## 1irqea2024002

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---

### Overview and urgency
- Non-oil revenues in Iraq remain persistently low relative to peers and are a key policy priority in the context of the prospective transition away from oil and Iraq’s large development needs.
- From 2019 to 2023, non-oil revenues as a ratio to GDP have fluctuated between 1.9 and 4.5 percent, averaging 2.9 percent of GDP.
- Raising non-oil revenues is needed to:
  - stabilize fiscal and external sustainability under projected oil price paths;
  - reduce dependence on oil as the world moves away from fossil fuels;
  - meet sizeable spending needs for post-war reconstruction, SDGs, climate adaptation, ending gas flaring, electricity generation, and social spending.

### Composition and potential of non-oil revenues
- Composition (2011–2023):
  - Non-tax revenues: on average around 52 percent of total non-oil revenues (range 30 percent in 2017 to 75 percent in 2015).
  - Direct taxes: on average 26 percent of total non-oil revenues (range 12 percent in 2014 to 45 percent in 2016).
- Non-tax revenues primarily include fees for government services, dividends from (non-oil) state-owned enterprises, and revenues from disposal of assets.
- IMF (2022) tax capacity estimate: the difference between potential and actual tax revenues was estimated to be 15.3 percent of non-oil GDP in Iraq, as of 2019 (the second largest gap among MENAP and CCA oil exporters).
- Cross-country evidence and targets:
  - The adjustment scenario in the 2024 Article IV envisages a minimum of 2.3 percent increase in non-oil revenues within three years.
  - Iraq’s historical average increase was 0.6 percent of non-oil GDP (contrast with 2.3 percent average in MENAP OE sample where VAT introduction in the GCC influenced results).

### Tax and tariff landscape (key facts)
- Tax structure and rates:
  - Around three quarters of tax revenue in Iraq was received from direct taxes.
  - Personal income tax (PIT): withheld by employer; a more progressive schedule was proposed in 2021 but did not pass Parliament.
  - Corporate income tax (CIT): 15 percent (35 percent for companies in the oil industry). Public sector companies are exempt from CIT.
  - 10 percent tax on income derived from real estate.
  - Iraq does not have a fully implemented self-assessment system; the burden of computing tax liability is on the tax administration.
- Indirect taxes:
  - No general sales tax or VAT; most sales taxes and levies are passed in annual budget laws and are usually temporary.
  - Example: a 20 percent sales tax on mobile phone cards was introduced in 2015 and cancelled in 2022.
- Customs and tariff history:
  - Until 2016: flat tariff duty rate of five percent applied to imports.
  - 2016 Law on Customs Duty introduced more than ten different tariff rates ranging from 0 to 80 percent.
  - 2018: tariff structure simplified to four rates: 0, 10, 15, and 30 percent.
  - Some tariffs suspended in 2022 to reduce inflationary pressures.
  - 2023 Cabinet Resolution 23672 reintroduced a simplified scheme with a fixed customs duty based on the size of the shipping container (duties for goods without containers remained at earlier levels). Gold, cars, mobile phones and cigarettes (and certain other goods covered by the domestic products protection law) are exempt from container-based tariffs and are subject to their own individual rates.
  - Electric and hybrid vehicles are exempted from tariffs; certain agricultural goods and those related to solar energy generation are taxed at very low rates.

### Revenue administration: diagnosis, priorities, and evidence on gains
- Institutional diagnosis:
  - General Commission for Taxes (GCT) subordinated to the Ministry of Finance; responsible for tax collection.
  - TADAT assessment completed in September 2022: in all dimensions Iraq’s performance was either inadequate or could not be measured. Largest distance to peer averages in timely filing and timely payment (Performance Outcome Areas 4 and 5).
- Operational weaknesses: corruption within and outside the GCT workforce (driven by low pay, poor infrastructure, highly manual operations, high staff turnover, workload pressures and political instability), lack of useful data, non-filing or late filing of taxes, late payment, and inadequate arrears management.
- Key priorities:
  - Create a complete and up to date database of taxpayers: develop and automate clear procedures for registration, cleanse existing registry (starting with larger taxpayers), and detect unregistered individuals and businesses.
  - Full implementation of a self-assessment system: shift burden of assessing tax liability from administration to taxpayer, strengthen legal framework, strengthen taxpayer registry, and adopt a risk-based approach to audit and verification.
- Evidence on revenue gains:
  - Adan et. al. (2023) find that strengthening tax administration from the 40th to the 60th percentile can increase revenues by 1.8 percent of GDP, with higher effects in emerging markets.
  - The Article IV adjustment scenario assumes a conservative gain of 0.2 percent of non-oil GDP from revenue administration reforms.

### Customs administration: diagnosis, modernization, and expected gains
- Institutional diagnosis:
  - General Customs Authority (GCA) collects tariffs at border crossings and requires institutional reform; practices, procedures, and existing IT systems are outdated.
  - Iraq’s time to clear imports from customs is one of the longest in its peer group; records are largely paper-based.
- Modernization path:
  - Central plank: automation with UNCTAD-developed ASYCUDA World IT system. Iraq signed a seven-year agreement in May 2021; pilot at Baghdad international airport began operations in October 2023.
  - Business process reengineering required so software customization is minimized; reengineering is a key priority.
  - Medium-term needs: new customs law or legislative changes to introduce risk management, risk-based controls, trade facilitation standards, customs valuation practices, and to enable organizational changes.
- Evidence on ASYCUDA revenue impacts (selected country examples from UNCTAD):
  - Angola: revenues increased by 44 percent in the first year after ASYCUDA World implementation (2018).
  - Chad: customs revenue doubled after launch of ASYCUDA World in the international airport.
  - Bangladesh: customs revenue increased by 11 percent.
- The Article IV adjustment scenario assumes a 0.3 percent of non-oil GDP increase in revenues from customs administration improvements (including ASYCUDA and better business processes).

### Roadmap and prioritized policy recommendations for revenue mobilization
- Near-term emphasis: focus limited collection capacity on effective collection points given institutional shortcomings and fragile state context:
  - Borders (customs collections).
  - Largest companies (including in the mining sector).
  - Wages in the civil service and formal sectors.
  - Land (if cadaster is available).
- Tax policy and structural options (near- to medium-term; illustrative and prioritized by ease of implementation and capacity constraints):
  - Review tariff structure to eliminate exemptions and raise tariffs on luxuries (near-term revenue-raising).
  - Make personal income taxes more progressive and broaden tax bases (medium-term).
  - Move towards adopting the value added tax over the medium-term.
  - Tackle structural obstacles to revenue mobilization: informality, lack of economic diversification, low levels of financial inclusion, and high reliance on cash.
  - Accelerate institutional reforms of revenue and customs administration with IMF and donor-supported capacity development.
- Institutional sequencing and implementation considerations:
  - Undertake comprehensive tax policy diagnostic (last such mission occurred in 2017).
  - Prioritize creation of taxpayer register and self-assessment implementation as foundational administration reforms.
  - Coordinate customs IT investment (ASYCUDA) with business process modernization and legal reforms to enable risk-based controls and trade facilitation.
- Conservative revenue assumptions used in adjustment scenarios:
  - Revenue administration improvements: 0.2 percent of non-oil GDP.
  - Customs administration improvements (including ASYCUDA): 0.3 percent of non-oil GDP.

