## 1. Economic Developments, 2015–23 ## Source details **Canonical URL:** [1. Economic Developments, 2015–23](https://www.imf.org/-/media/files/publications/cr/2024/english/1irqea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1irqea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1irqea2024001.pdf.json) --- ### Context and structural features - Coalition government established in October 2022 enabling approval of the 2023–25 budget law. - 2023–25 budget: first three-year expansionary budget to address pent-up spending and provide fiscal continuity through 2025. - Pegged exchange rate revalued from ID 1,450 to ID 1,300 per USD in February 2023. - Non-oil economy ~40 percent of total real GDP but accounts for only a fraction of fiscal revenues and exports. - Public sector wage bill remains the highest in the region and under pressure from mandatory hiring policies. - Structural constraints to private sector development: large state footprint, corruption, red tape, underdeveloped infrastructure, poor access to credit. - Elevated unemployment and low labor participation, especially among youth and women. ### Recent developments (2022–23) — key statistics and outcomes - Real non-oil GDP growth: 6 percent in 2023. - Headline inflation: declined from 7.5 percent in January 2023 to 4 percent by year-end 2023. - Core inflation: 4.5 percent by end-2023. - Oil production: declined by 7.4 percent over 2023. - Overall real GDP: contracted by 2.2 percent in 2023. - Fiscal balance: surplus of 8.9 percent of GDP in 2022 → deficit of 1.3 percent of GDP in 2023. - Spending increased by 6.4 percent of GDP in 2023; salaries and pensions accounted for 5.1 percentage points of that increase. - Actual oil export prices averaged around USD 79 per barrel in 2023—USD 9 higher than budget assumption. - External and monetary indicators: - Real effective exchange rate appreciated by 10 percent year-on-year in 2023. - Current account (CA) balance: estimated at 2.6 percent of GDP in 2023. - EBA-Lite assessed the CA gap at 1 percent of GDP (more than half attributed to the fiscal policy gap). - Gross international reserves: increased by around USD 15 billion to USD 112 billion at end-2023 (equivalent to 11.4 months of imports or 375 percent of the adjusted ARA metric). - Banking and liquidity: - Excess liquidity surged as banking system flooded with government deposits after large disbursements under the 2022 Emergency Law and the 2023–2025 budget law. - Loans to households increased by 21 percent over the first 9 months of 2023; bank credit to private sector firms remained mostly unchanged. ### Authorities’ views - Authorities broadly share staff views but see more upside to growth citing large fiscal expansion and expectations of sustained high oil prices. - Authorities expect further moderation in inflation after FX market normalization and tighter monetary policy; note international reserves remain adequate. *Source: IMF staff report — “1. Economic Developments, 2015–23.”* ### Outlook and risks — projections - Real GDP growth projections: - 2024: 1.4 percent - 2025: 5.3 percent - Medium term: around 3.5 percent - Non-oil GDP: - 2024: 3.5 percent - Medium term: stabilizing around 2.5 percent - Oil production: additional OPEC+ voluntary cuts of 5 percent for 2024H1 expected to constrain recovery in 2024; daily production likely returning to its 2022 level by end-2025. - Inflation: expected to gradually moderate as global inflationary pressures ease. - Current account and reserves: - CA expected to shift to a deficit of 3.6 percent in 2024 and deteriorate further over the medium term. - International reserves projected to decline to around USD 31 billion by 2029 (equivalent to 85 percent of the adjusted ARA metric). - Downside risks highlighted: - Larger declines in oil prices and extended OPEC+ cuts. - Escalation of regional conflicts disrupting shipping routes or damaging oil infrastructure. - Deterioration in domestic security reducing business sentiment and suspending investment projects. ### Main policy message - Current policies significantly increase Iraq’s vulnerability to oil prices. - Urgent fiscal adjustment needed focusing on controlling the wage bill and mobilizing non-oil tax revenues while protecting critical social and investment needs. - Adjustment should be complemented by accelerating structural reforms to stimulate private sector development (labor market reforms, restructuring state-owned banks, anti-corruption efforts). --- ### Fiscal policy — outlook, risks, and illustrative scenarios - Fiscal outlook and risks: - Total government expenditure expected to increase by 3.8 percent of GDP in 2024; 3.4 percentage points due to higher salaries and pensions (including transfers to KRG). - Projected overall fiscal deficit (staff baseline): 7.6 percent of GDP in 2024. - Fiscal break-even oil price expected to reach USD 94 in 2024 compared to USD 54 in 2021. - Government debt projected to increase from 44 percent of GDP at end-2023 to more than 86 percent by 2029. - Illustrative consolidation scenario: - Restoring the non-oil primary deficit (share of non-oil GDP) to the 2021 level by 2029 implies a cumulative improvement of 10 percentage points relative to the baseline and would stabilize debt around 60 percent of GDP in outer years. - Adjustment should be gradual; cutting capital expenditure by prioritization if additional spending needs arise could keep consolidation on track. - Additional effort of 0.5 percent of non-oil GDP per year would bring MoF’s deposit buffer to ID 40 trillion by 2029 (enough to accommodate a 15 percent decline in oil revenues for two years). ### Medium-term Central Government Fiscal Accounts (percent of GDP) — selected staff baseline figures - Revenues (total): 42.6 (2023); 40.1 (2024); 38.4 (2025); 36.6 (2026); 35.2 (2027); 34.2 (2028); 33.5 (2029) - Oil revenues: 38.8 (2023); 36.7 (2024); 34.9 (2025); 33.2 (2026); 32.0 (2027); 31.1 (2028); 30.5 (2029) - Non-oil revenues: 3.8 (2023); 3.4 (2024); 3.5 (2025); 3.4 (2026); 3.2 (2027); 3.1 (2028); 3.1 (2029) - Expenditures (total): 43.9 (2023); 47.7 (2024); 47.2 (2025); 46.9 (2026); 46.7 (2027); 46.4 (2028); 46.2 (2029) - Current: 35.9 (2023); 39.8 (2024); 39.5 (2025); 39.4 (2026); 39.4 (2027); 39.3 (2028); 39.2 (2029) - Salary: 15.9 (2023); 18.2 (2024); 18.0 (2025); 17.9 (2026); 17.8 (2027); 17.5 (2028); 17.2 (2029) - Transfers: 10.6 (2023); 10.7 (2024); 9.5 (2025); 9.3 (2026); 9.3 (2027); 9.3 (2028); 9.3 (2029) - Pensions: 4.3 (2023); 5.4 (2024); 5.4 (2025); 5.3 (2026); 5.3 (2027); 5.2 (2028); 5.1 (2029) - Interest: 0.9 (2023); 1.1 (2024); 1.3 (2025); 1.6 (2026); 1.9 (2027); 2.1 (2028); 2.4 (2029) - Capital: 8.0 (2023); 7.9 (2024); 7.7 (2025); 7.5 (2026); 7.3 (2027); 7.1 (2028); 7.0 (2029) - Overall balance: -1.3 (2023); -7.6 (2024); -8.8 (2025); -10.3 (2026); -11.5 (2027); -12.2 (2028); -12.6 (2029) - Non-oil primary balance: -35.7 (2023); -40.1 (2024); -39.5 (2025); -38.9 (2026); -38.4 (2027); -37.8 (2028); -37.3 (2029) - Non-oil primary balance 1/ (percent of non-oil GDP): -66.0 (2023); -70.2 (2024); -66.8 (2025); -64.4 (2026); -63.1 (2027); -61.8 (2028); -60.9 (2029) --- ### Adjustment measures and recommended fiscal reforms — indicative yields (cumulative over medium term, percent of non-oil GDP) - Implement attrition rule and caps on mandatory hiring: 4 - 7 - Payroll tax reform: 1.5 - 2.5 - Electricity sector reform: 0.5 - 2.5 - Luxury taxes, review of customs duties: 0.5 - 1 - Targeting PDS (Public Distribution System): 0 - 2 - Introducing a GST or VAT: 3.5 + - Total Policy Measures: 10 - 18.5 + - Revenue and Customs Administrations Improvements: 0.3 - 0.5 ### Specific policy guidance - Make wage bill savings the centerpiece: gradual phase-out of mandatory hiring followed by attrition-based right-sizing, implemented in a gender-balanced manner and supported by labor market reforms. - Mobilize additional non-oil revenues: remove tax exemptions for profitable state-owned enterprises; payroll tax reform to make payroll taxes more progressive; tax public sector allowances; review customs tariff structure and harmonize with KRG; introduce excises (e.g., on cigarettes) and sales taxes on luxury items. - Expand ASYCUDA use to other border points; adjust customs processes to improve customs administration. - Consider introducing a general sales tax or VAT over the medium term. - Move toward cost recovery in electricity via domestic energy investment, reduced reliance on energy imports, improved tariff collection and demand management. - Scale back universal food subsidy (PDS) by targeting vulnerable households using the social registry; reallocate savings to targeted safety nets. - Strengthen fiscal structural reforms: self-assessment in tax administration, expand large taxpayer office, promptly implement the TSA once design options and bank account census are complete. - Improve governance and efficiency of infrastructure investment projects; consider a Public Investment Management Assessment. --- ### State Pension Fund (SPF) sustainability and extrabudgetary funds - SPF risk: absent reform, SPF could become insolvent in the medium term and may require budgetary support exceeding 3 percent of GDP annually in the long run. - Required actions for SPF: comprehensive public pension reform (parametric reforms), institutional reforms to improve administrative efficiency. - Near-term priorities: ensure line ministries make timely transfers of pension contributions to SPF; clear any stock of arrears. - 2023 Social Security Law for Private Sector Workers introduces a government-financed pension contribution, adding to fiscal cost of pensions. - Iraq Fund for Development established with seed capital of 0.3 percent of GDP to finance diversification and human capital projects. - Staff advises against extrabudgetary funds due to fiscal risks; recommend governance framework, inclusion of funds’ plans in annual budget documentation, borrowing only through MoF, strict control and monitoring of guarantees. - Existing guarantees: total USD 12.5 billion issued before 2017. --- ### Monetary policy, liquidity management, and banking sector modernization - Recent monetary actions: - CBI raised policy interest rate from 4 percent to 7.5 percent in June 2023. - Reserve requirements raised from 15 percent to 18 percent in June 2023. - 14-day CBI bill facility introduced. - Outcomes and challenges: - Policy rate pass-through muted due to excess liquidity and lack of incentives at state-owned banks. - Excess liquidity initially declined after