fiscal savings.
- Additional downside risks include:
  - A faster decline in oil prices.
  - Social unrest.
  - Escalation of geopolitical tensions.
  - Realization of contingent liabilities, notably in the electricity sector.
- Corruption example: Theft of about $2.5 billion from the General Commission for Taxes during 2021-22—only a fraction of which has been recovered thus far—underscores the magnitude of the corruption challenge.

### Near-term policy recommendations
- Focus on addressing the cost-of-living crisis and saving the bulk of the oil windfall.
- Protect the vulnerable:
  - Provide adequate indexation of targeted cash transfers and low-income pensions to shield from the rising cost of living.
- Monetary policy:
  - The central bank should stand ready to tighten domestic financial conditions should inflation risks begin to materialize.
- Fiscal policy:
  - The 2023 budget law should avoid a procyclical spending boost and aim to increase savings with a gradual tightening of the fiscal stance.

### Fiscal framework and medium-term fiscal strategy
- Adopt a fiscal rule targeting a gradual reduction of the non-oil primary fiscal deficit and build a fiscal stabilization buffer to balance resilience to oil price volatility and long-term sustainability.
- Contain the growth of current expenditures—most importantly the government wage bill—while raising non-oil revenues to create space for priority social and development needs.
- Reduce Iraq’s dependence on oil.

### Structural reforms for sustainable and inclusive growth
- Achieving sustainable and inclusive private sector-led growth in the medium term requires accelerated structural reforms, including:
  - Enhancing the social safety net, including making the pension system more sustainable and equitable.
  - Developing a national employment strategy.
  - Stemming losses and improving reliability of the electricity sector.
  - Revitalizing the financial sector through restructuring of state-owned banks.
  - Continued enhancement of the AML/CFT framework.

### Anti-corruption priorities (staff recommendations)
- Continue to advance the anti-corruption agenda with priorities including:
  - Strengthening public financial management.
  - Advancing digitalization of key public institutions and business processes.
  - Expanding capacity of the Integrity Commission.
  - Improving the legal framework and institutional structure for anti-corruption efforts.

*Source: STAFF APPRAISAL*

### 47.      It is proposed that the next Article IV consultation take place on the standard

### Iraq — Economic Developments and Medium‑Term Projections (selected tables and figures, 2015–27)

### Macroeconomic outlook: growth, inflation, and oil sector
- Real GDP (percentage change), selected years: 2019: 5.8; 2020: -15.7; 2021: 7.7; 2022: 8.1; 2023: 4.2; 2024: 3.1; 2025: 2.6; 2026: 2.4; 2027: 2.2.
- Non-oil real GDP (percentage change), selected years: 2019: 9.0; 2020: -20.2; 2021: 21.1; 2022: 3.2; 2023: 4.2; 2024: 4.0; 2025: 3.8; 2026: 3.6; 2027: 3.5.
- GDP per capita (US$), selected years: 2019: 5,983; 2020: 4,220; 2021: 5,021; 2022: 6,468; 2023: 6,220; 2024: 6,205; 2025: 6,199; 2026: 6,229; 2027: 6,283.
- Oil production (mbpd): 2019: 4.58; 2020: 4.00; 2021: 3.97; 2022: 4.44; 2023: 4.63; 2024: 4.74; 2025: 4.83; 2026: 4.91; 2027: 4.97.
- Oil exports (mbpd): 2019: 3.97; 2020: 3.43; 2021: 3.44; 2022: 3.65; 2023: 3.88; 2024: 4.04; 2025: 4.07; 2026: 4.09; 2027: 4.09.
- Iraq oil export prices (US$ per barrel), selected years: 2019: 59.7; 2020: 38.1; 2021: 67.4; 2022: 96.9; 2023: 83.1; 2024: 77.8; 2025: 74.0; 2026: 71.1; 2027: 68.8.
- Consumer price inflation (end‑period): 2019: 0.1; 2020: 3.2; 2021: 5.3; 2022: 4.5; 2023: 3.7; 2024: 2.5; 2025: 2.0; 2026: 2.0; 2027: 2.0.
- GDP (in US$ billion), selected years: 2019: 234.0; 2020: 169.4; 2021: 206.7; 2022: 273.2; 2023: 269.6; 2024: 275.9; 2025: 282.9; 2026: 291.6; 2027: 301.8.

### Fiscal position, revenues, and expenditure (central government)
- Government revenue and grants (percent of GDP), selected years: 2019: 35.9; 2020: 31.3; 2021: 36.6; 2022: 41.0; 2023: 45.4; 2024: 43.4; 2025: 40.9; 2026: 38.5; 2027: 36.6.
- Government oil revenue (percent of GDP), selected years: 2019: 33.4; 2020: 28.3; 2021: 32.3; 2022: 38.9; 2023: 42.8; 2024: 40.6; 2025: 38.0; 2026: 35.5; 2027: 33.5.
- Government non-oil revenue (percent of GDP), selected years: 2019: 2.5; 2020: 3.0; 2021: 4.4; 2022: 2.1; 2023: 2.6; 2024: 2.8; 2025: 2.9; 2026: 3.0; 2027: 3.0.
- Expenditure (percent of GDP), selected years: 2019: 35.0; 2020: 45.2; 2021: 37.0; 2022: 34.7; 2023: 39.3; 2024: 41.1; 2025: 43.0; 2026: 44.4; 2027: 45.7.
- Current expenditure (percent of GDP), selected years: 2019: 28.1; 2020: 37.5; 2021: 30.1; 2022: 25.3; 2023: 30.4; 2024: 32.0; 2025: 33.7; 2026: 34.9; 2027: 36.1.
- Capital expenditure (percent of GDP), selected years: 2019: 7.0; 2020: 7.6; 2021: 6.9; 2022: 9.4; 2023: 8.9; 2024: 9.2; 2025: 9.4; 2026: 9.5; 2027: 9.6.
- Fiscal balance (including grants, percent of GDP), selected years: 2019: 0.8; 2020: -13.9; 2021: -0.4; 2022: 6.3; 2023: 6.1; 2024: 2.3; 2025: -2.1; 2026: -5.9; 2027: -9.2.
- Central government revenues and expenditures (ID trillion), 2019–2027 (selected): Revenues 2019: 99.3; 2020: 63.2; 2021: 109.9; 2022: 162.4; 2023: 177.5; 2024: 173.7; 2025: 167.7; 2026: 162.8; 2027: 160.0. Expenditures 2019: 96.9; 2020: 91.1; 2021: 111.0; 2022: 137.3; 2023: 153.8; 2024: 164.6; 2025: 176.4; 2026: 187.7; 2027: 200.1.
- Salary and pension (ID trillion), selected years: Salary and pension total 2019: 51.1; 2020: 53.4; 2021: 57.6; 2022: 58.0; 2023: 69.5; 2024: 74.3; 2025: 80.9; 2026: 86.2; 2027: 92.6.
  - Salary (ID trillion): 2019: 40.6; 2020: 40.0; 2021: 42.9; 2022: 43.5; 2023: 54.4; 2024: 57.4; 2025: 62.2; 2026: 66.4; 2027: 71.7.
  - Pensions (ID trillion): 2019: 10.5; 2020: 13.4; 2021: 14.7; 2022: 14.5; 2023: 15.1; 2024: 16.8; 2025: 18.7; 2026: 19.8; 2027: 20.9.
- Non‑oil primary fiscal balance (accrual basis, percent of non‑oil GDP), selected years: 2019: -44.5; 2020: -52.0; 2021: -52.1; 2022: -63.0; 2023: -63.3; 2024: -63.3; 2025: -63.5; 2026: -63.2; 2027: -63.1.
- Adjusted Non‑oil primary fiscal balance (excl. KRG, percent of non‑oil GDP), selected years: 2019: -41.1; 2020: -44.1; 2021: -42.5; 2022: -51.0; 2023: -57.7; 2024: -56.9; 2025: -56.6; 2026: -55.9; 2027: -66.3.