### Tariff options and revenue potential
- Bringing the effective tariff rate to the 2019–2023 MENAP peer average would imply increasing it from 1.2 percent of imports to 2.0 percent (67 percent increase).
- This increase would yield 0.5 percent of 2023 non-oil GDP.
- Previous discussions with the authorities indicated they saw scope for a 50 percent increase in customs revenues (0.3 percent of non-oil GDP).
- Mansour and Schneider (2019) proposed a three-rate tariff schedule:
  - Low rate: about 10 percent for unprocessed food, medications, agricultural inputs and equipment goods.
  - Standard rate: around 30 percent for most other consumption goods, raw materials, and intermediate consumption.
  - High rate: about 50 percent for a short list of luxury consumption goods.
- Policy choices in Iraq include reducing the number of exemptions while protecting the vulnerable and increasing tariff rates on luxury goods (cars and jewelry cited as examples).
- OEC import values (2021): cars US$ 2.22 billion; jewelry US$ 2.21 billion.

### Personal income tax (PIT), tax expenditures, and simplification
- PIT expansion:
  - 2021 budget proposal to expand the PIT base (to include pensions, allowances, etc.) was expected to yield 1.7 percent of 2021 non-oil GDP.
  - Public sector salaries account for 41 percent of the tax base; it is important that public sector salaries are not increased to offset higher personal income tax rates.
- Tax expenditures and exemptions:
  - Notable exemptions: excluding public sector employee allowances from PIT; excluding state owned enterprises from CIT.
  - Personal income tax scale includes deductions for wives and children.
  - Cross-country evidence: tax expenditures reduce tax revenues by an average of around 4 percent of GDP (Haldenwang et. al. 2021) in countries with available data.
  - Evaluating tax expenditures requires improved data collection.
- Simplifying filing and taxpayer segmentation:
  - Consider replacing CIT payments with lump sum taxes for smaller taxpayers to avoid detailed accounting and simplify administration.
  - New taxes should have thresholds exempting smaller firms with thresholds reduced over time.
  - Simplify tax filing in parallel with self-assessment development.

### Structural reforms to address informality, financial inclusion, and diversification
- Informality and financial inclusion:
  - Recent surveys found 80 percent and 60 percent of businesses are informal (CSO and KRSO in collaboration with UNDP).
  - Informal employment share: 54.8 percent of total employment.
  - Formal sector employees with informal contracts: 26.1 percent.
  - Medina and Schneider (2018) estimate shadow economies in comparable countries at between 30 to 35 percent of GDP (Algeria, Tunisia, Egypt); Qatar at 16 percent of GDP.
  - Reducing informality from 30 percent of GDP to 16 percent of GDP could yield around 0.8 percent of non-oil GDP in revenues (at current levels of tax revenues).
- Financial inclusion and payments:
  - Iraq had a much higher share of currency in circulation in broad money and a much lower incidence of digital payments compared to peer countries.
  - Authorities have expanded point-of-sale machines, raised ceilings on bank card transactions, and reduced bank fees.
- Diversification and revenue gains:
  - Iraq’s non-oil economy accounts on average for 57 percent of total GDP compared to 69 percent for MENAP OE (average of median share from 2011 to 2023).
  - Increasing the share of the non-oil economy to the MENAP OE median would increase non-oil revenues by 21 percent (0.6 percent of non-oil GDP).
  - Policy recommendations for diversification include strengthening the electricity sector and reforming the financial sector.

### Public employment, labor market distortions, and policy priorities
- Public sector and wages:
  - Public sector is the largest employer with a share of about 40 percent of total employment.
  - Average annual growth in nominal wages: 12 percent.
  - Average annual growth in number of people employed in the public sector: 7 percent.
- Compensation and pension disparities:
  - Lowest wage in the statutory public sector appointment: IQD 400,000.
  - Minimum wage in the private sector: IQD 350,000.
  - Minimum pension for public employees is IQD 500,000 with no cap on the maximum pension; reference salary taken over the last 3 years of service.
  - Private sector maximum pension is capped at 80 percent of the reference salary of the last 5 years of service.
- Legal mandates and hiring pressures:
  - Law No.6 (2000), Law No.59 (2017), and Law No.67 impose various mandatory hiring and vacancy allocation requirements contributing to public employment preferences.
- Informality drivers and decomposition:
  - Compared with advanced countries, development level explains less than a quarter of informality in Iraq.
  - Policy distortions are the main drivers:
    - About 57 percent of the predicted employment informality surplus (relative to advanced economies) is associated with Iraq’s relatively lower quality of governance.
    - Business regulation and tax burden together contribute another 20 percent of the gap.
- Education and skills gaps:
  - Over 55 percent of employed persons have elementary education or below.
  - Unemployment among those with university degree or above is high, especially among youth (over 60 percent).
  - LFS results show 67 percent of workers are under-skilled.
  - TVET centers: 32; TVET programs are short-term (around 2 months); since 2003, less than 15,000 graduates per year on average from TVET programs.
- Women’s labor force participation and growth gains:
  - Gap between men and women participation rate in Iraq: about 60 percent.
  - Female labor force participation: around 10 percent.
  - Gap between actual women participation and level implied by development: 35 percent.
  - Doubling women participation to close the gap with the region by 2033 would add over 2 percent to potential growth by 2033.
  - Improving women’s education to regional levels (starting gradually after 2025) could add another 2 percent to growth and help stabilize potential growth at about 6 percent by 2033.
- Macroeconomic scenarios and fiscal risks:
  - Under current policies (non-oil growth of about 2.5 percent over the medium term):
    - Unemployment projected to rise from 16.5 percent in 2021 to around 21 percent by 2033.
    - Youth unemployment expected to exceed 50 percent.
  - Fiscal consequence of expanding public employment:
    - Wage bill would increase and reach unsustainable levels of over 23 percent of GDP and 50 percent of total budget expenditure by 2033.
  - Required non-oil growth to stabilize or reduce unemployment:
    - Sustained non-oil growth of around 4 percent annually over the next decade would be required to stabilize unemployment at current levels.
    - Reducing unemployment to 8.2 percent (halving current rate) would require non-oil growth estimated between 4–5.5 percent annually over the next ten years.

### Policy implications and prioritized reforms for labor markets and education
- Public employment policies (priority 1) recommended actions:
  - Gradually phase out mandatory public hiring through legislative amendments; align higher education policies with public sector absorption capacity.
  - Adopt attrition-based employment reduction (example: replace every three retirees with one new hire).
  - Complete biometric registration and create a centralized government employee database; replace statutory promotions with performance-based ones within limits.
  - Cap non-wage compensation (allowances) and link future wage increases to productivity; align pension rules across public and private schemes.
- Labor market institutions and enforcement (priority 2):
  - Build MoLSA capacity for labor inspection, active labor market policy management and monitoring.
  - Balance worker protection with employer flexibility; enhance role of labor unions and remove obstacles to their formation.
- Education and skills (priority 3):
  - Rehabilitate education infrastructure; increase qualified teachers; modernize TVET curricula and expand outreach; partner with private firms for training.
  - Use online learning platforms and scale skilling beyond recent graduates to out-of-school students for sectors like construction and agriculture.
- Women’s participation (priority 4):
  - Increase female educational attainment; remove restrictions on women’s work and mobility (including night work bans); amend laws to equalize rights and protections.
  - Align maternity leave provisions and enforce workplace daycare availability; improve access to safe transportation and digital payment adoption.
- Data and monitoring:
  - Improve labor market data collection and integration; leverage digital platforms to monitor labor market structure and policy outcomes.