measures but rose again in August as budget execution ramped up. - Further recommendations: - Further liquidity absorption measures and improved coordination between fiscal and monetary operations. - Urgently prioritize consolidating idle government deposits in a TSA at the CBI; execute sweep gradually. - Timely implement an inter-bank market supported by Fund TA. - Consider raising reserve requirement on government deposits to absorb excess liquidity at SOBs without hampering private banks. - Subsidized lending program: total outstanding balance ID 13 trillion (around 4 percent of GDP) at end-2023. ### Correspondent banking, trade finance, and payments modernization - Transition away from CBI-Fed channel for cross-border payments toward prefunding overseas dollar accounts of domestic commercial banks; by 2025 CBI plans to transition to a supervisory role. - Six banks established CBRs with US banks; several more with non-US banks. - Digital payments measures: expand point-of-sale machines; mandate electronic payment cards in certain transactions; raise ceilings on ATM and card transactions; reduce bank fees. - Banking sector consolidation: - Minimum capital requirement increased from ID 250 billion to ID 400 billion. - Banks required to inject capital or submit M&A plan by January 1, 2025. ### State-owned banks (SOBs) reform and AML/CFT - SOBs challenges: two largest SOBs undercapitalized with large legacy assets; poor corporate governance; directed lending; weak accounting due to slow rollout of core banking systems. - Reforms underway: international accounting firms contracted for asset quality reviews and restructuring plans; implementation lags in core banking systems, financial statement certification, and by-law amendments. - AML/CFT: strengthen framework and effectiveness guided by MENAFATF Mutual Evaluation (May 2024); seek targeted TA. --- ### Structural policies: labor market, private sector, diversification, and governance - Demographics and labor market: - Working age population projected to grow rapidly, adding around 0.8 million new entrants annually over the next decade. - Staff estimate non-oil GDP growth needs to reach around 5 percent over the next decade to absorb labor force growth and reduce unemployment to single digit. - Non-oil exports currently negligible; boosting exports needed for external sustainability during global energy transition. - Labor market reform priorities: - Increase labor force participation and reduce impediments to female employment. - Rightsize unsustainable public employment gradually with upskilling/reskilling, especially for females concentrated in public sector. - Key actions: cap non-wage compensation, link future wage increases to productivity, complete biometric registration and centralized government employee database, enhance Federal Civil Service Commission gatekeeper role, align pension rules across schemes, strengthen Ministry of Labor capacity, broad educational reforms aligned with labor market. - Business environment and infrastructure: - Fix electricity sector inefficiencies; design long-term strategy to increase generation and cost recovery. - Upgrade ICT and critical infrastructure. - Authorities resumed WTO accession process; completing initial market access offers. ### Governance, anti-corruption, and data improvements - Governance recommendations: enhance public procurement, adopt governance best practices for state-owned companies (hydrocarbon and electricity), update anticorruption strategy for 2025–2030, align asset declaration/conflict of interest regimes with G20 High Level Principles including publication of top officials' declarations. - Integrity Commission (IC) should enhance capacity to monitor declarations and hold accountable non-compliant officials; raise awareness on conflicts of interest. - Safeguards needed to protect independence of enforcement officials and judges. - Data shortcomings: low granularity, frequency, timeliness and coverage in national accounts, external sector statistics, and some government finance statistics. - IMF (METAC and STA) engaged in capacity development; pilot initiatives to improve price statistics expected to be incorporated by end-2024Q1; continued TA required. --- ### Staff appraisal — macro-fiscal outlook and risks - Ongoing fiscal expansion supports near-term growth at the expense of increasing fiscal and external imbalances. - Non-oil growth momentum expected to continue under expansionary 2023–25 budget. - Structural imbalances expected to deteriorate: - Non-oil primary deficit at its highest since 2013. - Break-even oil price projected to exceed USD 90 in 2024 (from USD 54 in 2021). - Medium-term risks: decline in oil prices could widen fiscal and current account deficits, put public debt at high risk of distress and deplete FX reserves below adequate levels. --- ### Annex II. External Sector Assessment — selected findings ### Overall assessment and policy response - External position in 2023: broadly in line with fundamentals and desirable policies. - Projection: CA projected to deteriorate in 2024 and further over the medium term due to declining oil prices and rising government spending. - Recommended policy response: tighten fiscal policy while safeguarding critical infrastructure and social spending; implement structural reforms to spur private sector-led growth. - Caveat: assessment subject to data-related uncertainties. ### Current account and reserves — key figures - 2023 CA surplus: 2.6 percent of GDP (down from double-digit surplus in 2022). - Drivers of 2023 decline: 22-percent decrease in oil exports value (y-o-y); 7-percent decline in oil export volumes. - Financial account (2023): surplus of USD 8.8 billion (3.5 percent of GDP), up from 0.5 percent of GDP in 2022. - Gross reserves: USD 112 billion at end-2023 (11.4 months of imports or 82 percent of broad money); USD 97 billion at end-2022 (11.1 months of imports and 83 percent of broad money). - Projection/risks: reserves could fall to USD 30.7 billion by 2029 (85 percent of the adjusted ARA metric) under projected oil price declines and current fiscal policy. ### REER/NEER - REER appreciated by 10 percent (y-o-y) in 2023; NEER appreciated by 20 percent (y-o-y) in 2023, reflecting currency revaluation. - Estimated 2023 REER gap: between -0.5 percent (CA model) and -1.6 percent (REER model). --- ### Annex III. Risk Assessment Matrix — selected risks and policy responses ### Global risks - Commodity price volatility - Likelihood: High - Expected impact: High - Policy response: Enhance resilience to oil price shocks through wide-ranging fiscal reforms; strengthen social safety nets. - Intensification of regional conflict(s) - Likelihood: Medium - Expected impact: High - Policy response: Speed up mobilization of non-oil tax revenues and economic diversification. - Weaker global demand (extended OPEC+ cuts) - Likelihood: Medium - Expected impact: High - Policy response: Accelerate efforts to diversify away from oil through structural reforms. ### Domestic risks - Renewed political divisions - Likelihood: Medium - Expected impact: High - Policy response: Build national consensus on reform priorities; improve services and address corruption. - Natural disasters related to climate change - Likelihood: Medium - Expected impact: Medium - Policy response: Build climate resilience; finalize and publish national adaptation plan; ensure fiscal resources for adaptation investments. --- ### Annex IV. Public Sector Debt Sustainability Analysis — key points and projections ### Baseline public debt projections (percent of GDP) - Public debt actual/projection: - 2023: 44.2 - 2024: 48.2 - 2025: 54.6 - 2026: 62.3 - 2027: 70.5 - 2028: 78.7 - 2029: 86.7 - 2030: 94.9 - 2031: 103.1 - 2032: 111.1 - 2033: 119.0 - Change in public debt (selected): - 2024: 4.0; 2025: 6.4; 2026: 7.7; 2027: 8.2; 2028: 8.2; 2029: 8.0 - Contribution of primary deficit to debt dynamics (percent of GDP): - 2023: 0.6; 2024: 6.9; 2025: 8.1; 2026: 9.2; 2027: 9.9; 2028: 10.2; 2029: 10.3 - Gross financing needs (GFN; percent of GDP): - 2023: 5.1; 2024: 11.5; 2025: 13.9; 2026: 17.1; 2027: 21.6; 2028: 25.1; 2029: 29.0 - Of which debt service (percent of GDP): - 2023: 4.7; 2024: 5.0; 2025: 6.4; 2026: 8.4; 2027: 11.9; 2028: 15.0; 2029: 18.8 ### Macroeconomic assumptions (memo) - Real GDP growth: -2.2 (2023); 1.4 (2024); 5.3 (2025); 3.8 (2026); 3.6 (2027–2033) - Inflation (GDP deflator): -9.7 (2023); 1.8 (2024); -0.4 (2025); 1.0 (2026); 1.6 (2027); up to 2.5 (2029) - Nominal GDP growth: -11.7 (2023); 3.2 (2024); 4.9 (2025); 4.8 (2026); 5.2 (2027); up to 6.1 (2029–2033) - Effective interest rate: 1.8 (2023); 2.6 (2024); 2.8 (2025); rising to 3.4 by 2033 ### Risk assessment and indicators - Debt fanchart index (DFI): 4.8 — Risk signal: 3/High - GFN financeability index (GFI): 18.9 — Risk signal: 4/High - Final assessment: Probability of missed crisis, 2024-2029, if stress not predicted: 81.8 pct; Probability of false alarms if stress predicted: 0.0 pct. - Overall risk: In passive baseline, overall risk of sovereign stress is high; medium-term and long-term risks rated high due to oil dependence and energy transition risks. - Data adequacy for surveillance: Overall assessment D (serious shortcomings that significantly hamper surveillance). ### Mitigating factors and policy recommendations - Large government deposits (including ID 42 trillion in demand deposits held at commercial banks, equivalent to around $32 billion) could be alternative financing sources. - Low rollover risks on legacy external debt (around $40 billion in arrears since 2004). - Key recommendation: tighten fiscal policy to reduce primary deficits; improve debt management capacity; implement TSA and align fiscal-monetary coordination. --- ### Diversification scenarios and long-term external sustainability — selected outcomes - Accelerated but gradual diversification scenario: - Tradable sector share of non-oil sector by 2050: 49 percent (versus 29 percent under passive scenario). - Export intensity of non-oil sector reaches 3.5 times passive scenario levels. - Trade deficit bottoms out in 2044 at 23 percent of total GDP before improving. - More rapid diversification scenario: - Tradable non-oil sector grows at double digit rates for at least the first decade. - Trade deficit peaks at 16 percent of total GDP in 2039, then improves to a surplus of 4 percent by 2050. - International investment position stabilizes and rebuilds from 2050 onward. - Sensitivity if global energy transition delayed to 2070: - Required long-run average overall non-oil growth to stabilize IIP: about 4.5 percent. - Trade deficit would peak at 11 percent of GDP by 2039, then improve to a 2.6 percent surplus by 2050. - Key takeaway: Early and sustained structural reforms to boost non-oil growth and exports are most effective to mitigate risks from global energy transition. *Italic source attribution: IMF Iraq Report (content unit: 1irqea2024001).