### Public debt and financing
- Total government debt (percent of GDP), selected years: 2019: 45.1; 2020: 84.3; 2021: 59.1; 2022: 42.9; 2023: 40.3; 2024: 37.1; 2025: 36.2; 2026: 35.1; 2027: 42.0.
- Total government debt (US$ billion), selected years: 2019: 105.6; 2020: 117.2; 2021: 122.2; 2022: 117.2; 2023: 108.6; 2024: 102.3; 2025: 102.3; 2026: 102.3; 2027: 126.7.
- External government debt (percent of GDP), selected years: 2019: 29.1; 2020: 48.6; 2021: 33.1; 2022: 23.0; 2023: 22.2; 2024: 21.0; 2025: 20.0; 2026: 19.0; 2027: 17.8.
- External government debt (US$ billion), selected years: 2019: 68.0; 2020: 67.6; 2021: 68.5; 2022: 63.0; 2023: 59.8; 2024: 58.0; 2025: 56.5; 2026: 53.3; 2027: 53.8.
- Financing composition (central government, ID trillion, 2019–27): External financing and domestic financing patterns show swings across years, e.g., Financing total (ID trillion) 2019: 5.4; 2020: 26.7; 2021: 4.2; 2022: -25.1; 2023: -23.7; 2024: -9.1; 2025: 8.7; 2026: 24.8; 2027: 40.1.

### External sector and balance of payments
- Trade balance (US$ billion): 2019: 22.9; 2020: -5.1; 2021: 32.2; 2022: 52.3; 2023: 37.8; 2024: 28.2; 2025: 21.0; 2026: 12.8; 2027: 6.0.
- Exports (US$ billion), selected years: 2019: 89.7; 2020: 50.2; 2021: 89.0; 2022: 136.9; 2023: 125.7; 2024: 123.1; 2025: 119.0; 2026: 115.6; 2027: 113.9.
  - Crude oil exports (US$ billion), selected years: 2019: 86.5; 2020: 47.7; 2021: 84.6; 2022: 128.9; 2023: 117.8; 2024: 114.6; 2025: 109.9; 2026: 106.0; 2027: 103.7.
- Imports (US$ billion), selected years: 2019: -66.8; 2020: -55.3; 2021: -56.8; 2022: -84.5; 2023: -87.9; 2024: -94.9; 2025: -98.0; 2026: -102.8; 2027: -107.9.
- Current account (US$ billion), selected years: 2019: 1.1; 2020: -18.4; 2021: 16.2; 2022: 31.6; 2023: 22.0; 2024: 11.3; 2025: 1.6; 2026: -7.1; 2027: -13.9.
- Current account (percent of GDP), selected years: 2019: 0.5; 2020: -10.9; 2021: 7.8; 2022: 11.6; 2023: 8.1; 2024: 4.1; 2025: 0.6; 2026: -2.4; 2027: -4.6.
- Gross International Reserves (US$ billion), end‑period: 2019: 68.0; 2020: 54.4; 2021: 64.2; 2022: 90.2; 2023: 104.7; 2024: 113.2; 2025: 114.1; 2026: 107.5; 2027: 95.0.
- Total GIR (in months of imports of goods and services), selected years: 2019: 11.8; 2020: 9.0; 2021: 7.1; 2022: 9.7; 2023: 10.4; 2024: 10.7; 2025: 10.3; 2026: 9.3; 2027: 7.9.
- Overall balance (US$ billion), selected years: 2019: 1.8; 2020: -13.9; 2021: 10.9; 2022: 29.3; 2023: 14.5; 2024: 8.5; 2025: 0.9; 2026: -6.6; 2027: -12.6.

### Monetary and financial indicators
- Broad money (ID trillion), selected years: 2019: 103,291; 2020: 119,775; 2021: 139,737; 2022: 149,005; 2023: 179,908; 2024: 207,510; 2025: 231,857; 2026: 249,557; 2027: 253,975.
- Broad money (percentage growth), selected years: 2019: 8.4; 2020: 16.0; 2021: 16.7; 2022: 6.6; 2023: 20.7; 2024: 15.3; 2025: 11.7; 2026: 7.6; 2027: 1.8.
- Reserve money (ID trillion), selected years: 2019: 78,253; 2020: 88,862; 2021: 110,137; 2022: 124,773; 2023: 136,574; 2024: 152,465; 2025: 174,127; 2026: 200,444; 2027: 231,961.
- Growth in reserve money (percentage), selected years: 2019: 16.5; 2020: 13.6; 2021: 23.9; 2022: 13.3; 2023: 9.5; 2024: 11.6; 2025: 14.2; 2026: 15.1; 2027: 15.7.
- Net foreign assets (CBI, ID trillion), selected years: 2019: 76,091; 2020: 75,223; 2021: 87,702; 2022: 126,219; 2023: 147,250; 2024: 159,612; 2025: 160,932; 2026: 151,393; 2027: 133,152.
- Credit to the economy (percentage growth), selected years: 2019: 1.9; 2020: 19.6; 2021: 4.9; 2022: 9.0; 2023: 10.4; 2024: 9.1; 2025: 8.0; 2026: 7.8; 2027: 7.6.
- Credit to the private sector (in percent of GDP), selected years: 2019: 8.8; 2020: 14.2; 2021: 11.4; 2022: 9.7; 2023: 10.8; 2024: 11.4; 2025: 12.0; 2026: 12.5; 2027: 13.0.