### Key statistics and indicators (as presented)
- Non-oil revenues 2019–2023: fluctuated between 1.9 and 4.5 percent of GDP; average 2.9 percent of GDP.
- Effective tariff rate: currently 1.2 percent of imports; targeted to 2.0 percent (67 percent increase).
- Revenue yield of tariff increase: 0.5 percent of 2023 non-oil GDP.
- Authorities’ previously indicated scope: 50 percent increase in customs revenues = 0.3 percent of non-oil GDP.
- PIT expansion yield (2021 budget proposal): 1.7 percent of 2021 non-oil GDP.
- Public sector salaries: account for 41 percent of the tax base.
- VAT illustrative revenue: 5 percent VAT applied to 90 percent of private consumption → 3.7 percent of non-oil GDP as of 2020.
- Informality indicators:
  - Business informality: 80 percent (CSO survey) and 60 percent (KRSO survey).
  - Informal employment share: 54.8 percent of total employment.
  - Formal sector employees with informal contracts: 26.1 percent.
  - Shadow economy comparable estimates: 30 to 35 percent of GDP (Algeria, Tunisia, Egypt); Qatar at 16 percent of GDP.
  - Potential revenue from reducing informality from 30 percent to 16 percent of GDP: around 0.8 percent of non-oil GDP.
- Non-oil economy share: Iraq average 57 percent of total GDP (2011–2023) vs. MENAP OE 69 percent (average of median share from 2011 to 2023).
- Potential increase in non-oil revenues from closing diversification gap: 21 percent (0.6 percent of non-oil GDP).
- Imports (2021): cars US$ 2.22 billion; jewelry US$ 2.21 billion.
- Public sector employment share: about 40 percent of total employment.
- Average annual growth in nominal wages: 12 percent.
- Average annual growth in number of people employed in public sector: 7 percent.
- Lowest public statutory appointment wage: IQD 400,000; minimum private wage: IQD 350,000.
- Minimum public pension: IQD 500,000.
- TVET centers: 32; TVET program length: around 2 months.
- Human Capital Index (HCI): 0.41.
- Expected years of schooling: 6.9 years (adjusted for learning: 4 years).
- Cost for reconstruction and recovery of the education sector: estimated to exceed IQD 5.4 trillion.
- Potential growth contributions:
  - Doubling women’s participation to regional gap closure by 2033: adds over 2 percent to potential growth by 2033.
  - Improving human capital to regional levels (starting after 2025): adds another 1.5 percent by 2033.
- Employment-growth elasticities:
  - Arc elasticity (2007–2021): 0.97 (range 0.85–1.17 when dropping certain years).
  - Econometric long-term elasticity estimate: about 0.7 (from b/(1−ρ) using given regression).

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1irqea2024002.pdf*

### References ________________________________________________________________________________  12

### 1irqea2024002 - References ________________________________________________________________________________  12

### Overview and urgency
- Non-oil revenues in Iraq remain persistently low relative to peers and are a key policy priority in the context of the prospective transition away from oil and Iraq’s large development needs.
- From 2019 to 2023, non-oil revenues as a ratio to GDP have fluctuated between 1.9 and 4.5 percent, averaging 2.9 percent of GDP.
- Raising non-oil revenues is needed to: stabilize fiscal and external sustainability under projected oil price paths; reduce dependence on oil as the world moves away from fossil fuels; and meet sizeable spending needs for post-war reconstruction, SDGs, climate adaptation, ending gas flaring, electricity generation, and social spending.

### Composition and potential
- Composition of non-oil revenues (2011–2023):
  - Non-tax revenues: on average around 52 percent of total non-oil revenues (range 30 percent in 2017 to 75 percent in 2015).
  - Direct taxes: on average 26 percent of total non-oil revenues (range 12 percent in 2014 to 45 percent in 2016).
- Non-tax revenues primarily include fees for government services, dividends from (non-oil) state-owned enterprises, and revenues from disposal of assets.
- IMF (2022) tax capacity estimate: the difference between potential and actual tax revenues was estimated to be 15.3 percent of non-oil GDP in Iraq, as of 2019 (the second largest gap among MENAP and CCA oil exporters).
- Cross-country evidence on feasible increases:
  - The adjustment scenario in the 2024 Article IV envisages a minimum of 2.3 percent increase in non-oil revenues within three years.
  - Iraq’s historical average increase was 0.6 percent of non-oil GDP (contrast with 2.3 percent average in MENAP OE sample where VAT introduction in the GCC influenced results).

### Tax and tariff landscape (key facts)
- Tax structure:
  - Around three quarters of tax revenue in Iraq was received from direct taxes (broadly in line with peer oil exporters).
  - Personal income tax (PIT): withheld by employer; a more progressive schedule was proposed in 2021 but did not pass Parliament.
  - Corporate income tax (CIT): 15 percent (35 percent for companies in the oil industry). Public sector companies are exempt from CIT.
  - 10 percent tax on income derived from real estate.
  - Iraq does not have a fully implemented self-assessment system; the burden of computing tax liability is on the tax administration.
- Indirect taxes:
  - No general sales tax or VAT; most sales taxes and levies are passed in annual budget laws and are usually temporary.
  - Examples: a 20 percent sales tax on mobile phone cards was introduced in 2015 and cancelled in 2022; a tax on alcohol was effectively obviated by the prohibition on importation of alcohol in 2016.
- Customs and tariff history:
  - Until 2016: flat tariff duty rate of five percent applied to imports.
  - 2016 Law on Customs Duty introduced more than ten different tariff rates ranging from 0 to 80 percent.
  - 2018: tariff structure simplified to four rates: 0, 10, 15, and 30 percent.
  - Some tariffs suspended in 2022 to reduce inflationary pressures.
  - 2023 Cabinet Resolution 23672 reintroduced a simplified scheme with a fixed customs duty based on the size of the shipping container (duties for goods without containers remained at earlier levels). Gold, cars, mobile phones and cigarettes (and certain other goods covered by the domestic products protection law) are exempt from container-based tariffs and are subject to their own individual rates.
  - Electric and hybrid vehicles are exempted from tariffs; certain agricultural goods and those related to solar energy generation are taxed at very low rates.