* ### 1. Economic Developments, 2015–23 ____________________________________________________________ 20 ### 1. Economic Developments, 2015–23 ### Context - A coalition government was established in October 2022, ending a yearlong impasse and enabling approval of the 2023–25 budget law. - The 2023–25 budget is a first three-year expansionary budget to address pent-up spending needs and provide fiscal continuity through 2025. - In February 2023, the pegged exchange rate was revalued from ID 1,450 to ID 1,300 per USD. - Non-oil economy comprises around 40 percent of total real GDP but accounts for only a fraction of fiscal revenues and exports, leaving Iraq highly vulnerable to oil price fluctuations. - The public sector wage bill remains the highest in the region and is under pressure from mandatory hiring policies. - Structural constraints limiting private sector development include the large state footprint, corruption, red tape, underdeveloped infrastructure, and poor access to credit. - Unemployment is elevated and labor participation is low, particularly among youth and women. - Reforms in key areas continue to lag (see Annex I). ### Recent Developments (2022–23) - Real non-oil GDP is estimated to have grown by 6 percent in 2023, driven by fiscal expansion and gains in agriculture, construction, and manufacturing. - Headline inflation declined from 7.5 percent in January 2023 to 4 percent by year-end 2023. - Core inflation declined, then edged up to 4.5 percent by end-2023 amid higher transportation and household-related goods prices. - Oil production declined by 7.4 percent over 2023 due to the March 2023 Iraq-Turkey pipeline outage affecting Kurdistan production and a 5-percent OPEC+ cut agreed in April 2023. - Overall real GDP contracted by 2.2 percent in 2023. - The fiscal balance moved from a surplus of 8.9 percent of GDP in 2022 to a deficit of 1.3 percent of GDP in 2023. - Spending increased by 6.4 percent of GDP in 2023; salaries and pensions accounted for 5.1 percentage points of that increase. - Contributing factors to a smaller-than-budgeted deficit included delayed budget implementation (budget law implementation only commenced in August) and higher-than-budgeted oil prices: actual oil export prices averaged around USD 79 per barrel in 2023—USD 9 higher than the price assumed in the budget. - Trade finance initially disrupted by the November 2022 introduction of a new electronic cross-border payment platform (financial beneficiary disclosure requirements) but recovered to previous levels since mid-2023 as compliance improved. - The persisting spread between the official and cash shadow market exchange rates reflects residual illicit FX demand and is expected to have a minor macroeconomic impact. - Excess liquidity surged as the banking system was flooded with government deposits following large disbursements under the 2022 Emergency Law for Food Security and Development and the 2023–2025 budget law. - Loans to households increased by 21 percent over the first 9 months of 2023; bank credit to private sector firms remained mostly unchanged. - The external position in 2023 is assessed to be broadly in line with fundamentals and desirable policies (Annex II). - The real effective exchange rate appreciated by 10 percent year-on-year in 2023 (reflecting the February revaluation). - The current account (CA) balance is estimated at 2.6 percent of GDP in 2023, a large decline relative to the double-digit surplus in 2022. - The External Balance Assessment (EBA-Lite) model assessed the CA gap to be 1 percent of GDP, with more than half attributed to the fiscal policy gap. - Gross international reserves increased by around USD 15 billion to USD 112 billion at end-2023 (equivalent to 11.4 months of imports or 375 percent of the adjusted ARA metric). ### Outlook and Risks - Growth projections: - Real GDP growth: 1.4 percent in 2024; 5.3 percent in 2025; around 3.5 percent over the medium term. - Non-oil GDP: 3.5 percent in 2024; stabilizing around 2.5 percent in the medium term. - Oil production: additional OPEC+ voluntary cuts of 5 percent for 2024H1 expected to constrain recovery in 2024; daily production likely returning to its 2022 level by end-2025. - Inflation: expected to gradually moderate as global inflationary pressures ease. - Current account and reserves: - CA expected to shift from a surplus in 2023 to a deficit of 3.6 percent in 2024 and deteriorate further over the medium term. - International reserves projected to decline significantly, falling to around USD 31 billion by 2029 (equivalent to 85 percent of the adjusted ARA metric). - Risks are tilted to the downside (Annex III): - Larger declines in oil prices and extended OPEC+ cuts could weigh on growth, fiscal, and external accounts. - A scenario of escalation of the conflict in Gaza and Israel could disrupt shipping routes or damage oil infrastructures, causing oil production losses that may outweigh potential price spikes. - Deterioration in domestic security could reduce business sentiment and suspend investment projects. ### Authorities’ Views - Authorities broadly share staff views of the outlook but see more upside to growth prospects, citing continued large fiscal expansion driving robust non-oil growth and expectations of sustained high oil prices in the short term. - Authorities expect further moderation in inflation following normalization of the foreign exchange market and tighter monetary policy and noted that international reserves remain adequate. ### Policy Discussions — Reinforcing Cycle: Fiscal Sustainability and Private Sector-Led Growth - Main policy message: current policies are significantly increasing Iraq’s vulnerability to oil prices. To safeguard macroeconomic stability and sustainability, a fiscal adjustment is urgently needed, focusing on controlling the wage bill and mobilizing non-oil tax revenues while protecting critical social and investment needs. - Adjustment should be complemented by accelerating structural reforms to stimulate private sector development (labor market reforms, restructuring state-owned banks, continued anti-corruption efforts). A. Fiscal Policy - Fiscal outlook and risks: - Total government expenditure expected to increase by 3.8 percent of GDP in 2024, of which 3.4 percentage points are due to higher salaries and pensions (both including transfers to KRG). - Projected overall fiscal deficit: 7.6 percent of GDP in 2024 (staff baseline). - Fiscal break-even oil price expected to reach USD 94 in 2024 compared to USD 54 in 2021, reflecting higher expenditures, lower oil production, and currency revaluation. - Government debt projected to increase from 44 percent of GDP at end-2023 to more than 86 percent by 2029, resulting in a high mechanical risk signal for sovereign stress in the medium term (Annex IV). - Illustrative consolidation scenario: - A fiscal adjustment restoring the non-oil primary deficit (share of non-oil GDP) to the 2021 level by 2029 (a cumulative improvement of 10 percentage points relative to the baseline) would stabilize debt around 60 percent of GDP in the outer years. - Adjustment should be gradual to build political consensus and allow technical preparation. - If additional spending needs arise, cutting capital expenditure through prioritization could keep consolidation on track. - An additional effort of 0.5 percent of non-oil GDP per year would bring the Ministry of Finance’s (MoF) deposit buffer to ID 40 trillion by 2029 (enough to accommodate a 15 percent decline in oil revenues for two years). - Medium-term Central Government Fiscal Accounts (percent of GDP) — selected figures from staff baseline: - Revenues: 42.6 (2023); 40.1 (2024); 38.4 (2025); 36.6 (2026); 35.2 (2027); 34.2 (2028); 33.5 (2029) - Oil: 38.8 (2023); 36.7 (2024); 34.9 (2025); 33.2 (2026); 32.0 (2027); 31.1 (2028); 30.5 (2029) - Non-oil: 3.8 (2023); 3.4 (2024); 3.5 (2025); 3.4 (2026); 3.2 (2027); 3.1 (2028); 3.1 (2029) - Expenditures: 43.9 (2023); 47.7 (2024); 47.2 (2025); 46.9 (2026); 46.7 (2027); 46.4 (2028); 46.2 (2029) - Current: 35.9 (2023); 39.8 (2024); 39.5 (2025); 39.4 (2026); 39.4 (2027); 39.3 (2028); 39.2 (2029) - Salary: 15.9 (2023); 18.2 (2024); 18.0 (2025); 17.9 (2026); 17.8 (2027); 17.5 (2028); 17.2 (2029) - Transfers: 10.6 (2023); 10.7 (2024); 9.5 (2025); 9.3 (2026); 9.3 (2027); 9.3 (2028); 9.3 (2029) - Pensions: 4.3 (2023); 5.4 (2024); 5.4 (2025); 5.3 (2026); 5.3 (2027); 5.2 (2028); 5.1 (2029) - Interest: 0.9 (2023); 1.1 (2024); 1.3 (2025); 1.6 (2026); 1.9 (2027); 2.1 (2028); 2.4 (2029) - Capital: 8.0 (2023); 7.9 (2024); 7.7 (2025); 7.5 (2026); 7.3 (2027); 7.1 (2028); 7.0 (2029) - Overall balance: -1.3 (2023); -7.6 (2024); -8.8 (2025); -10.3 (2026); -11.5 (2027); -12.2 (2028); -12.6 (2029) - Non-oil primary balance: -35.7 (2023); -40.1 (2024); -39.5 (2025); -38.9 (2026); -38.4 (2027); -37.8 (2028); -37.3 (2029) - Non-oil primary balance 1/: -66.0 (2023); -70.2 (2024); -66.8 (2025); -64.4 (2026); -63.1 (2027); -61.8 (2028); -60.9 (2029) - 1/ Percent of non-oil GDP. ### Adjustment Measures and Policy Recommendations - The recommended mix combines non-oil revenue mobilization and current expenditure restraint while protecting capital investment and potentially expanding targeted social transfers. - Near-term and medium-term measures and indicative yields (cumulative over the medium term, percent of non-oil GDP): - Implementing attrition rule and caps on mandatory hiring: 4 - 7 - Payroll tax reform: 1.5 - 2.5 - Electricity sector reform: 0.5 - 2.5 - Luxury taxes, review of customs duties: 0.5 - 1 - Targeting PDS (Public Distribution System): 0 - 2 - Introducing a GST or VAT: 3.5 + - Total Policy Measures: 10 - 18.5 + - Revenue and Customs Administrations Improvements: 0.3 - 0.5 - Specific policy guidance: - Wage bill savings should be the centerpiece: gradual phase-out of mandatory hiring requirements followed by an attrition-based right-sizing of public employment, implemented in a gender-balanced manner and supported by labor market reforms to expand private sector opportunities (see ¶25). - Mobilize additional non-oil revenues: remove tax exemptions for profitable state-owned enterprises, payroll tax reform to make payroll taxes more progressive (e.g., 2021 budget proposal), tax public sector allowances, review customs tariff structure and harmonize customs regulations with KRG, introduce excises (e.g., on cigarettes) and sales taxes on luxury items. - Expand ASYCUDA use to other border control points and adjust customs processes to improve customs administration. - Over the medium term, consider introducing a general sales tax or VAT to further boost non-oil revenues. - Move towards cost recovery in the electricity sector by investing in domestic energy capacity, reducing reliance on energy imports, and improving tariff collection and demand management. - Scale back the universal food subsidy (PDS) by targeting vulnerable households using the social registry and existing partner-collected data; savings could expand targeted safety nets. - Strengthen fiscal structural reforms: implement a self-assessment system in tax administration, improve organization and expand the large taxpayer office, and promptly implement the Treasury Single Account (TSA) once TSA design options are defined and the bank account census is completed. - Improve governance and efficiency of infrastructure investment projects, potentially informed by a Public Investment Management Assessment. *Source: IMF staff report — “1. Economic Developments, 2015–23.”