### Social, governance, and labor market indicators (selected)
- Unemployment (2012–21 shown in figure): male, female, youth, total (percent). (Figure content provided.)
- Corruption Index Score (0–100, lower score means more corrupt): series shown 2014–2021 (figure).
- Health indicators (latest available): Number of infant deaths per 1,000; Life expectancy at birth; Hospital beds per 1,000; Nurses and midwives per 1,000; Physicians per 1,000 (comparative values shown in figure).
- Youth Not in Education, Employment, or Training (2012–21): male, female, total (percent) (figure).
- Poverty rate (2018–2020 shown in figure) and education indicators (adult literacy rate; net enrollment, primary and secondary) — values presented in figure and table.

*Sources: Iraqi authorities; IMF staff estimates and projections.*

### 2014. Starting Q3 2015, SDRs and reserve position in the Fund are excluded from the definition per instruction from the 

### 1irqea2023002 - 2014. Starting Q3 2015, SDRs and reserve position in the Fund are excluded from the definition per instruction from the

### Selected Financial Sector Indicators (Iraqi Banking System, 2017–22)
- Asset Quality
  - Regulatory capital to risk-weighted assets: 48.1 (2017); 63.6 (2018); 53.5 (2019); 46.5 (2020); 52.1 (2021); 42.9 (2022Q2)
  - Nonperforming loans net of provisions to capital: 14.8 (2017); 13.3 (2018); 10.6 (2019); 19.6 (2020); 19.3 (2021); 18.6 (2022Q2)
  - Nonperforming loans to total gross loans: 14.8 (2017); 17.5 (2018); 16.2 (2019); 21.0 (2020); 18.5 (2021); 18.9 (2022Q2)
- Profitability
  - Return on assets: 1.1 (2017); 0.6 (2018); 0.9 (2019); 1.1 (2020); 0.7 (2021); 1.1 (2022Q2)
  - Return on equity: 7.8 (2017); 3.7 (2018); 6.3 (2019); 7.5 (2020); 4.8 (2021); 8.2 (2022Q2)
  - Interest margin to gross income: 56.1 (2017); 57.0 (2018); 59.3 (2019); 38.9 (2020); 48.9 (2021); 50.8 (2022Q2)
  - Noninterest expenses to gross income: 43.4 (2017); 59.4 (2018); 51.3 (2019); 62.5 (2020); 59.7 (2021); 40.1 (2022Q2)
- Liquidity
  - Liquid assets to total assets: 39.6 (2017); 41.0 (2018); 46.3 (2019); 46.6 (2020); 47.4 (2021); 50.3 (2022Q2)
  - Liquid assets to short-term liabilities: 50.4 (2017); 51.1 (2018); 58.2 (2019); 57.2 (2020); 59.4 (2021); 61.4 (2022Q2)
  - Customer deposits to total (noninterbank) loans: 70.2 (2017); 74.0 (2018); 76.8 (2019); 77.4 (2020); 86.3 (2021); 94.0 (2022Q2)
- FX Exposure
  - Net open position in foreign exchange to capital: 5.2 (2017); 21.4 (2018); 34.9 (2019); 60.8 (2020); 50.9 (2021); 54.1 (2022Q2)
  - Foreign-currency-denominated loans to total loans: 22.2 (2017); 22.2 (2018); 21.0 (2019); 24.3 (2020); 23.4 (2021); 26.9 (2022Q2)
  - Foreign-currency-denominated liabilities to total liabilities: 22.8 (2017); 24.1 (2018); 26.9 (2019); 27.7 (2020); 27.8 (2021); 33.0 (2022Q2)
- Sectoral distribution of loans
  - To general government: 46.1 (2017); 46.3 (2018); 49.9 (2019); 49.6 (2020); 45.3 (2021); 45.6 (2022Q2)
  - To nonfinancial corporations: 14.2 (2017); 17.6 (2018); 15.3 (2019); 16.7 (2020); 15.8 (2021); 15.8 (2022Q2)
  - To other domestic sectors: 37.0 (2017); 33.7 (2018); 32.8 (2019); 31.8 (2020); 36.4 (2021); 35.9 (2022Q2)
  - To other financial corporations: 2.5 (2017); 2.4 (2018); 2.0 (2019); 1.8 (2020); 2.5 (2021); 2.7 (2022Q2)
- Note: Reported FSIs are subject to significant uncertainity due to lack of core banking systems at SOBs and ommission of non-performing loans to public entities with uncalled government guarantees leading to the overestimation of capital and underestimation of NPLs.

### Implementation of the 2020 Article IV Recommendations
- Fiscal
  - Recommendations: Reverse unsustainable expansion of the wage bill; reduce inefficient fuel subsidies through an excise tax on petroleum; implement measures to raise non-oil revenues, including raising progressivity of payroll taxes and eliminating exemption of allowances from taxation.
  - Authorities’ response: Partially implemented. A hiring freeze, imposed as part of the 2021 budget, helped to contain the wage bill. However, key measures to raise non-oil revenues and reduce subsidies were not approved by Parliament. Delayed government formation prevented the adoption of a 2022 budget.
- Financial stability
  - Recommendation: Launch international audit of large state-owned banks and advance their restructuring.
  - Authorities’ response: Not implemented. International audit continues to await certification of SOB’s financial accounts by the Federal Board of Supreme Audit which has not happened since 2014. The authorities revised by-laws for large SOBs which await approval.
- Governance
  - Recommendation: Strengthen risk-based AML/CFT supervision at CBI and align anti-corruption framework with international standards and conventions.
  - Authorities’ response: Partially implemented. A new National Integrity and Anti-Corruption Strategy was launched in 2021, and a National Risk Assessment has been completed in 2022. An assessment report on the adequacy of the institutional environment and organization structure for anti-corruption is being prepared along with detailed recommendations to improve controls and oversight.
- Social safety nets
  - Recommendations: Introduce automatic inflation indexation of cash transfer benefits; expand funding to include all eligible households; limit eligibility for the Public Distribution System (PDS) food rationing program to only those in the social security database.
  - Authorities’ response: Not implemented. Some of the measures were proposed by the government but did not secure Parliamentary support.
- Electricity
  - Recommendation: Develop a reform strategy to improve cost recovery, reduce arrears, and enhance gas capture.
  - Authorities’ response: Not implemented. The authorities are prioritizing improving service coverage in the near term while a comprehensive strategy to reduce losses and improve revenues is lacking.

