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### Recent developments and macroeconomic summary
- Real non-oil GDP growth: 13.8 percent in 2023; estimated 2.5 percent in 2024.
- Oil production: fell by 6.2 percent in 2024 to 3.86 million barrels per day (mbpd).
- Crude oil exports: 3.4 mbpd in 2024.
- Refining capacity: expanded to 1.25 mbpd in 2024; contributed to a 40 percent reduction in fuel imports in 2024.
- Inflation: 3.7 percent in July 2024; 2.7 percent by year-end 2024; 2.2 percent in March.
- Fiscal deficit: estimated at 4.2 percent of GDP in 2024, up from 1.1 percent in 2023; largely financed by arrears accumulation.
- Domestic arrears: close to IDQ 14 trillion (3.8 percent of GDP) in 2024.
- Wages and pensions: increases contributed 2.9 percent of GDP to the rise in spending versus 2023; 2 percent of GDP of this increase due to payments to the Kurdistan Regional Government pursuant to a Supreme Court decision.
- Oil price required to balance the budget: around $84 in 2024, up from $54 in 2020.
- Key selected indicators (2024–26 highlights):
  - Population: 44.4 million (2024 est.)
  - Per capita GDP: US$ 6,183 (2024)
  - Real GDP (% change): 2024 Est. -2.3; 2025 Proj. 3.1; 2026 Proj. 1.4
  - Non-oil real GDP (% change): 2024 Est. 2.5; 2025 Proj. 1.0; 2026 Proj. 1.5
  - Inflation, end of period (%): 2024 Est. 2.7; 2025 Proj. 2.9; 2026 Proj. 2.9
  - Fiscal balance (% of GDP): 2024 Est. -4.2; 2025 Proj. -7.5; 2026 Proj. -9.2
  - Total government debt (% of GDP): 2024 Est. 47.2; 2025 Proj. 47.2; 2026 Proj. 62.3
  - Gross reserves (US$ billions): 2024 Est. 100.3; 2025 Proj. 91.0; 2026 Proj. 79.2
  - Exchange rate (dinar per US$; period average): 2024 Est. 1300; 2025 Proj. 1300; 2026 Proj. 1300
  - Crude oil production (millions of barrels/day): 2024 Est. 3.9; 2025 Proj. 4.1; 2026 Proj. 4.1
  - Average crude oil export price (US$/barrel): 2024 Est. 80.6; 2025 Proj. 65.9; 2026 Proj. 62.0
  - Crude oil exports (US$ billions): 2024 Est. 99.2; 2025 Proj. 84.2; 2026 Proj. 79.2

### Outlook, risks, and vulnerabilities
- Growth: non-oil GDP growth projected to moderate further in 2025 and remain subdued absent decisive structural reforms; non-oil GDP growth forecast 1 percent in 2025.
- Oil sector: oil GDP projected to expand by 5 percent in 2025 as voluntary production cuts unwind starting in April.
- Reserves and external buffers: CBI reserves projected to fall to $54 billion by 2030 (around 5 months of imports) under negative flows and net financial outflows.
- Balance of risks: tilted to the downside—oil price volatility and OPEC+ decisions; potential regional conflicts; inability to replace electricity imports from Iran; climate-change vulnerabilities.
- Sovereign stress: risks of sovereign debt stress have risen given lower oil prices and financing constraints.