* ### 16. Ensuring the sustainability of the State Pension Fund (SPF) will be critical to limit ### 16. Ensuring the sustainability of the State Pension Fund (SPF) will be critical to limit ### State Pension Fund (SPF) sustainability and fiscal risk - Absent any reform, the SPF could become insolvent in the medium term and may require budgetary support exceeding 3 percent of GDP annually in the long run. - Addressing this fiscal risk requires: - Comprehensive public pension reform including parametric reforms to align pension rules and benefits with international good practice. - Institutional reforms to improve administrative efficiency. - Near-term operational priorities: - Ensure line ministries make timely transfers of pension contributions to SPF. - Work to clear any stock of arrears. - Note: The 2023 Social Security Law for Private Sector Workers introduces a government-financed pension contribution, which would also add to the total fiscal cost of pensions. ### Extrabudgetary funds, government guarantees, and fiscal governance - Recent institutional development: - Iraq Fund for Development established with a seed capital of 0.3 percent of GDP to finance investment projects benefitting economic diversification and human capital development. - Staff advice and governance recommendations: - Staff advised against the use of extrabudgetary funds, stressing their fiscal risks and fragmentation of fiscal policy. - Put in place an appropriate governance framework for extrabudgetary funds, including governing board independence. - Ensure transparency: include funds’ investment and financing plans in the annual budget documentation. - Any borrowing by such funds should be done through the MoF. - Strictly control and monitor government guarantees and specify guarantee envelopes in the budget law in accordance with the requirements of Public Financial Management (PFM) law. - Existing guarantees: - No new guarantees have been issued in recent years; all existing guarantees, totaling USD 12.5 billion, were issued before 2017. - Improvements suggested to guarantee decision-making: - Mandate risk assessment and set minimum requirements on beneficiaries. *Authorities’ views on extrabudgetary funds and guarantees* - Authorities agreed on the importance of fiscal structural reforms, especially establishing a TSA. - Authorities agreed that the Iraq Fund for Development should have an appropriate governance framework including board independence, publish investment plans in the annual budget, and have its ability to borrow removed. ### Monetary policy and liquidity management - Recent monetary actions: - CBI raised the policy interest rate from 4 percent to 7.5 percent and scaled back subsidized lending initiatives in June 2023. - Reserve requirements raised from 15 percent to 18 percent in June 2023; a 14-day CBI bill facility was introduced. - Outcomes and remaining challenges: - Policy rate pass-through has been muted, hampered by excess liquidity and lack of market incentives in financial intermediaries, especially at state-owned banks (SOBs). - Excess liquidity initially declined after measures but rose again in August as budget execution ramped up. - Further recommendations: - Further liquidity absorption measures warranted, including improved coordination between fiscal and monetary operations toward the price stability goal. - Urgently prioritize consolidating idle government deposits in a TSA at the CBI; execute the sweep of deposits gradually and carefully. - Timely implement an inter-bank market supported by Fund TA. - Consider raising the reserve requirement on government deposits to absorb excess liquidity at SOBs without hampering private banks. - Subsidized lending program metric: - Total outstanding balance of the subsidized lending program stood at ID 13 trillion (around 4 percent of GDP) at end-2023. ### Correspondent banking, trade finance, and banking sector modernization - Transition in trade finance clearing: - Until early 2023, most cross-border payments were cleared by the CBI-Fed channel. - CBI introduced a second channel prefunding overseas dollar accounts of domestic commercial banks that have CBRs with Citi bank for trade finance, allowing an increasing share of cross-border payments to be cleared through commercial banks. - By 2025, the CBI plans to fully transition to a supervisory role in cross-border payment clearance. - Progress on CBRs: - Six banks have established CBRs with US banks; several more have CBRs with non-US banks. - Authorities should step up efforts to modernize the banking sector to facilitate establishment of CBRs. - Digital payments expansion measures: - Expanding use of point-of-sale machines; mandating use of electronic payment cards in certain transactions such as fuel purchase; raising ceilings on ATM and bank card transactions; reducing bank fees. - Expected benefits include reduced reliance on cash and improved financial inclusion, especially for women. - Banking sector consolidation: - Minimum capital requirement increased from ID 250 billion to ID 400 billion. - Banks required to either inject additional capital or submit a plan for merger and acquisition by January 1, 2025. - Careful planning and public communication needed to avoid uncertainties around banks’ viability. ### State-owned banks (SOBs) reform and AML/CFT - SOBs challenges: - Two largest SOBs undercapitalized due to large legacy assets. - Poor corporate governance with political interference and directed lending; weak accounting practices due to slow rollout of core banking systems. - Reform status and needs: - Authorities contracted international accounting firms to conduct asset quality reviews and develop restructuring plans. - Implementation lags: core banking systems rollout, certification of past financial statements, and amendments of by-laws to enhance SOB governance. - Slow SOB reform hampers efficient credit allocation and monetary policy transmission. - AML/CFT: - Continue strengthening the AML/CFT framework and effectiveness, including in the banking sector. - Efforts should be guided by priority actions from the MENAFATF Mutual Evaluation concluded in May 2024. - Seek targeted technical assistance once key areas for improvement are identified. *Authorities’ views on monetary and financial sector policies* - Authorities intend to continue efforts to improve domestic liquidity conditions and modernize the banking sector. - Authorities shared concerns about muted pass-through of policy rate hikes at SOBs and noted excess liquidity is driven by government deposits. - Authorities aim to attract more banks into CBI bill auctions, enhance timely data collection for monetary policy transmission assessment, and improve liquidity forecasting. - Authorities noted progress toward an organized trade finance market, enhanced use of dinars in domestic transactions, and accelerated digitalization, while securing CBRs remains the main challenge. - Authorities reiterated commitment to restructure the two largest SOBs while acknowledging slow progress on core banking systems and financial statement certification. ### Structural policies: private sector, labor market, and diversification - Demographic and growth context: - Iraq’s working age population projected to grow rapidly, adding around 0.8 million new job market entrants annually over the next decade. - Staff estimate non-oil GDP growth would need to reach around 5 percent over the next decade to absorb the growing labor force and reduce the unemployment rate to single digit. - Ensuring external sustainability during the global energy transition requires significantly boosting the currently negligible level of non-oil exports. - Labor market reform priorities: - Increase overall labor force participation by reducing distortions and impediments, including those to women’s access to private jobs. - Rightsize unsustainable and unproductive public employment policies; gradual rightsizing accompanied by upskilling and reskilling, especially for females concentrated in the public sector. - Key reform elements: - Level the playing field between public and private jobs: cap maximum size of non-wage compensation (allowances) and link future wage increases to economy-wide productivity gains. - Complete biometric registration and create a centralized database of government employees. - Enhance gatekeeper role of the Federal Civil Service Commission in approving hiring decisions including for contractual employees. - Further align pension system rules and benefits across public and private schemes. - Strengthen Ministry of Labor capacity for labor inspections and active labor market policy management and monitoring. - Broad educational reforms: align curriculum with labor market needs, invest in digital and entrepreneurial skills, rehabilitate educational infrastructure, modernize technical vocational education, partner with private firms for training. - Address impediments to female labor participation: eliminate restrictions on female labor mobility (including limited work hours), encourage female participation in technical and vocational education, extend