### External Sector Assessment
- Overall assessment
  - Iraq’s external sector position in 2021 was broadly in line with the level implied by fundamentals and desirable policies.
  - The external current account (CA) surplus is projected to gradually decline and turn into a deficit over the medium term, in line with the projected path of oil prices.
  - Key risks: High sensitivity to energy price volatility and domestic fiscal policies.
- Potential policy responses
  - Continued building of foreign exchange buffers to strengthen resilience to transitory oil price declines and mitigate longer term risks to sustainability associated with the global energy transition.
  - Supportive measures: Prudent fiscal policy avoiding procyclical boosts to government expenditures and seeking medium-term consolidation; structural reforms to enhance competitiveness and diversify the economy.

- Current Account
  - Background: The CA recorded a surplus of 7.8 of GDP in 2021, a significant improvement from a deficit of 10.9 percent in 2020, with a 5-year average balance (2016-2020) of -3.6 percent of GDP.
  - Drivers: Crude oil and petroleum-related exports rising by 78 percent in 2021.
  - Projection: CA surplus expected to widen further in 2022 before declining gradually over the medium term in line with the projected path of oil prices.
  - Assessment: EBA-lite assessment for the current account gap in 2021 was 3.4 percent of GDP, reversing from a gap of -4.9 percent in 2020.
  - Alternative assessments (permanent income hypothesis):
    - Investment needs model suggests CA gap of 8.9 percent.
    - Consumption allocation model suggests CA gap of -0.9 percent.
  - Note: Significant uncertainty as to appropriate CA norm for oil-exporting countries given energy transition risks.

- Real Exchange Rate (REER)
  - Background: REER and NEER depreciated by 18.6 percent and 16.8 percent (y-o-y) in 2021, reflecting the dinar devaluation implemented at end-2020. Since then both have been appreciating.
  - Assessment: REER gap for 2021 estimated in the range of -11.3 (CA model) to -9.7 (REER model), indicating some REER undervaluation.

- Capital and Financial Accounts
  - Background: Financial account recorded a small deficit of $1.43 billion (0.7 percent of GDP) in 2021, relative to a surplus of $3.7 billion (2.2 percent of GDP) in 2020.
  - Drivers: Larger disinvestment by international oil companies rose from $2.8 billion (1.7 percent of GDP) in 2020 to $6.6 billion (3.2 percent of GDP) in 2021.
  - Other flows: Outflows through foreign deposits linked to “oil for construction” deal with China worth $1.025 billion (0.5 percent of GDP); partly offset by inflow of SDRs of $2.1 billion (1 percent of GDP). Private flows switched from net inflows of $481 million (0.2 percent of GDP) in 2020 to net outflows of $883 million (0.4 percent of GDP) in 2021.
  - Assessment: Capital account remains relatively closed; capital flows mostly related to public sector or private oil sector.

- FX Intervention and Reserves Level
  - Background: Central Bank of Iraq’s international reserves increased by $9.8 billion in 2021 driven by a current account surplus, an SDR allocation of $2.273 billion, and dinar devaluation and fiscal consolidation.
  - Reserves level: $64.2 billion (7 months of prospective imports, 66.6 percent of broad money) at end-2021, corresponding to 186 percent of the Fund’s Assessing Reserve Adequacy (ARA) metric (suggested adequate range 100-150 percent).
  - Assessment: CBI’s foreign reserves expected to strengthen near term, peaking in 2025. Projected reduction of reserves in the outer years calls for further fiscal consolidation efforts. Divergence between the ARA metric and the augmented-ARA metric indicates the need for additional buffers to account for oil price volatility.
  - Note: Iraq does not report its net international investment position due to coverage issues, gaps in data, and inconsistencies with the BOP financial account.

### Public and External Debt Sustainability Analysis
- Recent trends
  - Iraq’s public debt has declined sharply from its 2020 peak, with the debt-to-GDP ratio more than halved between 2020-22.
  - Drivers: Sustained high oil prices and rising domestic inflation.
- Medium-term projection
  - Public debt projected to continue its improvement before rising slightly in the outer years under current oil price projections.
  - Guarantees and contingent liabilities continue to pose risks to debt sustainability.
- Key findings
  1. Following a 25-percentage point drop in 2021, government debt-to-GDP ratio is set to decline further to 43 percent of GDP in 2022. The 2021 decline was driven by post-devaluation increase in inflation, causing real interest rate to fall below zero, and strong economic recovery aided by high oil prices. Large fiscal surpluses allowed the government to reduce debt in 2022, including by clearing external arrears for energy imports from Iran.
  2. At current oil price projections, the declining trend in government debt is expected to reverse in 2027. Near term projected fiscal surpluses allow debt amortization without additional borrowing, but fiscal surpluses will gradually shrink and turn to deficits with projected decline in oil prices and a large non-oil primary deficit. Fiscal savings (government deposits) can finance deficits in 2025-26, but once exhausted deficits will need to be debt-financed.
  3. Gross financing needs (GFN) are projected to gradually increase to slightly above the high-risk threshold of 15 percent of GDP in 2027, reaching 16.5 percent of GDP by 2027. Amortization of domestic debt, mostly to the CBI, represents the largest component of financing needs in the medium term and is expected to rise in the outer years as central bank financing (through triangular operation involving commercial banks) is assumed to be one of the main financing sources in 2025-27. Amortization payments of external debt will average about 1 percent of GDP annually 2022–27, mainly to the IMF, World Bank, Paris-club and non-Paris club restructured debt, bilateral project loans, and Eurobonds.
  4. Guarantees and contingent liabilities pose significant risks. Service guarantees, mostly in the electricity sector, were estimated at over $21 billion in 2017 (7.8 percent of the 2022 GDP) but are not included in public debt. The state pension fund could trigger additional liabilities. Potential contingent liabilities in the banking sector related to restructuring and recapitalization of two largest state-owned banks remain significant; estimating total needs requires an international audit.
- Stress test scenarios and impacts
  - Growth shock: Lowering real GDP growth by one standard deviation (8.9 percentage points relative to the projection) in 2023 and 2024 would push the debt ratio to reach 66.9 percent of GDP by 2027.
  - Primary balance shock: Worsening of the primary balance by half a standard deviation (4.0 percentage points of GDP) in 2023 and 2024 would gradually raise debt to 50.4 percent of GDP by 2025.
  - Real exchange rate shock: A one-time real depreciation of 30 percent in 2023 would increase total public debt to 48.6 percent of GDP in 2027.
  - Real interest rate shock: A one-time, permanent real interest rate increase of 10 percentage points starting in 2023 would have limited impact, lifting the debt ratio by just one percentage point to 43.1 percent of GDP in 2027.
  - Combined shocks: A combination of these shocks would put debt on a rising trajectory (detailed combined outcome not included in supplied text).