### Fiscal policy findings and recommendations
- Short-term measures:
  - Review 2025 current and capital spending plans.
  - Limit or postpone all non-essential expenditure in the very short term.
- Medium-term consolidation:
  - Stabilizing debt would require additional fiscal consolidation of 1–1.5 percent of non-oil GDP per year.
  - Staff recommended fiscal adjustment of around 5.8 percent of non-oil GDP during 2026-30 (between 1 and 1.5 percent of non-oil GDP per year).
- Revenue-side measures:
  - Strengthen tax administration.
  - Increase customs duties and excise taxes.
  - Reform personal income tax by limiting exemptions and implement PIT reform in stages.
  - Introduce a general sales tax in the medium term.
- Spending-side measures:
  - Comprehensive public wage bill reforms: limit mandatory hiring and adopt an attrition rule.
  - Improve targeting of the Public Distribution System and shift to cash-based social safety nets over time.
  - Urgently reform the public pension system: raise the retirement age and reduce accrual and replacement rates.
- Specific policy yields (percent non-oil GDP, cumulative over 2025 to 2030):
  - Payroll tax reform: 1.5 - 1.8
  - Excise taxes and / or customs duties: 0.5 - 1
  - Gradually introducing a GST or VAT: 0.7 - 2.3
  - Implementing attrition rule and caps on mandatory hiring: 2.7 - 3
  - Improving social safety net targeting: 0.4 - 0.5
  - Total policy measures: 5.8 - 8.6
- Use of savings:
  - Around two-thirds of savings would reduce the overall deficit and stabilize public debt by 2030; one third would support an increase in non-oil investment by around 20 percent relative to the baseline.
  - Priority investment areas: trade and transportation infrastructure; electricity generation and distribution (authorities estimate over US$ 31 bn needed); natural gas development.

### Current account, reserves, and 2024 outcome
- Current account surplus: decreased to 2 percent of GDP in 2024, down from 7.5 percent in 2023.
- Drivers of decline: near US$20 billion increase in goods imports; net financial outflows over US$18 billion (including cost recovery payments to international oil companies near US$ 6 billion; a US$7 billion decline in net asset repatriation by residents; US$6 billion of errors and omissions).
- CBI reserves: around US$ 100 billion at end-2024, around US$ 11 billion less than in December 2023; covering over 11 months of goods imports.
- Medium-term trade/current account: projected weakness due to growing imports bill and large services deficit.

### Downside scenario (Box 1)
- Assumption: oil prices drop to $57 per barrel in 2025 and 2026 (vs baseline $65.9 and $62).
- Consequences:
  - Overall deficit would widen around 11.5 percent of GDP for 2025 and 2026.
  - Current account projected to turn into a deficit of 4.3 percent in 2025 and 4.6 percent in 2026.
  - Faster decline in gross international reserves expected: almost US$12 billion (2 months of imports) and over US$30 billion lower than in the baseline.
- Policy implications: need for fiscal savings and additional revenues; monetary financing may become unavoidable in the crisis scenario.

### Monetary and financial sector policies
- Liquidity management:
  - Excess reserves-to-deposits ratio peaked at 48 percent in June 2024; declined to around 31 percent by February (year not specified).
  - CBI restarted OMOs in November 2024 with 14-day and 182-day maturities.
  - New OMO participation restrictions: banks limited to investing 50 percent of a bank’s private sector deposits; capping participation in a single auction at ID 500 bn.
  - Policy recommendations: increase issuance of CB-bills (short maturity 14-day) at the policy rate; revise bid size limits; enhance liquidity forecasting; avoid monetary financing of the deficit.
- Banking sector reforms:
  - Comprehensive restructuring of state-owned banks (SOBs) needed to address nonperforming loans and capital shortfalls.
  - Authorities’ plan highlights establishment of a new entity, Rafidain First, with minority government ownership after transfer of assets and liabilities; Rafidain Bank to remain state-owned; Al-Rasheed Bank to be merged with Rafidain.
  - Clarifications needed on transfer modalities, NPL treatment, and recapitalization financing.
  - Capital adequacy ratio remains significantly above minimum requirements primarily due to low risk-weights on public sector exposure and very low levels of corporate lending; ratio of nonperforming loans remained elevated, at around 16 percent.
- Financial integrity and AML/CFT:
  - Address weaknesses in AML/CFT frameworks; Iraq adopted a five-year strategy action plan to address MENAFATF deficiencies.
  - Since January 2025, all legitimate international transactions processed by commercial banks through CBRs; CBI replenishes CBR balances weekly and audits usage for AML/CFT compliance.