years of schooling, ensure access to childcare and public transport, enhance ability to use digital payments and obtain credit for female entrepreneurs, and promote safe work environments and home businesses. - Business environment and infrastructure: - Priorities include fixing the inefficient and unreliable electricity sector, designing a long-term strategy to increase generation and improve cost recovery. - Upgrade critical infrastructure including information and communication technologies. - Authorities resumed WTO accession process and are completing initial market access offers on goods and services. ### Governance, anti-corruption, and data improvements - Governance and anti-corruption recommendations: - Enhance public procurement framework and business regulations; adopt best practices for governance of state-owned companies, particularly in hydrocarbon and electricity sectors. - Adopt an updated anticorruption strategy for 2025–2030 after expiration of 2021–2024 strategy and design/enforce adequate follow-up mechanisms. - Align asset declaration and conflict of interests regimes with international best practice, particularly the G20 High Level Principles on Asset Disclosures, including publication of declarations of top-level officials. - Integrity Commission (IC) should: - Enhance technical capacity to monitor asset declaration regime and hold accountable those not meeting legal obligations. - Increase efforts to raise awareness on conflicts of interests with citizens and public officials. - Safeguards needed to protect independence of enforcement public officials, particularly in recruitment and appointments of heads of the IC and the Board of Supreme Audit, and measures to protect judges from threats and retaliation. - Data shortcomings and TA: - Serious shortcomings hamper surveillance: low granularity, frequency and timeliness, and coverage of national accounts data, external sector statistics, and some government finance statistics stemming from limited technical capacity and digitalization. - IMF (through METAC and STA) engaged in capacity development; pilot initiatives to improve price statistics expected to be incorporated into disseminated data by end-2024Q1. - Continued TA required to address other shortcomings and ensure timely incorporation of pilot initiatives into disseminated data. *Authorities’ views on structural policies, governance, and data* - Authorities agreed on need to boost non-oil growth through private sector development. - Authorities highlighted progress: resumption of WTO accession process, integration of Iraq-Jordan electricity grids, and lending initiatives for SMEs. - Authorities acknowledged hurdles remain and the need to amend mandatory hiring policies, close public-private benefit gaps through civil service and pension reforms, and reduce skills mismatch through education reforms. - Authorities acknowledged data limitations and have actively requested technical assistance in several key areas. ### Staff appraisal — macro-fiscal outlook and risks - Ongoing fiscal expansion supports near-term growth at the expense of increasing fiscal and external imbalances. - Non-oil growth momentum expected to continue as government implements the expansionary 2023–25 budget. - Structural imbalances expected to deteriorate markedly: - Non-oil primary deficit at its highest since 2013. - Break-even oil price projected to exceed USD 90 in 2024, from USD 54 in 2021. - Risks over the medium term: - Expected decline in oil prices could widen fiscal and current account deficits further, putting public debt at high risk of distress and dwindling FX reserves below adequate levels. *Italic source attribution: IMF Iraq Report (chapter content provided in the supplied PDF).* ### 31. A fiscal adjustment, focusing on containing the large public wage bill and mobilizing ### 31. A fiscal adjustment, focusing on containing the large public wage bill and mobilizing ### Fiscal consolidation and public wage bill - Finding: A fiscal adjustment is needed to stabilize debt in the medium term. - Recommendation: Implement a gradual yet sizable fiscal consolidation, primarily relying on reducing mandatory public sector hiring. - Rationale: Use the current environment of relatively high oil prices to start the adjustment without delay to avoid a sharper, procyclical adjustment later. - Policy measures to pursue in parallel: - Mobilize non-oil revenues. - Reduce wage bill pressures. - Remove inefficient subsidies. - Protect critical capital investment. - Possibly expand targeted social safety nets. - Rebuild fiscal buffers. - Implementation support: - Promptly implement customs and revenue administration reforms in line with roadmaps from previous technical assistance. - Fully implement the TSA to strengthen control over budget execution. - Limit use of extrabudgetary funds and government guarantees; ensure strict control and monitoring. - Medium-term need: Public pension reform to ensure sustainability of the SPF and avoid increasing fiscal risks. ### Liquidity management, banking sector modernization, and SOB reform - Finding: Large excess liquidity persists and weakens policy rate pass-through. - Recent action: The CBI appropriately tightened policy in mid-2023. - Recommendation: Continue enhancements to liquidity management and modernization of the banking sector; accelerate SOB reform. - Specific priorities: - Absorb excess liquidity, including through improved coordination between monetary and fiscal operations, to improve pass-through from policy rate adjustments to market rates. - Modernize the banking sector to: - Facilitate establishment of CBRs. - Reduce regulatory uncertainties. - Promote efficiency and competitiveness of private banks. - Accelerate State-Owned Bank (SOB) reform, including implementing a core banking system and improving governance structure. ### Structural reforms for inclusive, private sector–led growth - Objective: Achieve sustainable and inclusive private sector-led growth in the medium term. - Key reform areas: - Level the playing field between public and private jobs, including aligning compensation and pension benefits. - Reforms encompassing education, labor laws, and enforcement mechanisms to: - Facilitate mobility between public and private jobs. - Enhance institutional capacity. - Align educational curricula with labor market needs. - Address barriers to female labor participation. - Address inefficiencies in the electricity sector. - Upgrade critical infrastructure. - Accelerate WTO accession to improve competitiveness and develop private export sectors. - Combat corruption by: - Enhancing public procurement and business regulations. - Revamping asset declaration and conflict of interest regimes. - Protecting independence of enforcement public officials. ### Data shortcomings and surveillance - Finding: Serious shortcomings in data collection and provision significantly hamper surveillance. - Areas with largest challenges: External sector and national account statistics, complicating monitoring of economic and financial developments and policy formulation. - Note: Authorities have been actively engaging with the Fund on technical assistance to address key data shortcomings. ### Institutional milestone - Proposal: The next Article IV consultation with Iraq to take place on the standard 12-month cycle. *Source: INTERNATIONAL MONETARY FUND.* ### Annex I. Implementation of the 2022 Article IV Recommendations ### Annex I. Implementation of the 2022 Article IV Recommendations ### Fiscal - Recommendation: Refrain from a procyclical spending and build fiscal buffers in the near term. Over the medium term, move toward a sound fiscal framework, supported by a fiscal rule targeting gradual improvement of the non-oil primary fiscal balance. Complement with fiscal structural reforms including upgrading public financial management, mobilizing non-oil revenues, and reducing the oversized government payroll. - Authorities’ response: Not implemented. The 2023–25 budget introduced a large fiscal expansion, leading to a deterioration in the non-oil primary balance and a decline in MoF’s deposit buffers through the course of 2023. ### Monetary and financial sector - Recommendation: Closely monitor domestic inflationary pressures and tighten domestic financial conditions by phasing out its lending initiatives and raising interest rates and reserve requirements as needed. Restructure large SOBs. - Authorities’ response: Mostly implemented. The CBI raised the policy interest rate and reserve requirements, scaled back its subsidized lending, and introduced a new facility for absorbing excess liquidity. International auditing firms have been contracted to conduct asset quality reviews and develop restructuring plans for the large SOBs. ### Governance and AML/CFT - Recommendation: Continue improving the AML/CFT framework and broaden anti-corruption efforts, including through strengthening the risk-based AML/CFT supervision and implementing the 2021–24 National Integrity and Anti-Corruption Strategy. - Authorities’ response: Partially implemented. As part of the effort to improve AML/CFT framework, the CBI imposed final beneficiary disclosure requirement on cross-border payments. ### Social safety nets and pensions - Recommendation: Improve targeting, coverage, and adequacy of the social safety net, including via downsizing the Public Distribution System (PDS), enhancing the coverage of the targeted cash transfers and introducing automatic inflation indexation. Conduct a comprehensive reform of the pension system. - Authorities’ response: Partially implemented. The 2023–25 budget law increased allocation for the targeted cash transfer program relative to previous years. However, the budget allocation for the untargeted PDS also increased. ### Electricity sector - Recommendation: Develop a reform strategy to improve cost recovery, reduce arrears, and enhance gas capture. - Authorities’ response: Mostly not implemented. A reform strategy to move toward cost recovery has yet to be designed. However: - Arrears for Iranian gas and purchase of electricity from domestic power producers have been cleared. - Electricity grid integration with Jordan has been completed with operation set to begin in 2024. - Gas capture improved following investments to enhance the infrastructure and capacity of Basrah Gas Company. *Source: 1irqea2024001 - Annex I. Implementation of the 2022 Article IV Recommendations* ### Annex II. External Sector Assessment ### Overall assessment and policy