*Source: IMF staff calculations and authorities’ reporting as presented in the supplied content.*

### 82.1 percent of GDP by 2027.

### 1irqea2023002 - 82.1 percent of GDP by 2027.

### Baseline debt and fiscal projections
- Public debt projected to reach 82.1 percent of GDP by 2027.
- Public gross financing needs (selected years shown in source): 8.9; 17.9; 3.0; -1.0; -2.7; 0.6; 5.2; 11.2; 16.5 (values appear in the source table as a series).
- Effective interest rate on public debt (defined as interest payments divided by debt stock): 1.6 percent (2027, as shown in table).
- Primary (noninterest) revenue and grants and primary (noninterest) expenditure (cumulative shown in source): 244.7 and 244.6 (percent of GDP cumulative, as presented).
- Identified debt-creating flows and change in gross public sector debt are reported cumulatively in the source (e.g., cumulative change -17.0; identified debt-creating flows -15.4 in the projection column).

### Stress tests and alternative scenarios
- Alternative scenarios considered in the DSA include:
  - Historical scenario (assumes historical averages for key variables).
  - Constant primary balance scenario (primary balance held at 7.2 percent).
  - Macro-fiscal stress tests: Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, and additional stress tests (as displayed in Figure AIII.3).
- Market-risk indicators reported in the risk-heat maps and tables include:
  - EMBIG (bp): 504 (average over the last 3 months, 13-Sep-22 through 12-Dec-22, as noted).
  - 5Y CDS (bp): 699 (as shown).
- Stress-test results in the source show elevated debt and financing needs under adverse shocks; the figures and charts present dynamics of Gross Nominal Public Debt and Public Gross Financing Needs under each shock scenario.

### External debt sustainability highlights
- Baseline external debt (selected years from Table AIII.1): 35.3; 29.4; 29.1; 48.6; 33.1; 23.0; 22.2; 21.0; 20.0; 19.0; 17.8 (series as shown in the table).
- Change in external debt and identified external debt-creating flows presented in the source: change in external debt included values such as -3.2; -6.0; -0.3; 19.5; -15.4; -10.1; -0.8; -1.2; -1.0; -1.0; -1.2 (series as shown).
- Gross external financing need (in billions of US dollars) and as percent of GDP are provided in the table (e.g., series in billions includes 9.8; -8.8; 0.6; 22.5; -11.6; -26.3; -18.4; -9.0; 0.2; 8.7; 15.5).
- Key macroeconomic assumptions underlying the baseline in Table AIII.1 include:
  - Real GDP growth (selected years): -3.4; 4.7; 5.8; -15.7; 3.9; 8.9; 7.7; 8.1; 4.2; 3.1; 2.6; 2.4; 2.2 (series as presented).
  - GDP deflator in US dollars (change in percent) series shown in the source (including values such as 18.7; 12.8; -2.6; -14.2; -1.4; 14.5; 13.4; 22.2; -5.4; -0.7; -0.1; 0.6; 1.3).
  - Nominal external interest rate (in percent) series shown: 1.0; 1.4; 1.4; 1.2; 1.1; 0.2; 1.0; 0.8; 0.8; 0.6; 0.5; 0.5; 0.4.

### Key identified risks and policy responses (Annex IV)
- Global risks
  - Commodity price shocks
    - Likelihood: High
    - Expected impact: High
    - Expected effects: A decline in oil prices could put pressure on Iraq’s fiscal and external positions; global food price shocks could affect inflation and social stability.
    - Policy responses: Continue to build fiscal and external financial buffers; accelerate efforts to diversify the economy away from oil; enhance resilience to oil price shocks through wide-ranging fiscal reforms; strengthen social safety net.
  - Intensifying spillovers from Russia’s war in Ukraine
    - Likelihood: High
    - Expected impact: Medium (due to limited direct trade links and a relatively closed capital account)
    - Noted vulnerability: Sanctions against Russian oil companies could affect about a tenth of Iraq’s oil production.
    - Policy response: Solidify macroeconomic stability and strengthen resilience to potential disruptions to oil revenues.
  - Deepening geo-economic fragmentation and geopolitical tensions
    - Likelihood: High
    - Expected impact: Medium
    - Risks: Could ignite proxy conflicts in Iraq; failure to renew Iraq’s waiver to import Iranian energy could curtail gas and electricity supply.
    - Policy responses: Implement structural reforms; diversify energy sources; improve access to electricity by boosting investments in power-generation capacity and gas capture.
- Domestic risks
  - Political uncertainty and social unrest
    - Likelihood: High
    - Expected impact: High
    - Policy response: Build national consensus on reform priorities; improve public services; address corruption.
  - New waves of Covid-19
    - Likelihood: Medium
    - Expected impact: Medium
    - Policy response: Continue vaccination; strengthen health system capacity and social safety net.
  - Natural disasters related to climate change
    - Likelihood: Medium
    - Expected impact: Medium
    - Policy responses: Build resilience to climate change; finalize and publish Iraq’s national adaptation plan; ensure availability of fiscal resources for climate adaptation investments.

### Policy implications emphasized in the source
- Build fiscal and external buffers to manage volatility in oil revenues.
- Accelerate economic diversification away from oil and strengthen resilience to oil price shocks through comprehensive fiscal reforms.
- Strengthen social safety nets and public service delivery to mitigate political and social risks.
- Implement structural reforms to support medium-term growth, diversify energy sources, and improve electricity access.
- Prepare for climate-related shocks by finalizing a national adaptation plan and securing fiscal resources for adaptation investments.