### Revenue administration: diagnosis and priorities
- Institutional assessment:
  - The General Commission for Taxes (GCT) is subordinated to the Ministry of Finance and is responsible for tax collection.
  - A TADAT assessment completed in September 2022 concluded that in all dimensions of the diagnostic, Iraq’s performance was either inadequate or could not be measured. The largest distance to peer averages is in timely filing and timely payment of taxes (Performance Outcome Areas 4 and 5).
- Operational weaknesses: corruption within and outside the GCT workforce (driven by low pay, poor infrastructure, highly manual operations, high staff turnover, workload pressures and political instability), lack of useful data, non-filing or late filing of taxes, late payment, and inadequate arrears management.
- Key priorities for revenue administration:
  - Creation of a complete and up to date database of taxpayers: develop and automate clear procedures for registration, cleanse existing registry (starting with larger taxpayers), and detect unregistered individuals and businesses.
  - Full implementation of a self-assessment system: shift burden of assessing tax liability from administration to taxpayer, strengthen legal framework, strengthen taxpayer registry, and adopt a risk-based approach to audit and verification.
- Evidence on revenue gains from administration improvements:
  - Adan et. al. (2023) find that strengthening tax administration from the 40th to the 60th percentile can increase revenues by 1.8 percent of GDP, with higher effects in emerging markets.
  - The Article IV adjustment scenario assumes a conservative gain of 0.2 percent of non-oil GDP from revenue administration reforms.

### Customs administration: diagnosis, modernization, and expected gains
- Institutional assessment:
  - The General Customs Authority (GCA) collects tariffs at border crossings and requires institutional reform; practices, procedures, and existing IT systems are documented as outdated.
  - Iraq’s time to clear imports from customs is one of the longest in its peer group; records are largely paper-based.
- Modernization path:
  - Central plank: automation with UNCTAD-developed ASYCUDA World IT system. Iraq signed a seven-year agreement in May 2021; pilot at Baghdad international airport began operations in October 2023.
  - Business process reengineering required so software customization is minimized; reengineering is a key priority.
  - Over the medium-term, customs modernization requires a new customs law or legislative changes to introduce risk management, risk-based controls, trade facilitation standards, customs valuation practices, and to enable organizational changes.
- Evidence on ASYCUDA revenue impacts (selected country examples from UNCTAD):
  - Angola: revenues increased by 44 percent in the first year after ASYCUDA World implementation (2018).
  - Chad: customs revenue doubled after launch of ASYCUDA World in the international airport.
  - Bangladesh: customs revenue increased by 11 percent.
- The Article IV adjustment scenario assumes a 0.3 percent of non-oil GDP increase in revenues from customs administration improvements (including ASYCUDA and better business processes).

### Roadmap and policy recommendations (prioritized approach)
- Near-term emphasis: focus limited collection capacity on effective collection points given institutional shortcomings and fragile state context:
  - Borders (customs collections).
  - Largest companies (including in the mining sector).
  - Wages in the civil service and formal sectors.
  - Land (if cadaster is available).
- Tax policy and structural options (near- to medium-term, illustrative and prioritized by ease of implementation and capacity constraints):
  - Review tariff structure to eliminate exemptions and raise tariffs on luxuries (near-term revenue-raising).
  - Make personal income taxes more progressive and broaden tax bases (medium-term).
  - Move towards adopting the value added tax over the medium-term.
  - Tackle structural obstacles to revenue mobilization: informality, lack of economic diversification, low levels of financial inclusion, and high reliance on cash.
  - Accelerate institutional reforms of revenue and customs administration with IMF and donor-supported capacity development.
- Institutional reform sequencing and implementation considerations:
  - Undertake comprehensive tax policy diagnostic (last such mission occurred in 2017).
  - Prioritize creation of taxpayer register and self-assessment implementation as foundational administration reforms.
  - Coordinate customs IT investment (ASYCUDA) with business process modernization and legal reforms to enable risk-based controls and trade facilitation.
- Conservative revenue assumptions used in adjustment scenarios:
  - Revenue administration improvements: 0.2 percent of non-oil GDP.
  - Customs administration improvements (including ASYCUDA): 0.3 percent of non-oil GDP.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1irqea2024002.pdf*

### 20.      There is scope to increase tariffs in Iraq via either taxing luxuries further or reducing

### 1irqea2024002 - 20.      There is scope to increase tariffs in Iraq via either taxing luxuries further or reducing

### Tariff options and revenue potential
- Bringing the effective tariff rate to the 2019–2023 MENAP peer average would imply increasing it from 1.2 percent of imports to 2.0 percent (67 percent increase).
- This increase would yield 0.5 percent of 2023 non-oil GDP.
- Previous discussions with the authorities indicated they saw scope for a 50 percent increase in customs revenues (0.3 percent of non-oil GDP).
- Mansour and Schneider (2019) propose a simple three-rate tariff schedule:
  - Low rate: about 10 percent applicable to unprocessed food, medications, agricultural inputs and equipment goods.
  - Standard rate: around 30 percent applicable to most other consumption goods, raw materials, and intermediate consumption.
  - High rate: about 50 percent applicable to a short list of luxury consumption goods.
- In the context of Iraq, policy choices include:
  - Reducing the number of exemptions (recently expanded) while protecting the vulnerable.
  - Increasing tariff rates on luxury goods (cars have been relied on in the past; jewelry could also be an option).
- The Observatory of Economic Complexity (OEC) lists cars as the third most imported item in Iraq (US$ 2.22 billion) and jewelry as the fourth (US$ 2.21 billion) as of 2021.

### Personal income tax (PIT) progressivity and base broadening
- The 2021 budget proposal to expand the PIT base (to include pensions, allowances, etc.) was expected to yield 1.7 percent of 2021 non-oil GDP.
- The proposal aligns broadly with Mansour and Schneider (2019) principles; further revenues could be raised by increasing intermediate rates.
- Public sector salaries account for 41 percent of the tax base; it is important that public sector salaries are not increased to offset higher personal income tax rates.

### Tax expenditures and exemptions
- Notable tax exemptions in Iraq include:
  - Excluding public sector employee allowances from personal income tax.
  - Excluding state owned enterprises from corporate income tax.
- The personal income tax scale includes deductions from taxable income for wives and children.
- Tax expenditures are deviations from a benchmark tax system to provide financial support; in countries with available data, tax expenditures are estimated to reduce tax revenues by an average of around 4 percent of GDP (Haldenwang et. al. 2021).
- Evaluating tax expenditures requires improved data collection; as an intermediate step, the authorities could consider prevalence of similar exemptions in other countries and scope for elimination given urgency of raising non-oil revenue.

### Simplifying tax filing and taxpayer segmentation
- Consider replacing corporate income tax payments with lump sum taxes for smaller taxpayers to avoid detailed accounting and simplify administration, limiting compliance and litigation costs.
- New taxes should have a high enough threshold exempting smaller firms given limited administration capacity, with thresholds gradually reduced over time (Mansour and Schneider, 2019).
- In parallel with developing a self-assessment system, simplify tax filing to the maximum extent.

### Institutional reforms and federal–Kurdistan coordination
- Institutional reforms and coordination between federal and Kurdistan regional authorities should be enhanced; revenue gains from institutional reforms will take time to materialize.
- Invest sufficient resources in customs and revenue administrations; both suffer from difficulties in finding and retaining qualified staff and frequently poor working conditions, especially for customs.
- Differences in tax regimes between Kurdistan and the rest of Iraq can create arbitrage opportunities (e.g., imports of cars shifting to the Kurdistan region when taxed differently).
- Regular exchange of information and cooperation in enforcement are useful; closer cooperation between federal customs authorities and the KRG exists but progress remains slow.