response - Overall assessment: The external position of Iraq in 2023 was broadly in line with the level implied by fundamentals and desirable policies. - Projection: The external current account balance is projected to deteriorate in 2024 and further worsen over the medium term, underpinned by the projected paths of declining oil prices and rising government spending. - Policy response recommended: Maintain an adequate level of foreign exchange buffers by tightening the fiscal policy stance while safeguarding critical infrastructure and social spending, and implement structural reforms to spur private sector-led economic growth and diversification. - Caveat: The overall assessment is subject to data-related uncertainties (see Annex V referenced in source). ### Current account - 2023 CA recorded a surplus of 2.6 percent of GDP, down from double-digit surplus in 2022; broadly in line with the five-year (2018–22) average balance of 2.4 percent of GDP. - Drivers of 2023 decline: - 22-percent decrease in oil exports value (y-o-y). - 7-percent decline in oil export volumes. - Medium-term decline driven by: - Projected downward path of oil prices. - Assumed continuation of the current fiscal policy. - Note: Current account balance is based on staff estimates of imports due to data limitations. - Assessment: The CA model assessed the 2023 CA gap to be 1 percent of GDP. Policy gaps are primarily driven by the fiscal gap and would close if fiscal policy were tighter as recommended by staff. The investment needs model points to a smaller CA norm than the CA model, reflecting large upfront investment needed to boost economic and export diversification. ### Real exchange rate (REER) and nominal effective exchange rate (NEER) - Background: REER appreciated by 10 percent (y-o-y) in 2023; NEER appreciated by 20 percent (y-o-y) in 2023, mostly reflecting the impact of the currency revaluation. - Assessment: Estimated 2023 REER gap ranges between -0.5 percent (CA model) and -1.6 percent (REER model), suggesting no material misalignment in the REER. Stabilization of the REER following the 2023 February currency revaluation seems consistent with this assessment. ### Capital and financial accounts: flows and policy measures - Financial account estimate for 2023: surplus of USD 8.8 billion (3.5 percent of GDP), up from a surplus of 0.5 percent of GDP in 2022. - Drivers in 2023: - Increase in net private inflows of capital. - Net investment by international oil companies increased from USD 7 billion in 2022 to an estimated USD 8.2 billion in 2023. - Other direct investments increased in 2023. - Net portfolio outflows more than halved between 2022 and 2023. - Assessment: Iraq’s capital account remains relatively closed, with flows mainly reflecting public and private oil sector activities. Large accumulation of FX reserves supports short-term balance of payment needs, but financing pressures may arise over the medium term if oil prices fall and fiscal policy does not adjust accordingly. ### FX intervention and reserves level - Gross reserves: - USD 112 billion at end-2023 (11.4 months of imports or 82 percent of broad money). - USD 97 billion at end-2022 (11.1 months of imports and 83 percent of broad money). - Assessment: 2023 gross reserve level considered adequate, surpassing the benchmark range of 100–150 percent of the Fund’s ARA metric (375 percent of the ARA metric adjusted for lower oil prices in 2023, up from 354 percent in 2022). - Projection/risks: Projected decline in oil prices and continuation of current fiscal policy could lead to reserves falling to USD 30.7 billion by 2029 (85 percent of the adjusted ARA metric). - Note: Data on foreign assets and liabilities is limited. Annex VII (referenced) provides an assessment of the international investment position and long-term external sustainability under various diversification scenarios, accounting for lower international oil prices and global oil demand. *Source: 1irqea2024001 - Annex I. Implementation of the 2022 Article IV Recommendations* ### Annex III. Risk Assessment Matrix (Selected risks, likelihood, expected impact, and policy responses) ### Global risks - Commodity price volatility - Likelihood: High - Expected impact: High. A decline in oil prices would put pressure on Iraq’s fiscal and external positions and limit the government’s ability to sustain a generous benefits system, exacerbating risks of political instability and social unrest. Heightened oil price uncertainty could discourage new investments in the oil sector, constraining future production. Upside: sustained or higher oil prices could contribute to larger external surpluses. - Policy response: Enhance resilience to oil price shocks through wide ranging fiscal reforms. Strengthen social safety nets to better protect the most vulnerable. - Intensification of regional conflict(s) - Likelihood: Medium - Expected impact: High. Escalation could disrupt shipping routes, damage oil infrastructure, worsen domestic security, reduce business sentiment, suspend investment projects, and cause oil production losses that could outweigh price spikes. - Policy response: Strengthen resilience to potential disruptions to oil revenues by speeding up mobilization of non-oil tax revenues and economic diversification. - Weaker global demand - Likelihood: Medium - Expected impact: High. Extended OPEC+ cuts would weigh on growth and fiscal revenues. - Policy response: Accelerate efforts to diversify the economy away from oil through structural reforms. ### Domestic risks - Renewed political divisions - Likelihood: Medium - Expected impact: High. Reversal of political stability could undermine reforms, hurt non-oil growth, and lead to policy paralysis. - Policy response: Build national consensus on reform priorities. Improve public services and address corruption to defuse social tensions. - Natural disasters related to climate change - Likelihood: Medium - Expected impact: Medium. More frequent heat waves, droughts, sandstorms, salination, and desertification could reduce long-term growth potential and lead to significant economic dislocations and social unrest. - Policy response: Build resilience to climate change. Finalize and publish Iraq’s national adaptation plan. Ensure availability of fiscal resources over the medium term for investments in climate adaptation. *Source: 1irqea2024001 - Annex I. Implementation of the 2022 Article IV Recommendations* ### Annex IV. Public Sector Debt Sustainability Analysis (DSA) — Key points - Debt-to-GDP projection: Iraq’s public debt-to-GDP ratio is expected to increase by over 40 percentage points between 2023 and 2029, reflecting sustained primary deficit projected under passive fiscal policy with declining oil prices. - Uncertainty: Projection is subject to high uncertainties surrounding oil prices and fiscal policy. Higher oil prices or capital expenditure cuts could lower the deficit and reduce the increase in debt. - Mitigating factors: - Large government deposits, including ID 42 trillion in demand deposits held at commerical banks, equivalent to around $32 billion, that can be used as an alternative financing source. - Relatively low rollover risks on legacy external debt (around $40 billion, which has been in arrears since 2004). - Overall risk assessment: In the passive baseline, the overall risk of sovereign stress is high, consistent with the medium-term assessment. Long-term risks are high because of Iraq's high fiscal dependence on oil revenues and energy transition risks. - Debt stabilization in the baseline: No. - Medium-term risks: High due to projected persistent medium-term primary deficits reflecting the projected downward path of oil prices and sustained government expenditure assumed in the passive baseline. - Notes on coverage and data: - Coverage of the SRDSA is for central government only. The authorities do not report consolidated accounts including EBFs and SSFs. The mission has enquired about debt data availability for EBFs and SSFs and is waiting for the authorities' response. - Instrument coverage, accounting principles, and subsector inclusion details are listed in the source (central government included; extra-budgetary funds and social security funds not included). *Source: 1irqea2024001 - Annex I. Implementation of the 2022 Article IV Recommendations* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors: ### Debt structure and disclosures - Perimeter shown is central government for figures on: - Debt by Currency (Percent of GDP) - Public Debt by Holder (Percent of GDP) - Public Debt by Governing Law, 2023 (Percent) - Debt by Instruments (Percent of GDP) - Public Debt by Maturity (Percent of GDP) - Commentary: In the medium term, deficits are assumed to be mostly financed by the CBI using T-bills (amortized over five years), resulting in higher share of local-currency debt and a relative shortening of maturity. Despite the central bank law prohibits direct lending to the government, monetary financing has been implemented through a triangular operation where T-bills are issued to banks which, in turn, discount them at the central bank. - Residual maturity: 6. years - Marketable vs Nonmarketable debt shown in projections. ### Baseline public debt projection and contributors (selected values) - Public debt (Actual/Projection): - 2023: 44.2 - 2024: 48.2 - 2025: 54.6 - 2026: 62.3 - 2027: 70.5 - 2028: 78.7 - 2029: 86.7 - 2030: 94.9 - 2031: 103.1 - 2032: 111.1 - 2033: 119.0 - Change in public debt: - 2023: 0.8 - 2024: 4.0 - 2025: 6.4 - 2026: 7.7 - 2027: 8.2 - 2028: 8.2 - 2029: 8.0 - 2030: 8.3 - 2031: 8.2 - 2032: 8.0 - 2033: 7.8 - Contribution of identified flows (selected): - Primary deficit: - 2023: 0.6 - 2024: 6.9 - 2025: 8.1 - 2026: 9.2 - 2027: 9.9 - 2028: 10.2 - 2029: 10.3 - 2030: 10.3 - 2031: 10.3 - 2032: 10.3 - 2033: 10.3 - Noninterest revenues (percent of GDP): - 2023: 42.4 - 2024: 39.6 - 2025: 37.8 - 2026: 36.1 - 2027: 35.0 - 2028: 34.1 - 2029: 33.5 - 2030: 33.5 - 2031: 33.5 - 2032: 33.5 - 2033: 33.5 - Noninterest expenditures (percent of GDP): - 2023: 42.9 - 2024: 46.5 - 2025: 45.9 - 2026: 45.4 - 2027: 44.9 - 2028: 44.3 - 2029: 43.8 - 2030: 43.8 - 2031: 43.8 - 2032: 43.8 - 2033: 43.8 - Automatic debt dynamics: - 2023: 4.1 - 2024: -0.3 - 2025: -1.4 - 2026: -1.1 - 2027: -1.3 - 2028: -1.7 - 2029: -2.1 - 2030: -1.9 - 2031: -2.0 - 2032: -2.2 - 2033: -2.3 - Real interest rate and relative inflation: - 2023: 2.2 - 2024: 0.3 - 2025: 1.0 - 2026: 0.9 - 2027: 0.8 - 2028: 0.7 - 2029: 0.6 - 2030: 1.1 - 2031: 1.3 - 2032: 1.4 - 2033: 1.5 - Other identified flows: - 2023: -3.0 - 2024: -2.6 - 2025: -0.8 - 2026: -0.6 - 2027: -0.4 - 2028: -0.3 - 2029: -0.2 - 2030: -0.2 - 2031: -0.2 - 2032: -0.1 - 2033: -0.1 - (minus) Interest Revenues: - 2023: -0.2 - 2024: -0.5 - 2025: -0.6 - 2026: -0.5 - 2027: -0.3 - 2028: -0.1 - 2029: -0.1 - 2030: -0.1 - 2031: -0.1 - 2032: -0.1 - 2033: 0.0 - Other transactions: - 2023: -2.8 - 2024: -2.2 - 2025: -0.1 - 2026: -0.1 - 2027: -0.1 - 2028: -0.1 - 2029: -0.1 - 2030: -0.1 - 2031: -0.1 - 2032: -0.1 - 2033: -0.1 - Contribution of residual: - 2023: -0.9 - 2024: 0.1 - 2025: 0.5 - 2026: 0.2 - 2027: 0.0 - 2028: 0.0 - 2029: -0.1 - 2030: 0.0 - 2031: 0.0 - 2032: 0.1 - 2033: 0.0 - Gross financing needs: - 2023: 5.1 - 2024: 11.5 - 2025: 13.9 - 2026: 17.1 - 2027: 21.6 - 2028: 25.1 - 2029: 29.0 - 2030: 33.6 - 2031: 38.5 - 2032: 42.4 - 2033: 46.7 - Of which debt service: - 2023: 4.7 - 2024: 5.0 - 2025: 6.4 - 2026: 8.4 - 2027: 11.9 - 2028: 15.0 - 2029: 18.8 - 2030: 23.4 - 2031: 28.3 - 2032: 32.2 - 2033: 36.5 - Gross financing needs by currency (selected): - Local currency: - 2023: 3.7 - 2024: 3.6 - 2025: 5.3 - 2026: 7.6 - 2027: 11.2 - 2028: 14.6 - 2029: 18.5 - 2030: 23.1 - 2031: 28.0 - 2032: 31.9 - 2033: 36.2 - Foreign currency: - 2023: 1.0 - 2024: 1.4 - 2025: 1.1 - 2026: 0.8 - 2027: 0.7 - 2028: 0.5 - 2029: 0.3 - 2030: 0.3 - 2031: 0.3 - 2032: 0.3 - 2033: 0.3 ### Macroeconomic assumptions (memo) - Real GDP growth (percent): - 2023: -2.2 - 2024: 1.4 - 2025: 5.3 - 2026: 3.8 - 2027: 3.6 - 2028: 3.6 - 2029: 3.6 - 2030: 3.6 - 2031: 3.6 - 2032: 3.6 - 2033: 3.6 - Inflation (GDP deflator; percent): - 2023: -9.7 - 2024: 1.8 - 2025: -0.4 - 2026: 1.0 - 2027: 1.6 - 2028: 2.1 - 2029: 2.5 - 2030: 1.9 - 2031: 1.9 - 2032: 1.9 - 2033: 2.0 - Nominal GDP growth (percent): - 2023: -11.7 - 2024: 3.2 - 2025: 4.9 - 2026: 4.8 - 2027: 5.2 - 2028: 5.8 - 2029: 6.1 - 2030: 6.1 - 2031: 6.1 - 2032: 6.1 - 2033: 6.1 - Effective interest rate (percent): - 2023: 1.8 - 2024: 2.6 - 2025: 2.8 - 2026: 3.0 - 2027: 3.1 - 2028: 3.2 - 2029: 3.2 - 2030: 3.3 - 2031: 3.3 - 2032: 3.4 - 2033: 3.4 - Commentary: Primary deficit is the key driver of the debt projection over the medium and long term. This projection is subject to signficant uncertainty surrounding oil price projection and budget implementation. ### Medium-term risk assessment and stress indicators - Risk signal assessments: - Debt fanchart index (DFI): 4.8 — Risk signal: 3/High - Gross Financing Needs (GFN) module: - Average baseline GFN: 19.7 6.7 (percent of GDP) - GFN financeability index (GFI): 18.9 — Risk signal: 4/High - Initial Banks' claims on the gen. govt (pct bank assets): 18.1 5.9 - Chg. In banks' claims in stress (pct banks' assets): 18.8 6.3 - Final assessment: - Prob. of missed crisis, 2024-2029, if stress not predicted: 81.8 pct. - Prob. of false alarms, 2024-2029, if stress predicted: 0.0 pct. - Commentary: The probability of debt non-stabilization is assessed as very high. This result is reinforced by the high risk assessment from the GFN Finaceability Module. ### Realism checks and triggered modules - Figures assess realism of baseline assumptions and show triggered modules for: - Pensions - Health - Projection variables (GFN-to-GDP ratio; Amortization-to-GDP ratio; Amortization) - Commentary: Assuming passive fiscal policy, elevated debt service relative to historical standards indicates there are high risks due to large amortizations in the long-run under different alternative baseline scenarios. - Medium-term extrapolation with debt stabilizing primary balance shown; long-run projections highlight large amortizations. ### Climate change and natural resources scenarios - Climate change: Adaptation - Commentary: Climate adapation spending needs are expected to add to the financing needs and debt over time. - GFN-to-GDP Ratio and Total Public Debt-to-GDP Ratio illustrated for: - Baseline: Extension of fifth projection year - With climate adaptation (standardized scenario) - With climate adaptation (customized scenario) shown for long-run projection years up to 2052. - Natural Resources - Commentary: Slowing global oil demand amid energy transition could adversely affect Iraq's oil revenues, putting further pressure on public finance and adding to gross financing needs and public debt. - Baseline: Extension of fifth projection year and Natural Resources scenarios shown up to 2052. ### Data adequacy for surveillance (assessment highlights) - Overall data adequacy assessment: D (The data provided to the Fund has serious shortcomings that significantly hamper surveillance.) - Median Rating across sectors: D B D D B C D - Detailed questionnaire results (sectoral highlights): - National Accounts: D (overall) - Prices: B - Government Finance Statistics: D - External Sector Statistics: D - Monetary and Financial Statistics: B - Inter-sectoral Consistency: C - Key rationales and issues: - CSO compiles quarterly and annual GDP by production at current and constant prices, but lack of regular, reliable and comprehensive source data for some industries and for GDP by expenditure undermines quality. - CPI covers only urban areas; CPI weights outdated—based on 2012 Household Social and Economic Survey (HSES). - Shortcomings in government finance statistics, including expenditure by functions. - International investment position not reported since 2016 (refers to 2014 data point). - External trade data has serious shortcomings in timeliness and quality due to absence of reliable customs data; private sector imports undercovered (wire auction only); omissions for Kurdistan region and smuggling. - Corrective actions and capacity development priorities: - METAC leading TA missions to improve national accounts, price statistics, and external sector statistics. - Support to CSO to develop supply and use tables and update CPI weights based on national accounts estimated for 2019. - Complete CPI weight update expected after completion of the 2023/2024 Household Expenditure Survey; new CPI weights expected by February 2026. - METAC providing TA to improve customs data, including implementation of the Automated System for Customs Data (pilot phases). - IMF Statistics Department provided training/TA to Ministry of Finance on PSDS and GFS with focus on functional expenditure; further sustained effort required. - Use of alternative data/estimates by staff: - Staff adjust oil production data using OPEC reports. - Staff use mirror data from UN Comtrade to estimate imports and make adjustments for smuggling activities. - Other data gaps: Granular and regularly provided labor market data is limited. - Participation in data standards initiatives: Iraq participates in the Enhanced General Data Dissemination System (e-GDDS); first posted metadata in December 2009. - Common Indicators Required for Surveillance (as of March 15, 2024): table lists dates of latest observation and reporting frequencies for exchange rates, reserve assets (Jan-24/Mar-24), reserve/base money (Jan-24/Mar-24), broad money (Dec-23/Feb-24), central bank balance sheet (Jan-24/Mar-24), consolidated banking sector balance sheet (Jun-23/Nov-23), interest rates (Feb-24), CPI (Jan-24/Feb-24), central government fiscal data (Dec-23/Feb-24), stocks of central government and central government-guaranteed debt (Dec-23/Feb-24), external current account balance (Sep-23/Dec-23), exports and imports (Sep-23/Dec-23), GDP/GNP (Sep-23/Dec-23), gross external debt (Dec-23/Feb-24). (Table notes identify coverage limitations and expected timeliness.) ### Fiscal and monetary policy coordination — challenges and drivers - Key objective of monetary policy: maintain price stability under a fixed exchange rate regime via liquidity management, policy rate setting, reserve requirements. - Challenges identified: - Combination of procyclical fiscal policy, monetary financing, and weak cash management have created challenges to monetary policy operations. - Stronger coordination between fiscal and monetary policies required to address these challenges. - Fiscal procyclicality: - Fiscal policy has been procyclical, amplifying vicissitudes of oil price shocks. - With high oil dependence and lack of fiscal buffers, government spending moves in tandem with oil prices. - Spending pressures intensify when oil prices are high, leading to increases in current government expenditures such as salaries and pensions. - These dynamics fuel domestic inflation, worsen structural fiscal imbalances, raise the fiscal break-even oil price, and when oil prices fall, the fiscal balance can quickly deteriorate into a large deficit. *Source: IMF staff estimates and projections (content unit: 1irqea2024001 - 5. Debt consolidation across sectors).* ### 2. The Iraqi government has ### 2. The Iraqi government has ### Monetary financing and CBI claims - Direct lending from the CBI to the government is strictly prohibited by the CBI law, but domestic financing has often taken the form of state-owned banks purchasing government securities that are immediately offloaded to the CBI in the secondary market (triangulation). - Triangulation was particularly large in 2020, reaching ID 26.5 trillion when oil prices plummeted. - As of end-2023, the CBI’s total claims on central government amounted to ID 45 trillion, exceeding half of the outstanding government domestic debt. ### Impact on FX reserves and the exchange rate peg - Monetary financing coincided with pressure on FX reserves and the exchange rate peg: - FX reserves fell by 20 percent from USD 68 billion at end-2019 to USD 55 billion in November 2020 (a contraction of the CBI’s balance sheet) as the CBI’s claims on the government expanded. - These developments culminated in a 23-percent currency devaluation at end-2020. - The FX reserve contraction and devaluation reflect the unsustainable nature of the fiscal deficit and adverse effects of monetary finance. ### Excess liquidity, cash management, and banking sector implications - Large excess liquidity stems from weak cash management and government deposit accumulations in commercial banks; excess reserves are non-renumerated like required reserves. - Government demand deposits in commercial banks (mostly held in SOBs) amounted to ID 42 trillion at end-2023. - Excess reserves and government deposits have moved closely together, with a correlation coefficient reaching almost 0.98 between January 2022 and December 2023. - Example of poor cash management: in December 2022 disbursements from the MoF exceeded ID 27 trillion—including ID 11 trillion for new capital investment projects to the governorates