*Source: IMF staff (1irqea2023002 - as provided in the supplied content).*

### Annex V. Embedding the Challenges of Climate Change into

### Annex V. Embedding the Challenges of Climate Change into Macroeconomic Policies

### Anchoring the Fiscal Framework
- Fiscal-framework goals for resource-rich countries emphasize short-term stabilization and long-term intergenerational savings.
- Key uncertainties:
  - Global push for net zero: more than 70 countries accounting for 75 percent of annual global greenhouse gas emissions have pledged to reach net zero (NZE) by mid-century.
  - IEA (2021) prediction: global oil demand to shrink by 75 percent to 24 mbd by 2050, and the real oil prices to decline to $25/barrel (in 2019 prices) if these goals were achieved.
  - Valuations of oil wealth are highly uncertain; some oil assets could become stranded.
- Recommended components of Iraq’s fiscal anchor:
  - Fiscal buffer for stabilization:
    - Staff estimate a fiscal buffer of ID 51 trillion (28 percent of 2022 non-oil GDP) in real terms (ID 59 trillion in nominal terms in 2027) to allow sufficient smoothing of government expenditures and uninterrupted provision of critical public services over the medium term in response to oil price fluctuations with a 90-percent probability.
    - The buffer can be built up over time as part of the overall fiscal saving strategy.
    - Buffer computation note (method): oil price shocks estimated as a log AR(1) process were simulated numerous times for 2023-27; fiscal balance projected based on an expenditure smoothing rule that gradually adjusts with oil prices (a fiscal balance rule at a reference oil price set equal to a 5-year moving average of past oil prices); needed fiscal savings computed as the minimum amount that would avoid full depletion of the buffer over the five-year horizon with a 90-percent probability. In nominal terms, the recommended buffer is projected to rise to ID 59 trillion by 2027.
  - Long-term sustainability and non-oil fiscal deficits:
    - Scenarios constructed at a 30-year horizon illustrate the fiscal challenge; oil price projections for 2023-27 are based on WEO; oil price and demand projections beyond 2027 are based on IEA’s NZE scenario.
    - Consistent with Iraq being a low-cost producer, its market share is assumed to increase by a third so that the overall export volume decreases by two thirds in 2050; after 2050, the oil market is assumed to be in a new equilibrium.
    - Adjustment timing matters:
      - Front-loaded effort: allows accumulation of sizable financial savings (net foreign assets) expanding fiscal space and reducing total long-run adjustment.
      - Backloaded (delayed) adjustment: precludes savings (and exhausts existing buffers), requiring a larger long-run reduction in the non-oil primary deficit; illustrative backloaded scenario entails net foreign assets turning negative and requires a cumulative consolidation of more than 60 percent of non-oil GDP over 27 years to achieve sustainability.
- Staff’s proposed reform scenario (combined stabilization and sustainability):
  - Medium-term: build over two thirds of recommended fiscal buffer for stabilization (ID 43 trillion in nominal terms by 2027) while maintaining debt on a declining trajectory.
  - Long-term: envisages a cumulative consolidation of 47 percent of non-oil GDP over the next 27 years to a long-term equilibrium non-oil primary deficit of 11 percent of the non-oil GDP.
  - Financing: three quarters of this deficit expected to be financed by the interest income from net foreign assets, which would reach 250 percent of the non-oil GDP by 2050.
  - The framework allows maintaining an elevated level of public investments needed to mitigate and adapt to climate change, supporting private sector development and fiscal sustainability.

### Investing in Climate Adaptation and Mitigation
- Climate vulnerability and institutional response:
  - Iraq is among the most vulnerable countries to climate change; average temperatures already rose by 1.5 degrees Celsius during the past forty years, and disasters have been frequent and damaging.
  - In 2021, authorities published their first Nationally Determined Contribution (NDC) document under the Paris Agreement; specific plans, cost estimates, and execution procedures are being developed.
  - Authorities, with UN Environment and Development Programmes, are working on National Adaptation and Mitigation Plans and a “Green Paper”; next National Development Strategy is expected to incorporate these plans.
- Water scarcity:
  - Water scarcity identified as a key climate adaptation challenge.
  - Authorities estimate the demand-supply gap to reach 15 percent by 2035 due to sustained decline in water supply (factors include upstream dams, inefficient transmission/distribution, and crop-water mismatches).
  - Poor wastewater management has increased river pollution affecting public health and living conditions.
  - Government restricted land area usage for cultivation by 50 percent in 2021-22, leading to contraction of the agriculture sector and significant livelihood impacts.
- Emissions and energy sector:
  - Iraq’s NDC: unconditional and conditional commitments to reduce greenhouse gas (GHG) emissions by 1-2 and 13 percent, respectively, relative to the business-as-usual baseline.
  - Over 90 percent of Iraq’s current GHG emissions originate in the energy sector; over a half of them represent fugitive emissions due to gas flaring.
  - Authorities set a goal of ending gas flaring by 2025.
- Investment needs and fiscal implications:
  - World Bank Country Climate Development Report (2022) preliminary estimate: $233 billion in total investments needed by 2040 to address climate adaptation and mitigation challenges while closing the development gap.
    - $48 billion allocated to alleviating water scarcity.
    - $144 billion allocated to capturing gas flaring and greening the electricity sector.
  - Affording these investments within a fiscal framework aimed at reducing oil dependence will require a significant boost of non-oil revenues and reorientation of expenditures toward greening the economy.

### Contextual Vulnerabilities and Policy Imperatives
- Structural and socio-economic vulnerabilities:
  - Four decades of conflict eroded physical and human capital; war with ISIS claimed over 100,000 lives, left five million internally displaced, and inflicted an estimated $46 billion in damages to infrastructure and property.
  - Dominant state role and dependence on oil: most major industries and large parts of the financial system remain in public ownership; government provides jobs, subsidies, and key services.
  - Non-oil fiscal revenue mobilization limited; the government almost entirely depends on oil which provides over 90 precent of budget revenues and FX receipts.
  - Public wage and pension bills consume a significant portion of revenues, making expenditures rigid and the budget unable to adjust to shocks.
- Long-term demographic and climate pressures:
  - More than half of current population is under age 25; UN projects share of youth (age 15-25) in total population could reach 32 percent by 2100.
  - Water scarcity: about 60 percent of Iraq’s water resources originate from outside its borders in Turkey, Iran, and Syria.
  - Global energy transition could significantly reduce future oil revenues.
- Policy priorities for Fund engagement (high-level):
  - Strengthen fiscal sustainability and resilience to oil price volatility.
  - Improve social protection for vulnerable groups.
  - Create favorable conditions for private sector job creation.
  - Prepare for the impact of climate change and the global energy transition.
- Specific reform priorities identified for engagement:
  - Improving fiscal policy framework: improve budget preparation, introduce a rules-based fiscal framework, set medium-term fiscal targets, enhance governance and PFM, strengthen control over expenditures/arrears/commitments/guarantees, improve oil wealth management, embed SDG and climate policies in medium-term planning.
  - Mobilizing additional non-oil revenue: strengthen direct progressive taxation, introduce a sales tax, phase out fuel subsidies, improve tax/customs administration, and overall governance.
  - Strengthening social safety net: improve coverage and size of targeted cash transfers, gradually phase out untargeted food ration cards, reform pension system balancing equity, financial sustainability, and adequacy.
  - Modernizing the civil service: strengthen payroll controls, reduce “ghost workers” and double dippers, deploy sustained attrition-based strategy to reduce public wage bill, review functional classifications, grade structure, and compensation system.
  - Enhancing the financial sector: restructure large state-owned banks; finalize revised by-laws to strengthen governance; limit directed lending; launch international audits to inform restructuring.
  - Ensure electricity sector sustainability: comprehensive reform to increase generation capacity, adjust tariffs, reduce technical losses, improve collection and cost recovery; improve governance and monitoring of electricity sector costs, arrears, and liabilities, reflecting them in the government budget where possible.