### Debt dynamics, stress tests, and medium-term projections (selected)
- Baseline public debt (percent of GDP): 2024: 47.25; 2025: 54.36; 2026: 62.36; 2027: 66.97; 2028: 71.17; 2029: 74.57; 2030: 77.68; 2034: 92.6.
- Change in public debt (percent of GDP): 2024: 5.1; 2025: 7.2; 2026: 8.0; 2027: 4.6; 2028: 4.2; 2029: 3.4; 2030: 3.1.
- Gross financing needs (GFN) (percent of GDP): 2024: 7.3; 2025: 14.8; 2026: 18.1; 2027: 18.4; 2028: 17.7; 2029: 18.2; 2030: 19.0; 2034: 23.5.
- Debt fanchart index (DFI): 4.5; Risk signal: 3/High.
- GFN financeability index (GFI): 25.9; Risk signal: 4/High.
- Final medium-term assessment: "Prob. of missed crisis, 2025-2030, if stress not predicted: 81.8 pct." "Prob. of false alarms, 2025-2030, if stress predicted: 0.0 pct."
- Staff assessment: absent concrete plans to rein in the public wage bill or mobilize non-oil revenues, government debt expected to increase by around 23 percentage points of GDP over the medium term.

### Structural reforms, governance, and anti-corruption
- Structural agenda could double non-oil potential GDP growth in the medium term via reforms in labor markets, business regulation, financial sector, and governance.
- Key priorities:
  - Enhance labor force participation, especially among women.
  - Reform public sector hiring and improve vocational training.
  - Simplify regulations to encourage formalization and private sector development.
  - Electricity sector: speed up billing and collection improvements; then pursue tariff adjustments with targeted subsidies.
- Governance and anti-corruption:
  - CPI rose from 16 in 2013 to 26 in 2024, but corruption remains a major concern.
  - Recommendations: fully implement the 2019 EITI Standard; enact a Law on Transparency and Access to Information; reform asset and interest declaration regime; bolster NAZAHA independence and enforcement; align Penal Code with UNCAC by including trading in influence, illicit enrichment, and private sector bribery.
- Annex VI recommendations include sectoral lead agencies (e.g., Ministry of Oil, NAZAHA, Ministry of Justice) for transparency, anti-corruption instruments, institutional arrangements, rule of law, and legal frameworks.

### Data, diagnostics, and technical assistance
- Data Adequacy Assessment Rating: D (overall); major shortcomings in national accounts, government finance statistics, external sector statistics, and IIP reporting.
- Corrective actions and capacity development priorities:
  - METAC and STA technical assistance on national accounts, CPI weights, customs data (ASYCUDA pilot), GFS, PSDS, and balance of payments work.
  - Extensive TA chronology 2016–25 across FAD, LEG, MCM, STA, ICD with numerous missions and workshops through April 2025.

*Source: IMF staff report for the 2025 Article IV consultation.*

### 13.8 percent in 2023 to an estimated 2.5 percent in 2024, impacted by reduced public

### IRAQ: STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION

### Recent developments and macroeconomic summary
- Real non-oil GDP growth: 13.8 percent in 2023; estimated 2.5 percent in 2024, reflecting reduced public investment, a weaker trade balance, financing constraints, and accumulation of arrears.
- Oil production: fell by 6.2 percent in 2024 to 3.86 million barrels per day (mbpd).
- Crude oil exports: 3.4 mbpd in 2024.
- Refining capacity: expanded to 1.25 mbpd in 2024; contributed to a 40 percent reduction in fuel imports in 2024.
- Inflation: 3.7 percent in July 2024 (rebound after temporary suspension of CBI liquidity operations); 2.7 percent by year-end 2024; 2.2 percent in March (driven by seasonal food and beverage price drops).
- Fiscal deficit: estimated at 4.2 percent of GDP in 2024, up from 1.1 percent in 2023; largely financed by arrears accumulation.
- Domestic arrears: close to IDQ 14 trillion (3.8 percent of GDP) in 2024, notably on fuel, electricity purchases, and capital expenditure.
- Wages and pensions: increased, contributing 2.9 percent of GDP to the rise in spending versus 2023; 2 percent of GDP of this increase due to payments to the Kurdistan Regional Government pursuant to a Supreme Court decision.
- Oil price environment: the oil price required to balance the budget increased to around $84 in 2024, up from $54 in 2020; recent decline in oil prices further constrains financing.