### Medium-term steps: governance, VAT/GST, and inclusivity
- Enhancing governance:
  - Consolidate all tax receipts into the Treasury Single Account and entrust management to the Ministry of Finance.
  - Treat tax policy and tax administration jointly and time reforms in legislation and administration consistently.
  - Adopt a medium-term revenue strategy to reduce uncertainty and coordinate international donor involvement.
- Diversifying revenue sources:
  - Adopt value added tax (VAT) or a general sales tax (GST); VAT is preferable in principle but harder to administer.
  - Design features to increase VAT robustness: appropriately high registration thresholds, simple legislation (e.g., a single rate with limited exemptions).
  - Staff advice for GCC countries has been to allow 18–24 months between the political decision and implementation for VAT.
  - Back-of-the-envelope calculation: applying a VAT rate of 5 percent to 90 percent of private consumption as a share of GDP suggests possible revenues of 3.7 percent of non-oil GDP as of 2020.
  - If VAT is implemented, tariffs could be greatly simplified, leaving only those needed to protect selected domestic industries.
- Making the tax system more inclusive:
  - Gradually lower registration thresholds for turnover tax, VAT, etc.
  - Ensure all forms of personal income are taxed by withholding using a dual income tax system: progressive tax on salary income and a flat rate on other types of income (e.g., interest, capital gains).

### Structural reforms and economic diversification
- Low financial inclusion and widespread use of cash foster non-compliance; increasing financial inclusion and access to credit increases incentives for tax compliance.
- Iraq had a much higher share of currency in circulation in broad money and a much lower incidence of digital payments compared to peer countries; authorities have made progress by expanding point-of-sale machines, raising ceilings on bank card transactions, and reducing bank fees.
- Perceived weaknesses in control of corruption reduce tax compliance.
- Informal sector size and revenue impact:
  - Recent surveys found 80 percent and 60 percent of businesses are informal (CSO and KRSO in collaboration with UNDP).
  - Medina and Schneider (2018) estimate shadow economies in comparable countries (Algeria, Tunisia, Egypt) at between 30 to 35 percent of GDP; Qatar at 16 percent of GDP.
  - Reducing informality from 30 percent of GDP to 16 percent of GDP could yield around 0.8 percent of non-oil GDP in revenues (at current levels of tax revenues) and possibly more if other tax policy measures are effective.
- Tax design should consider impacts on informality:
  - Simplifying tax filing and taxing income by withholding could reduce informality.
  - Exempting the smallest businesses from CIT or replacing with lump sum taxes can reduce informality.
  - The tax wedge (additional social security contributions employers must pay) could increase informality.
- Economic diversification:
  - Iraq’s non-oil economy accounts on average for 57 percent of total GDP compared to 69 percent for MENAP OE (average of median share from 2011 to 2023).
  - Increasing the share of the non-oil economy to the MENAP OE median would increase non-oil revenues by 21 percent (0.6 percent of non-oil GDP, compared to the 2.3 percent envisaged from measures).
  - Policy recommendations for increasing economic diversification include strengthening the electricity sector and reforming the financial sector among others (IMF, 2023).

### Key statistics and indicators (as presented)
- Effective tariff rate: currently 1.2 percent of imports; targeted to 2.0 percent (67 percent increase).
- Revenue yield of tariff increase: 0.5 percent of 2023 non-oil GDP.
- Authorities’ previously indicated scope: 50 percent increase in customs revenues = 0.3 percent of non-oil GDP.
- PIT expansion yield (2021 budget proposal): 1.7 percent of 2021 non-oil GDP.
- Public sector salaries: account for 41 percent of the tax base.
- VAT illustrative revenue: 5 percent VAT applied to 90 percent of private consumption → 3.7 percent of non-oil GDP as of 2020.
- Informality indicators:
  - Business informality: 80 percent (CSO survey) and 60 percent (KRSO survey).
  - Informal employment share: 54.8 percent of total employment.
  - Formal sector employees with informal contracts: 26.1 percent.
  - Shadow economy comparable estimates: 30 to 35 percent of GDP (Algeria, Tunisia, Egypt); Qatar at 16 percent of GDP.
  - Potential revenue from reducing informality from 30 percent to 16 percent of GDP: around 0.8 percent of non-oil GDP.
- Non-oil economy share: Iraq average 57 percent of total GDP (2011–2023) vs. MENAP OE 69 percent (average of median share from 2011 to 2023).
- Potential increase in non-oil revenues from closing diversification gap: 21 percent (0.6 percent of non-oil GDP).
- Imports (2021): cars US$ 2.22 billion; jewelry US$ 2.21 billion.

*Source: IRAQ, INTERNATIONAL MONETARY FUND.*

### 7.      State dominance and distortive

### 7.      State dominance and distortive public employment policies

### Public sector size and labor market distortions
- The public sector is the largest employer in the economy, with a share of about 40 percent of total employment.
- Iraq has large and inefficient State-Owned Enterprises (SOEs) that control strategic and non-strategic sectors, many of which are loss making and heavily overemployed.
- Nominal wages and public sector employment have grown substantially over the past two decades:
  - Average annual growth in nominal wages: 12 percent.
  - Average annual growth in number of people employed in the public sector: 7 percent.
- Public employment crowds out private employment, distorts labor market and educational outcomes, and deprives the private sector of technical and vocational skills, contributing to lower productivity relative to the region.

### Compensation, pension and legislative drivers of public employment preference
- Public sector compensation and benefits:
  - Lowest wage in the statutory public sector appointment: IQD 400,000.
  - Minimum wage in the private sector: IQD 350,000.
  - Public sector has the lowest percentage of employees with low pay rate (defined as pay less than IQD 2,120 per hour) in their main job.
- Pension and retirement differences:
  - Minimum pension for private sector employees equals the minimum wage; maximum pension is capped at 80 percent of the reference salary of the last 5 years of service.
  - Minimum pension for public employees is IQD 500,000 with no cap on the maximum pension; reference salary is taken over the last 3 years of service.
  - Public employees face lower retirement age and higher livelihood and educational allowances compared to private sector employees.
- Legislative preferences and hiring mandates:
  - Law No.6 from 2000 obliges hiring of graduates from health and certain science degrees.
  - Law No.59 from 2017 mandates that public universities designate 20 percent of their allocated vacancies and government agencies 15 percent to holders of higher education degrees.
  - Law No.67 obliges government entities to employ the top three science and humanities graduates from public universities and institutions.
- Behavioral effects:
  - Anecdotal evidence indicates youth may wait years for public sector openings or work informally rather than seek formal private employment; some accept interim unpaid contracts anticipating absorption onto government payroll.

### Legal and institutional weaknesses
- Labor law provisions exist to protect workers’ rights, but enforcement is weak and contributes to high informality.
- Ministry of Labor and Social Affairs (MoLSA) capacity constraints:
  - Number of work inspectors: around 60 for about 8.6 million employed persons.
- Fragmentation and weak coordination across ministries on cross-cutting issues such as technical education.
- Weak social dialogue and union fragmentation:
  - Tripartite committees include representatives from one union covering private, mixed, and cooperative sectors, which is against ILO standards on Freedom of Association.
  - Law No. 52 (1987) constrains the formation of unions by specifying the number and sectors.