*Source: Annex V. Embedding the Challenges of Climate Change into Macroeconomic Policies (content unit: 1irqea2023002).*

### 9.      Capacity development and technical assistance should be geared toward supporting

### 9.      Capacity development and technical assistance should be geared toward supporting

### Capacity development and technical assistance — near‑term priorities
- Strengthen the authorities’ FX reserve forecasting capacity to ensure medium-term sustainability.
- Help implement the new PFM law, including follow-up on recent TAs on:
  - cash management,
  - expenditure control, and
  - tax administration,
  in line with the need to enhance the fiscal policy framework.
- Further strengthen national accounts, price, and external sector statistics.
- Enhance the targeting and coverage of social safety net programs.
- Priority will be given to areas where there is demand from the authorities and demonstrated absorption capacity, which is limited overall.

### Capacity development and technical assistance — medium‑term priorities
- Modernization of civil service management.
- Calibration of the pension system to ensure adequacy and sustainability.
- Electricity reform.
- Development of a medium-term fiscal framework and fiscal rules.
- Introduction of sales tax.
- Restructuring of state-owned banks.
- Medium-term priorities could shift depending on evolving needs and demonstrated absorption capacity.

### Coordination with international partners
- Leverage and complement the support of other international partners to:
  - reinforce policy advice,
  - tackle macro-critical reforms outside the Fund’s core expertise, and
  - increase the impact and coverage of capacity-building efforts.
- Emphasize close coordination, active information-sharing, and dialogue with:
  - the World Bank,
  - other UN agencies,
  - key bilateral partners, and
  - multilateral forums such as the International Economic Contact Group.
- Focus coordination in the six key reform areas where these partners are already engaged.

### Fund relations — key financial and institutional figures (as of dates specified)
- Membership Status: Joined December 27, 1945; Article XIV.
- Quota: 1,663.80 SDR Million = 100.00 percent of Quota.
- Fund Holdings of Currency: 1,373.86 SDR Million = 82.57 percent of Quota.
- Reserve Tranche Position: 289.95 SDR Million = 17.43 percent of Quota.
- Net Cumulative Allocation (SDR Department): 2,729.17 SDR Million = 100.00 percent of Allocation.
- Holdings (SDR Department): 13.01 SDR Million = 0.48 percent of Allocation.
- Outstanding Purchases and Loans: None.

Latest Financial Arrangements (dates and amounts)
- Stand-By: Date of Arrangement Jul 07, 2016; Expiration Date Jul 06, 2019; Amount Approved 3,831.00 SDR Million; Amount Drawn 1,494.20 SDR Million.
- Stand-By: Date of Arrangement Feb 24, 2010; Expiration Date Feb 23, 2013; Amount Approved 2,376.80 SDR Million; Amount Drawn 1,069.56 SDR Million.
- Stand-By: Date of Arrangement Dec 19, 2007; Expiration Date Mar 18, 2009; Amount Approved 475.36 SDR Million; Amount Drawn 0.00 SDR Million.

Overdue Obligations and Projected Payment to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming charges/interest: 2022 74.85; 2023 75.14; 2024 75.08; 2025 75.11.
- Total: 74.85  75.14  75.08  75.11.

### Safeguards and exchange arrangement findings
- Most recent safeguards assessment of the Central Bank of Iraq (CBI) completed in April 2016: concluded the CBI continues to face capacity constraints in its operations, and a difficult security situation on the ground.
- Governing Council of the CBI approved a new charter for the Audit Committee prohibiting CBI executive representation on the committee.
- Parliament approved amendments to the Law on the Central Bank of Iraq to strengthen CBI governance and the internal control framework.
- Progress in strengthening internal audit and financial reporting capacity has been slow.
- Exchange arrangement: de jure and de facto classified as a conventional peg arrangement.
- Effective December 20, 2020, official exchange rate set at ID 1,460 per U.S. dollar including the Central Bank commission (ID 1,450 plus ID 10 (fees)).
- Previously, on May 24, 2018, the official exchange rate was set at ID 1,190 per U.S. dollar including the Central Bank commission (ID 1,182 plus ID 8 (fees)).
- The CBI provides foreign exchange at the official exchange rate through daily auctions; some transactions take place at parallel market exchange rates because certain transactions are excluded from CBI auctions.
- Iraq continues to avail itself of transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or multiple currency practices subject to Article XIV, Section 2; currently maintains one MCP subject to Fund approval under Article VIII, Section 3.
- The MCP arises from lack of a mechanism to ensure CBI foreign exchange window rates and market rates do not deviate by more than 2 percent.

### Technical assistance (TA) delivery highlights, 2015–22
- Extensive TA across departments (FAD, LEG, MCM, STA, ICD) covering public financial management, tax administration, cash management, TSA, commitment controls, customs valuation, audit and verification for Large Taxpayers Department, expenditure control, cash forecasting, program and performance budgeting, modernization of organizational structures, banking supervision, prudential regulations, reserve management, Basel II & III implementation, regulation and supervision of E‑Money Institutions, capital framework for Islamic banks, national accounts, CPI and PPI development, producer price index, Residential Property Price Index, supply and use tables, government finance statistics, financial soundness indicators, and macroeconomic frameworks.
- Examples of specific TA items and dates (not exhaustive): 
  - FAD: June 2015 Status of public financial management reforms (METAC); November 2015 Public financial management law, budget execution, and program‑based budgeting; November 2021 Cash forecasting (METAC); April 2022 Annual cash forecasting (METAC); August 2022 Modernizing organizational structure of HQ and regional offices (METAC).
  - MCM: November 2015 Banking supervision (METAC); September 2019 Implementation of Basel III (METAC); January 2020 Basel II & III capital adequacy requirements (METAC); March 2022 Regulation and Supervision.
  - STA: March 2015 Government finance statistics (ArabStat); November 2015 Consumer price index (METAC); January 2016 National accounts statistics (METAC); June 2022 Producer Price Index and Residential Property Price Index; October 2022 Consumer Price Index (METAC).