### Outlook, risks, and vulnerabilities
- Growth outlook: non-oil GDP growth projected to moderate further in 2025 and remain subdued absent decisive structural reforms.
- Financing and fiscal risks: financing constraints that emerged in 2024 are expected to worsen in light of lower oil prices; risks of sovereign debt stress have risen.
- External buffers: projected decline in foreign exchange reserves increases fiscal and external sustainability risks.
- Structural headwinds: high unemployment, excessive state footprint, weak banking sector, pervasive corruption, and inefficient electricity sector weigh on potential growth.
- Policy imperative: urgent policy action required to address rising sovereign stress risks and to stabilize debt and liquidity.

### Fiscal policy findings and recommendations
- Short-term measures:
  - Review 2025 current and capital spending plans.
  - Limit or postpone all non-essential expenditure in the very short term.
- Medium-term fiscal consolidation:
  - Stabilizing debt would require additional fiscal consolidation of 1–1.5 percent of non-oil GDP per year.
  - Develop a fiscal framework to limit spending during commodity price booms and encourage saving of oil windfalls to build buffers.
- Revenue-side measures:
  - Strengthen tax administration.
  - Increase customs duties and excise taxes.
  - Reform personal income tax by limiting exemptions.
  - Introduce a general sales tax in the medium term.
- Spending-side measures:
  - Comprehensive public wage bill reforms: limit mandatory hiring and adopt an attrition rule.
  - Further improve targeting of the Public Distribution System and shift to cash-based social safety nets over time.
  - Urgently reform the public pension system: raise the retirement age and reduce accrual and replacement rates.
- Public investment:
  - Protect crucial non-oil capital expenditures for trade and transportation infrastructure, electricity sector modernization, and natural gas development.
  - Improve procurement, public financial management, and address corruption to boost effectiveness of public investments.
- Debt and PFM:
  - Update debt management strategy and improve public financial management to contain macro-fiscal and liquidity risks.

### Monetary and financial sector policies
- Liquidity and monetary policy transmission:
  - Mop up excess liquidity and improve monetary policy transmission.
  - Increase issuance of CB-bills, focusing on short-term instruments piloted by the policy rate; adjust bid size limits; refine liquidity forecasting tools.
- Banking sector reforms:
  - Continue and accelerate efforts to strengthen the domestic financial system.
  - Comprehensive restructuring of state-owned banks needed to address nonperforming loans and capital shortfalls.
  - Improve corporate governance and digital infrastructure in banks.
  - CBI to explore reforms to strengthen private banking: ownership structure, business model sustainability, regulatory requirements.
  - Support mutual confidence between banks and customers: develop a credit bureau and stronger deposit guarantee scheme.
- Financial integrity:
  - Address weaknesses in anti-money laundering and counter-terrorism financing (AML/CFT) frameworks; AML/CFT deficiencies remain a priority.
- Recent operational reforms:
  - Successful transition to the new trade finance system now fully managed by commercial banks through their CBRs; contributed to reduced spread between official and parallel market exchange rates.

### Structural reforms and governance
- Growth potential:
  - A comprehensive structural reform agenda (labor market, business regulation, financial sector, governance) could double non-oil potential GDP growth in the medium term.
- Labor market and human capital:
  - Enhance labor force participation, especially among women, by improving education and removing legal barriers.
  - Reform public sector hiring to boost productivity.
  - Improve vocational training programs to align skills with market needs.
- Business environment:
  - Simplify regulations and reduce bureaucratic obstacles to encourage formal economy participation and private sector development.
- Electricity sector:
  - Speed up efforts to improve billing and collection; once collection substantially improves, achieve cost recovery via electricity tariff increases with carefully calibrated subsidies targeted to low-income users.
- Anti-corruption and governance:
  - Continue combating pervasive corruption and addressing governance weaknesses.
  - Strengthen accountability in state-owned and private enterprises; comply strictly with EITI standards.
  - Enact a Law on Transparency and Access to Information; align legal frameworks with international best practices.
  - Enhance the independence of NAZAHA to improve enforcement and protect economic rights.