### Education outcomes, skill mismatches, and TVET shortcomings
- Education and workforce skills:
  - Over 55 percent of employed persons have elementary education or below.
  - Unemployment among those with university degree or above is high, especially among youth (over 60 percent).
  - LFS results show 67 percent of workers are under-skilled.
  - UNESCO (2019) found two thirds of employees in Wholesale, Retail and Vehicle Maintenance sectors are underqualified.
  - Only 17 percent of surveyed firms offer formal training to employees (World Bank Enterprise Survey 2022), below the MENA average of 21 percent.
- Higher-education bias toward public-job-guaranteeing degrees:
  - 14 percent of Iraqi graduates in academic year 2020/2021 were from medical and health related faculties.
  - MENA average for medical and health related graduates: 9.9 percent.
- Technical and Vocational Training (TVET) limitations:
  - Number of TVET centers in Iraq: 32.
  - TVET programs are short-term (around 2 months).
  - Since 2003, less than 15,000 graduates per year on average from TVET programs.
  - Low-skilled population currently: 1.7 million with low education attainment.
  - TVET centers fall under governorate councils while policies are set by MoLSA, creating monitoring and quality assurance challenges.

### Informality: drivers and decomposition
- Informality consequences:
  - Leaves workers without social security and formal representation.
  - Contributes to gender disparities (women prefer formal sector for protection).
  - Attracts low-skilled workers, contributing to lower productivity and wages.
  - Can act countercyclically during downturns but hinders re-transition to formality during recovery.
- Analytical approach:
  - An index of sociodemographic development constructed as the unweighted average of: average years of schooling, share of youth in the population, share of agricultural employment, and share of rural population (World Bank WDI).
  - Institutional and policy correlates grouped into business regulation, taxation, labor market regulation, and governance.
  - Gap analysis uses coefficients from Cardarelli and others (2022) to attribute informality to development level versus policy variables.
- Key quantified findings:
  - Compared with advanced countries, development level explains less than a quarter of informality in Iraq.
  - Policy distortions are the main drivers:
    - About 57 percent of the predicted employment informality surplus (relative to advanced economies) is associated with Iraq’s relatively lower quality of governance.
    - Business regulation and tax burden together contribute another 20 percent of the gap.
  - When compared to Middle East and Caucasus and Central Asia (CCA) regional peers, policy variables become even more important, especially business and labor market regulations, while governance remains the main contributor.
- Informal enterprise survey findings:
  - Administrative barriers (bureaucratic and complex registration procedures) and financial costs of formalization (social security contributions, registration fees, bribery and gifts) are cited as key impediments by informal businesses.

### Women’s labor force participation and potential gains
- Current participation:
  - Gap between men and women participation rate in Iraq: about 60 percent.
  - Female labor force participation: around 10 percent.
  - Gap between actual women participation and level implied by development (proxied by income level): 35 percent.
- Potential growth gains from female participation and education:
  - Doubling women participation to close the gap with the region by 2033 would add over 2 percent to potential growth (relative to the baseline where women participation remains at 2023 level).
  - Improving women’s education to regional levels, starting gradually after 2025, could add another 2 percent to growth and help stabilize overall potential growth at about 6 percent by 2033.
- Policy levers to close gender gap:
  - Increase female educational attainment.
  - Remove restrictions on women’s work and mobility, including laws that prohibit women from working at night and in certain professions.
  - Amend laws to equalize rights and protections for women.
  - Empirical analysis suggests these measures could reduce the current gender participation gap by 10 percentage points and bring it in line with the regional average.

### Macroeconomic scenarios and fiscal sustainability risks
- Under current policies (non-oil growth of about 2.5 percent over the medium term):
  - Unemployment rate projected to rise from 16.5 percent in 2021 to around 21 percent by 2033.
  - Youth unemployment expected to exceed 50 percent.
- Fiscal consequence of expanding public employment to absorb unemployment:
  - Wage bill would increase and reach unsustainable levels of over 23 percent of GDP and 50 percent of total budget expenditure by 2033.
  - High wage bill would crowd out essential budgetary outlays and productive spending and increase dependence on oil revenue amid expected decline in oil prices.
- Required non-oil growth to stabilize or reduce unemployment:
  - Sustained non-oil growth of around 4 percent annually over the next decade would be required to stabilize unemployment at current levels.
  - Reducing unemployment to 8.2 percent (halving current rate) would require non-oil growth estimated between 4–5.5 percent annually over the next ten years.
  - Growth alone may be insufficient without addressing structural factors underlying unemployment.

### Policy implications and priorities
- Recent reforms and programs:
  - 2023 Social Security Law for private sector workers expands coverage and benefits, includes voluntary participation for the self-employed and informal workers, and introduces unemployment benefits and insurance for maternity, employment injury and sickness.
  - New active labor market policies in 2023: electronic platform to match job seekers with private sector opportunities; registered individuals (1.7 million) allowed to apply for zero-interest loans to start small businesses.
- Remaining implementation and capacity challenges:
  - Private social security benefits remain below public ones; effective coverage is low due to regulatory hurdles and weak uptake.
  - MoLSA’s strained capacity raises concerns about effective delivery and administration of new programs.
- Policy priorities (implicit from analysis):
  - Rebalance employment creation toward private sector-led job creation and sustained non-oil growth closer to 5 percent.
  - Strengthen governance, simplify business regulation, and reduce tax/formalization costs to lower informality.
  - Reform public employment and pension regimes to reduce distortions and fiscal risks.
  - Improve education quality, expand and align TVET with industry needs, and scale up training and on-the-job learning in the private sector.
  - Address legal and institutional barriers affecting women’s participation and strengthen MoLSA capacity for labor market monitoring and policy implementation.

*Source: IMF country report chapter 7 — “State dominance and distortive public employment policies.”*

### 19.      A broad diversification is needed to reduce oil dependence and support private sector

### 19.      A broad diversification is needed to reduce oil dependence and support private sector 

### Diversification, governance, and infrastructure
- Key reforms to reduce oil dependence and support private sector development include:
  - Continued efforts to enhance governance and reduce corruption, identified as a major impediment to a conducive business environment.
  - Fixing the electricity sector to ensure sustainable service for both small and large businesses.
  - Financial sector reforms to increase access to finance, which is particularly important for SMEs development and their role in creating jobs.
- Small and medium firms in Iraq lack adequate access to finance as the biggest obstacle they face, followed by corruption and political instability as well as obtaining business permits for small business. (See accompanying staff report for further details.)

### Reducing informality
- Reform agenda should target reducing informality through:
  - Broad governance reforms.
  - Streamlining and simplifying business and labor regulations.
  - Enforcing business registration while avoiding adverse impacts on small businesses and employment by:
    - Revisiting fees and tax procedures to reduce cost of formalization.
    - Reducing red tape and other bureaucracy costs and time.

### Education and labor market reforms — four priority areas
- These reforms aim to expand Iraq’s potential economic growth.