### Statistical issues — assessment of data adequacy for surveillance (as of December 14, 2022)
- General:
  - Data provision to the Fund has serious shortcomings that significantly hamper surveillance.
  - Data availability continues to impair policymaking.
  - The Central Statistics Organization (CSO) lacks adequate technical expertise and resources for a modern statistical system.
  - CSO and CBI face challenges with interagency data sharing and data collection responsibilities.

- National Accounts:
  - CSO compiles annual and quarterly GDP by production at current and constant (2007) prices and annual GDP by expenditure in current prices.
  - Quarterly national accounts are available from 2018Q2 to 2021Q2.
  - National accounts mainly follow the 1968 System of National Accounts (SNA).
  - Lack of regular, reliable and comprehensive source data for some industries and for GDP by expenditure undermines quality.
  - Volume estimates of GDP suffer from shortcomings; delays in source data affect timeliness of annual estimates.
  - Reduced regional coverage of source data due to conflicts in four provinces has weakened GDP measures.
  - Ongoing METAC TA is helping to introduce a new base/benchmark year, develop supply and use tables, and improve compilation methodology based on the 2008 SNA.
  - Access to administrative data would significantly enhance coverage and timeliness but requires strong ministerial support and proactive interagency collaboration.

- Price Statistics:
  - CSO compiles monthly CPI for all-Iraq (including Kurdistan) and for each governorate; CPI covers only urban areas in all governorates.
  - CPI weights are from the 2012 Household Social and Economic Survey (HSES) and are now outdated; collection of a new HSES has been delayed.
  - A 2022 METAC mission advised evaluating household expenditure data from the supply and use table as a potential source for updating higher level weights.
  - CSO recently updated quarterly PPI weights to 2018 with METAC support; work on a Residential Property Price Index has started.

- Government Finance Statistics (GFS):
  - Difficult security situation impacts data compilation and analysis; infrequent submission and delays; coverage of Kurdistan remains sketchy.
  - STA GFS TA missions proposed a work plan to improve frequency and timeliness of fiscal reporting and migrate to GFS Manual 2014.
  - Iraq has resumed reporting GFS for publication in the IMF GFS database, but shortcomings exist in classification of revenue (mainly oil) and in expenditure by functions.
  - Reporting of stock and transactions in assets and liabilities, especially related to currency and deposits and external debt, is limited.

- Monetary and Financial Statistics:
  - CBI reports monetary statistics for the central bank and other depository corporations to IMF’s International Financial Statistics using SRFs; timeliness could be improved (latest submitted data refer to 2022Q1).
  - Iraq reports several Financial Access Survey series, including mobile and internet banking, mobile money, and two indicators adopted by the UN to monitor Target 8.10 of the SDGs; Iraq does not report gender disaggregated data.
  - CBI reports FSIs and 7 of the 13 additional FSIs for deposit takers quarterly; timeliness hampered by data quality (latest data refer to 2021Q3).

- External Sector Statistics:
  - CBI compiles and reports annual and quarterly BOP data in BPM6 format and an annual IIP statement; IIP dissemination suspended starting in 2016 with latest data referring to 2014.
  - Latest TA on external sector statistics was December 2021.
  - Net errors and omissions (NEOs) remain high and persistently negative, suggesting capital flight.
  - STA will assist CBI in addressing sources of large NEOs including recording of oil sector transactions, cross-border trade with Kurdistan, arrears, and in-kind payments for external borrowing.
  - International reserves compiled consistent with international methodologies and published in IFS since end-2006.

- External Trade Statistics:
  - Serious timeliness and quality shortcomings due to absence of reliable customs data.
  - A new customs form for imports exists but is not used at the customs border because of the security situation and lack of resources at border outlets.
  - The Automated System for Customs Data (ASYCUDA) is being implemented slowly.
  - Compilation hampered by lack of inter-institutional coordination among key data providers.
  - Coverage of private sector imports constrained by lack of data sources; only goods paid through the Iraqi banking system are captured.
  - Goods imported under external payment arrangements (e.g., imports for direct investment projects by international oil companies) are not recorded in the balance of payments.
  - Coverage of external trade statistics excludes Kurdistan; no estimates for smuggling are made.
  - Non-oil exports amount to the equivalent of 3–5 percent of total exports; non-oil export data are derived from customs export forms and provided monthly to CBI for crosschecking.
  - Transactions related to oil exploration, extraction, and development payments to international oil companies have recently been included in the balance of payments.

### Data standards and dissemination
- Iraq has participated in e-GDDS since 2009 but has not launched a National Summary Data Page.
- Metadata for key macroeconomic indicators, some updated in early 2016, are available on the IMF’s Dissemination Standards Bulletin Board country page.

### Table of Common Indicators Required for Surveillance (as of December 14, 2022) — selected entries
- Exchange rates: Date of Latest Observation 13/12/2022; Date Received 14/12/2022; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D.
- International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation 09/2022; Date Received 11/2022; Frequency M; Frequency of Reporting M; Frequency of Publication M, 4–6-week lag.
- Reserve/Base money: Date of Latest Observation 02/2022; Date Received 11/2022; Frequency M; Frequency of Reporting I; Frequency of Publication I.
- Broad money: Date of Latest Observation 02/2022; Date Received 11/2022; Frequency M; Frequency of Reporting I; Frequency of Publication I.
- Consumer price index: Date of Latest Observation 10/2022; Date Received 12/2022; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- Revenue, expenditure, balance and composition of financing — central government: Date of Latest Observation 10/2022; Date Received 12/2022; Frequency M; Frequency of Reporting M; Frequency of Publication M.
- GDP/GNP: Date of Latest Observation Q3/2022; Date Received 11/2022; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q.

_Italic: IMF staff report informational annex material for the 2022 Article IV Consultation for Iraq (prepared by Middle East and Central Asia Department in consultation with other departments), January 9, 2023._

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1irqea2023002.pdf_