under the emergency law—followed by a surge in the excess reserve-deposit ratio from 0.43 in November to 0.56 in December. - Commercial banks’ current account balance at the central bank reached ID 67.6 trillion at end-2023; only 28 percent (ID 18.7 trillion) of this are held as required reserves, the remainder are excess reserves. - Large systemic excess liquidity weakens monetary policy transmission; banks with large excess liquidity face little pressure to raise interest rates to attract deposits. - The dominance of inefficiently managed state-owned banks (SOBs) compounds the challenge by reducing market incentives to maximize profits. - Mop-up of excess liquidity —more than half of total banking sector deposits—would impose a heavy strain on the CBI’s liquidity management framework. ### Drivers of liquidity volatility - Among four autonomous liquidity factors, the CBI’s net claims on government have been the most volatile over the last three years due to: - Large fluctuations in oil export revenue receipts (e.g., rise in net claims during low oil prices in 2020H2 and decline when oil receipts rebounded in 2022H2). - Episodes of large budget execution (e.g., implementation of the emergency law at end-2022), when the MoF disbursed funds by drawing down on CBI deposits. - Box A.VI.1 identifies autonomous liquidity factors as: - Net foreign assets (NFA) determined by oil export receipts, FDI, and FX sales. - Net claims on government (CBI holdings of government liabilities minus government deposits at the CBI). - Currency in circulation driven by cash demand. - Other autonomous factors including retained earnings, other net domestic assets, and valuation adjustments. - The CBI introduced a 14-day Central Bank bills weekly auction in June 2023 as the main operation to absorb liquidity at the policy rate. ### Recommendations to strengthen fiscal–monetary coordination - Strictly limit the CBI’s financing of the projected fiscal deficit to alleviate potential pressures on FX reserves and the exchange rate peg. - Seek alternative financing sources, including external bond issuance. - Consider boosting domestic financing from commercial banks and households given large excess liquidity and deposit base. - Develop a domestic government debt market to support financial sector development and reforms. - Improve debt management capacity: - Update the medium-term debt management strategy (last one dated to 2016) to identify funding mixes that meet financing needs and balance costs with risks. - Establish a designated debt management office within the MoF’s Debt Department to develop and execute the debt management strategy and foster an efficient market for government securities. - Align fiscal and monetary policy stances to support price stability: - Decouple government spending from oil price fluctuations to avoid aggravating domestic inflationary pressures. - Pursue acyclical fiscal policy to build fiscal buffers during oil price upswings for use during downturns. - Strengthen cash management by establishing a Treasury Single Account (TSA) to reduce excess liquidity and ease the CBI’s liquidity management burden: - Align budget disbursements with actual monthly spending needs to limit idle cash balances held by spending units in commercial banks. - Transfer unspent budget disbursements from line ministries’ commercial bank accounts to the MoF’s account at the CBI to reduce excess liquidity; the sweep of deposits should be done carefully and gradually to avoid liquidity shortages in any bank, supported by inter-bank market development. - SOB reforms are crucial to reduce reliance on government deposits. - Enhance timely information sharing between fiscal and monetary authorities for liquidity forecasting: - Central bank liquidity forecasts require high-frequency (daily) time-series data on autonomous liquidity factors. - The CBI needs detailed cash flow information from the MoF on oil receipts, budget disbursement, borrowing, and debt repayment plans. - Ensure marketability of CBI’s holdings of government debt to protect the CBI’s balance sheet and enable open market operations: - Swap non-marketable government debts with government securities issued on a central security depository. - Protect government debt service to the CBI from future budget cuts by parliament. - These changes would help the CBI use government securities for future open market operations. *Source: Authorities’ data and IMF staff calculations.* ### 5. Accelerating efforts to support tradable non-oil sector development can ensure long- ### 5. Accelerating efforts to support tradable non-oil sector development can ensure long-term external sustainability ### Diversification scenarios and macroeconomic outcomes - Accelerated but gradual diversification strategy scenario - Structural reform efforts are assumed to be significantly ramped up leading to faster growth in the non-oil tradable sector from 2027 onwards. - Trade deficit bottoms out in 2044 at 23 percent of total GDP before gradually improving. - Tradable sector share of the non-oil sector by 2050: 49 percent versus 29 percent under the passive scenario. - Export intensity of the non-oil sector reaches three and a half times the levels under the passive scenario. - Expansion of the tradable sector is assumed to allow for import substitution, contributing to an improving trade balance over time. - Delayed transition scenario - Trade deficit expected to bottom out in 2043 at 16 percent of GDP before gradually improving. - More rapid diversification scenario - Assumes structural reform efforts ramp up more rapidly early on, with the tradable non-oil sector growing at double digit rates for at least the first decade, after which growth tapers slightly. - Trade deficit would peak at 16 percent of total GDP in 2039, then improve to a surplus of 4 percent of GDP by 2050. - International investment position stabilizes and begins to rebuild from 2050 onwards. - Sensitivity if global energy transition targets are delayed to 2070 - Required long-run average overall non-oil growth to stabilize the international asset position is about 4.5 percent. - Under these assumptions, the trade deficit would peak at 11 percent of GDP by 2039, then improve to a 2.6 percent surplus by 2050. - IIP stabilizes and begins to rebuild thereafter. ### Key takeaway on reform timing and effectiveness - Rapid reform implementation to support non-oil growth and exports is highlighted as the most effective way to mitigate risks associated with the global energy transition, even if the transition takes longer than the targeted 2050 timeframe. - Different trajectories of non-oil GDP growth and non-oil export intensity across scenarios underscore the importance of early and sustained structural reforms. ### Fiscal policy actions and fiscal framework - Government approved the 2023–2025 budget (first-ever three-year budget). - Budget sets a conservative oil price estimate at $70 per barrel. - Authorities aim to lower a high fiscal breakeven oil price and broaden non-oil revenue base. - Measures underway include: - Evaluating options to narrow the scope of legally mandated hiring to stabilize the public wage bill. - Fuel price increase on premium gasoline effective May 1st. - Reforms in tax policies and revision of customs tariffs. - Implementation of the Integrated Financial Management System and the Treasury Single Account (TSA). - Governance improvements for extra-budgetary funds. - Enhancing efficiency of public investment, especially infrastructure. ### Monetary policy and financial sector measures - Central Bank of Iraq (CBI) measures: - Raised policy interest rate from 4 percent to 7.5 percent in June 2023. - Increased reserve requirements from 15 percent to 18 percent. - Issuance of CBI bills and more stringent reserve requirements to absorb excess liquidity. - Banking sector reforms and supervision: - Gradual increase of minimum capital requirements for commercial banks from ID 250 billion to ID 400 billion by 2025. - Promotion of mergers and acquisitions among smaller banks to consolidate the sector. - Strengthened supervisory role and more stringent prudential requirements for state-owned banks (SOBs). - Engagement of international experts to conduct asset quality reviews for SOBs. - Governance reforms to improve transparency and accountability in SOBs. - AML/CFT and correspondent banking: - New compliance measures, including an electronic platform that mandates financial beneficiary disclosures. - CBI assistance to local banks in securing and expanding correspondent banking relationships (CBRs). ### Structural reforms, projects, and social policy - Government commitment to private sector-led development and economic diversification beyond oil dependence. - National development plan focuses on non-oil sectors such as agriculture, manufacturing, and services. - Prioritized high developmental and service-value projects; completed and contracted projects include: - Grand Al-Faw Port (completed). - Karbala Refinery (completed). - Signed contracts on four major projects in oil, gas, and renewable energy sectors. - Governance, anti-corruption, and transparency efforts: - Streamlining bureaucratic processes, improving public sector management. - Progress in tracking down and recovering stolen funds and prosecuting perpetrators of corruption-related crimes. - Social and climate priorities: - Targeted social programs to alleviate poverty and inequality and improve access to education, healthcare, and social services. - Comprehensive climate strategy to mitigate risks to water and food security, including reducing greenhouse gas emissions, adopting modern irrigation techniques, drought- and heat-resistant crop varieties, soil management practices, and increasing natural gas and renewable energy use in the power sector. ### Technical assistance needs and Fund engagement - Authorities requested Fund support under the Policy Coordination Instrument (PCI). - Recent and ongoing IMF technical assistance supports: - Strengthening Public Finance Management and tax administration. - Enhancing monetary policy framework, financial supervision, and AML/CFT practices. - Additional technical assistance requested to: - Further enhance tax and customs policy and administration. - Improve monetary policy transmission and liquidity management. - Improve robustness and comprehensiveness of economic data. *Source: Excerpts from IMF content unit 1irqea2024001* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1irqea2024001.pdf_