H3. Public employment policies (priority 1)
- Objectives: create a level playing field between public and private sectors.
- Recommended measures:
  - Gradually phase out mandatory public hiring through legislative amendments that limit employment to the needs of the public sector and reduce the coverage of those included in these laws. Align Ministry of Higher Education policies (e.g., creation of new medical faculties) with the public sector’s ability to absorb graduates.
  - Adopt an attrition-based employment reduction strategy coupled with efforts to identify and eliminate redundant positions. Example approach: replace every three retirees with one new hire, with the right gender composition, to avoid exacerbating unemployment and gender gaps and to move in tandem with expansion in private jobs.
  - Strengthen control over payroll by completing biometric registration and creating a centralized database of government employees with detailed and regular reporting by each government 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.
  - More closely align compensation with the private sector and productivity growth by capping the maximum size of non-wage compensation (allowances) and linking future wage increases to economy-wide productivity gains; emphasize non-financial benefits such as maternity and unpaid leaves to reduce incentive for women to join the public sector.
  - Enhance the gatekeeper role of the Federal Civil Service Commission (FCSC) in approving hiring decisions including for contractual employees and align such approvals with budget planning and execution; eliminate provisions in various laws that mandate automatic government employment of university graduates.
  - Align pension system rules and benefits across public and private schemes to reduce labor market distortions. Note: currently, the contributory pension scheme for public sector employees provides greater benefits relative to the private sector, creating incentives to seek public sector jobs and a lock-in effect.

H3. Labor market institutions and law enforcement (priority 2)
- Create the right environment for private sector jobs by strengthening labor market institutions and law enforcement:
  - Build institutional capacity at the Ministry of Labor for effective labor inspection and active labor market policy management and monitoring.
  - Balance worker protection with employer flexibility in hiring and firing; overly stringent policies can raise compliance costs and increase informality and unemployment.
  - Recommended actions:
    - Enhance the role of labor unions and remove legal and institutional obstacles to forming them; develop union capacity and coordination to participate more in tripartite committees and policy dialogue.
    - Amend restrictive regulations (for example, labor law articles governing the firing process that require high-level approval to release a worker).

H3. Educational reforms and skills (priority 3)
- Align education curriculum with labor market needs; invest in digital and entrepreneurial skills.
- Key actions:
  - Significant and efficient investments to rehabilitate and recover the educational sector through additional infrastructure and qualified teachers.
  - Use complementary learning sources such as online learning platforms to ensure service continuity.
  - Modernize TVET curriculums, increase outreach and coverage, and partner with private firms to enhance training capabilities and better tailor programs to job requirements.
  - Expand skilling programs beyond recent graduates to out-of-school students to capture labor-intensive sectors that do not require formal tertiary education, such as construction and agriculture.

H3. Women’s participation in the workforce (priority 4)
- Address impediments to women’s workforce participation by:
  - Increasing women’s education attainment.
  - Amending laws that restrict women’s mobility, including removing current restrictions on work hours, and increasing workplace protection.
  - Note: Recent Approval of council of Ministers to ratify of ILO Convention on the Elimination of Violence and Harassment in the World of Work is a step forward; enforcement is critical.
  - Align maternity leaves in the private sector with the public sector, noting current public sector maternity leave appears generous in comparison to regional practices: 14 weeks compared to 6 months. The Labor Law also allows women, in agreement with the employer, an unpaid leave for up to one year to care for their child after birth. Literature highlights that paid maternity leaves can boost female employment but long leaves can incentivize prolonged labor market absence and skill loss (Areena and Maneely, 2018).
  - Other policies to raise women’s participation:
    - Encourage diversity practices to allow women to advance in their careers.
    - Encourage home businesses and access to finance for female-run businesses.
    - Increase use of digital payments to help women overcome mobility constraints.
    - Enforce the law on availability of daycare at workplace.
    - Improve access to safe transportation.

### Labor market data and monitoring
- Improving labor market data is critical for policy design and monitoring:
  - Key labour market data are unavailable or outdated, fragmented across official sources with little coordination.
  - There are no regular labor market surveys or integrated information systems; education and TVET data are fragmented.
  - Recommendation: leverage digital platforms and methods to collect and maintain data to monitor labor market structure, developments, and to design policies.

### Box 1 — The Education Sector in Iraq (key facts)
- Conflict and underinvestment have undermined education infrastructure and outcomes:
  - Half of the schools in Iraq need rehabilitation and more than 10,000 additional school buildings are needed.
  - Around 3.2 million school-aged Iraqi children are out of school, most concentrated in conflict-affected governorates.
  - Cost for reconstruction and recovery of the education sector is estimated to exceed IQD 5.4 trillion.
  - Public spending has been low and insufficient to address those needs.
- Human Capital Index (HCI) and learning:
  - HCI at 0.41 (second lowest in the MENA region).
  - Expected years of schooling: 6.9 years.
  - When adjusted for what students actually learn, expected years drop to 4 years.
  - Enrollment/attendance: nearly 92 percent attend primary education; 22 percent of children in lower secondary levels are out of school; 40 percent in upper secondary levels are out of school (ReliefWeb 2021).
- Innovation and digital skills:
  - GII 2022 rank: 131st out of 132 economies.
  - Coursera Global Skills report 2023 rank: 95 out of 100 countries with scores in Business, Technology and Data Science well below the MENA average.

### Box 2 — Contributors to Potential Growth (key methodologies and results)
- Method: Standard Cobb-Douglas production function with decomposition (equations provided in source).
- Data and assumptions:
  - Capital stock balance in 2004 from IMF database adjusted to remove oil capital stock based on historical average share of oil investment.
  - Depreciation rate of 3 percent.
  - Human capital proxied by human capital index per person (years of schooling and returns to education).
  - Assumed α = 0.3.
- Historical results (2004–2023):
  - Labor was the main contributor to potential growth, followed by physical capital; contribution of human capital is very small.
  - Total factor productivity grew on average by 0.74 percent during the period and contributed 18 percent to average non-oil growth of about 4 percent.
- Projections and scenarios to 2033:
  - Baseline: labor participation constant at 2023 level; Iraq’s growth potential is about 3 percent and declining with working age population growth.
  - Doubling women’s participation to close gap with region by 2033 would add over 2 percent to potential growth by 2033.
  - Improving human capital to regional levels (starting gradually after 2025) would add another 1.5 percent by 2033.
  - Combined reforms illustrate significant gains from education and labor market reforms.

### Box 2 — Role of women labor participation (empirical findings)
- Empirical approach: Fixed Effect panel regression for advanced and MENA countries over 1970–2021 with explanatory variables including GDP per capita, fertility, female tertiary attainment relative to male, vocational enrollment, and policy/legal indices from Women Business and the Law.
- Key results and interpretation:
  - High fertility negatively impacts female labor market engagement; effect on reducing female-male participation gap significant in MENA.
  - Female education relative to male significantly reduces the participation gap.
  - Mobility indicator (including ability to work at night) has a strong and significant impact in reducing the gap.
  - Other legal factors (marriage, pension, workplace laws) are either insignificant or have unexpected signs, likely reflecting weak law enforcement in MENA.
  - Using MENA coefficients to gauge Iraq, reforms bringing explanatory variables to the MENA average could reduce the male-female participation gap by 10 percentage points (bringing it in line with the MENA average).

### Box 3 — Responsiveness of employment to growth (elasticity estimates)
- Arc elasticity method (2007–2021, ILO data, 6 data points):
  - Elasticity = 0.97 for the whole period.
  - Range between 0.85-1.17 when dropping 2014-2016 (ISIS war impact) and 2021 (Covid impact).
- Econometric approach (2009–2023, Penn World Tables labor estimates):
  - Estimated equation: Ln(E_t) = 0.38 + 0.75*Ln(E_{t-1}) + 0.17*Ln(Y_t)
  - Long-term elasticity formula b/(1−ρ) gives elasticity of about 0.7.
- Combined interpretation:
  - Every one percent increase in growth leads to a 0.7-1.2 percent increase in employment.

*Source: IMF staff estimates and accompanying staff report (content from the provided chapter).*

### References

### References

### Labor markets, gender, and employment
- Arena, M., and M. Maneely, 2018, “Labor Market Outcomes in Montenegro: Challenges and Policy Options.” IMF Country Report No. 2018/122 (Washington: International Monetary Fund).
- Crivelli, E., D. Furceri, and J. Toujas-Bernat, 2012, “Can Policies Affect Employment Intensity of Growth? A Cross-Country Analysis.” IMF Working Paper No. 12/218 (Washington: International Monetary Fund).
- Hakura, D., M. Hussain, M. Newiak, V. Thakoor, and F. Yang. 2016. “Inequality, Gender Gaps and Economic Growth: Comparative Evidence from Sub-Saharan Africa.” IMF Working Paper 16/111, International Monetary Fund, Washington, DC.
- IMF, 2016. Unlocking Female Employment Potential in Europe; International Monetary Fund: Washington, DC, USA.
- Jaumotte, F. 2003, "Female Labor Force Participation: Past Trends and Main Determinants in OECD Countries", OECD Economics Department Working Papers, No. 376, OECD Publishing, Paris.
- Jain-Chandra Sonali, Kochhar Kalpana, Newiak Monique; Yang Yang; and Zoli Edda 2018, “Gender Equality: Which Policies Have the Biggest Bang for the Buck?” IMF Working Paper No. 2018/105.
- Lahire, Nathalie; Sedmik, Elisabeth; El Ghali, Hana Addam. “Building Forward Better to Ensure Learning for All Children in Iraq: An Education Reform Path (English).” (Washington, D.C.: World Bank Group). http://documents.worldbank.org/curated/en/430241627636852041/Building-Forward-Better-to-Ensure-Learning-for-All-Children-in-Iraq-An-Education-Reform-Path.
- Moosa, I. A., 2008, “Economic growth and unemployment in Arab countries: Is Okun's law valid?” Journal of Development and Economic Policies (English), Vol. 10, No. 2. pp. 5–24.
- Verick, S., 2018, Female labor force participation and development. IZA World of Labor 2018: 87.
- Coulibaly, K., J. Ma, and H. Qassis, 2023, “Palestinian Labor Market Outcomes, Dynamics, and Policies.” IMF Country Report No. 2023/147 (Washington: International Monetary Fund).

### Informality, SMEs, and enterprise performance
- Blancher, N. R., M. Appendino, A. Bibolov, A. P. Fouejieu, J. Li, A. Ndoye, A. Panagiotakopoulou, W. Shi, and T. Sydorenko, 2019, “Financial Inclusion of Small and Medium-Sized Enterprises in The Middle East and Central Asia.” IMF Departmental Paper. No. 19/02 (Washington: International Monetary Fund).
- Cardarelli, R., H. W. Balima, C. Maggi, A. Alter, J. Vacher, et al, 2022, “Informality, Development, and the Business Cycle in North Africa.” IMF Departmental Paper No. 2022/011 (Washington: International Monetary Fund).
- Stepanyan, V., G. Abajyan, A. Ndoye, and M. Alnasaa, 2019, “Enhancing the Role of SMEs in the Arab World—Some Key Considerations.” IMF Policy Paper No. 2019/040 (Washington: International Monetary Fund).
- White, S., 2012, “Micro, Small and Medium-sized Enterprises in Iraq; A Survey Analysis.” ILO Regional Office for Arab States.
- Iraq Central Statistical Organization, UNDP, and USAID, 2021, “Mixed Formal and Informal Micro, Small, and Medium-Sized Enterprises Surveys in the Governorates of Baghdad, Basra, and Nineveh: Iraq MSME 2020 Survey.” https://www.undp.org/iraq/publications/iraq-msme-2020-survey.
- World Bank, 2020, “Enterprise Surveys: What Businesses Experience - Iraq 2022 Country Profile.” https://www.enterprisesurveys.org/content/dam/enterprisesurveys/documents/country/Iraq-2022.pdf.
- World Bank, “Understanding Urban Informality in Iraq - Findings from the Informal Sector Enterprise Survey (English).” (Washington, D.C.: World Bank Group). http://documents.worldbank.org/curated/en/099071923151021596/P17163902cc6160b70abfd037bbb20e0958.

### Education, human capital, and skills
- United Nations Educational, Scientific and Cultural Organization, 2019, “Assessment of the Labour Market & Skills Analysis: Iraq and Kurdistan Region-Iraq.”
- Norwegian Refugee Council, Save the Children, Mercy Corps, and Nonviolent Peaceforce, 2021, “Gaps in Formal Education in Iraq Education Consortium of Iraq.” https://www.nrc.no/resources/reports/gaps-in-formal-education-in-iraq/.
- World Bank, “Addressing the Human Capital Crisis: A Public Expenditure Review for Human Development Sectors in Iraq (English).” http://documents.worldbank.org/curated/en/568141622306648034/Iraq-HD-PER-Final.
- University of Groningen and University of California, Davis, Index of Human Capital per Person for Iraq [HCIYISIQA066NRUG], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HCIYISIQA066NRUG, March 4, 2024.

### Social protection, pensions, and state-owned enterprises
- IMF, ILO, and World Bank, 2024, “Towards an Inclusive, Equitable, and Sustainable National Pension System in Iraq.” IMF Analytical Note 2024/001.
- Ramirez Rigo, E., C. J. Richmond, O. Akin Olugbade, G. Anderson, M. Atamanchuk, H. Bukhari, I. Ioannou, et al, 2021, “State-Owned Enterprises in Middle East, North Africa, and Central Asia: Size, Role, Performance, and Challenges.” IMF Departmental Paper No. 2021/019 (Washington: International Monetary Fund).

### Informal economy diagnostics and labor standards
- International Labour Organization, 2021, “A diagnostic of the informal economy in Iraq.” wcms_830086.pdf (ilo.org).
- International Labour Organization, “Promoting Decent Work in Iraq,” http://search.ilo.org/beirut/countries/iraq/WCMS_433682/lang--en/index.htm
- World Bank, “Understanding Urban Informality in Iraq - Findings from the Informal Sector Enterprise Survey (English).” (Washington, D.C.: World Bank Group). http://documents.worldbank.org/curated/en/099071923151021596/P17163902cc6160b70abfd037bbb20e0958.

*References compiled from the source content provided.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1irqea2024002.pdf_