### Data, diagnostics, and technical assistance
- Data deficiencies:
  - Major data deficiencies persist and can undermine IMF surveillance; addressing the most pressing data gaps is essential.
  - Build on the numerous capacity development (CD) initiatives Iraq has received; focus on incorporating pilot initiatives into disseminated data in a timely manner.

### Key selected economic indicators (2024–26)
- Population: 44.4 million (2024 est.)
- Per capita GDP: US$ 6,183 (2024)
- Quota: SDR 1,663.8 million
- Poverty rate: 23 percent (2014)
- Main products and exports: Crude oil
- Key export markets: United States, India, China, South Korea

- Output
  - Real GDP (% change): 2024 Est. -2.3; 2025 Proj. 3.1; 2026 Proj. 1.4
  - Non-oil real GDP (% change): 2024 Est. 2.5; 2025 Proj. 1.0; 2026 Proj. 1.5

- Prices
  - Inflation, end of period (%): 2024 Est. 2.7; 2025 Proj. 2.9; 2026 Proj. 2.9

- Central Government Finances
  - Revenues and grants (% of GDP): 2024 Est. 39.3; 2025 Proj. 36.9; 2026 Proj. 34.6
  - Oil revenue (% of GDP): 2024 Est. 36.0; 2025 Proj. 33.3; 2026 Proj. 31.0
  - Expenditure and net lending (% of GDP): 2024 Est. 43.5; 2025 Proj. 44.4; 2026 Proj. 43.8
  - Wages and pensions (% of GDP): 2024 Est. 22.0; 2025 Proj. 24.0; 2026 Proj. 24.5
  - Fiscal balance (% of GDP): 2024 Est. -4.2; 2025 Proj. -7.5; 2026 Proj. -9.2
  - Non-oil primary balance (% of non-oil GDP): 2024 Est. -59.3; 2025 Proj. -54.2; 2026 Proj. -51.8
  - Total government debt (% of GDP): 2024 Est. 47.2; 2025 Proj. 47.2; 2026 Proj. 62.3

- Money and Credit
  - Broad money (% change): 2024 Est. -4.3; 2025 Proj. 9.6; 2026 Proj. 4.9
  - Credit to the private sector (% change): 2024 Est. 14.3; 2025 Proj. 5.4; 2026 Proj. 8.4

- Balance of Payments
  - Current account (% of GDP): 2024 Est. 2.0; 2025 Proj. 0.2; 2026 Proj. -1.9
  - Foreign direct investment (% of GDP): 2024 Est. 0.0; 2025 Proj. 0.0; 2026 Proj. 0.0
  - Gross reserves (US$ billions): 2024 Est. 100.3; 2025 Proj. 91.0; 2026 Proj. 79.2
  - In months of imports: 2024 Est. 11.1; 2025 Proj. 11.1; 2026 Proj. 9.6
  - Total external debt (% of GDP): 2024 Est. 20.6; 2025 Proj. 20.8; 2026 Proj. 21.0

- Exchange Rate
  - Exchange rate (dinar per US$; period average): 2024 Est. 1300; 2025 Proj. 1300; 2026 Proj. 1300

- Oil and Gas Sector
  - Crude oil production (millions of barrels/day): 2024 Est. 3.9; 2025 Proj. 4.1; 2026 Proj. 4.1
  - Crude oil exports (millions of barrels/day): 2024 Est. 3.4; 2025 Proj. 3.5; 2026 Proj. 3.5
  - Average crude oil export price (US$/barrel): 2024 Est. 80.6; 2025 Proj. 65.9; 2026 Proj. 62.0
  - Crude oil exports (US$ billions): 2024 Est. 99.2; 2025 Proj. 84.2; 2026 Proj. 79.2

*Source: IMF staff report for the 2025 Article IV consultation.*

### 8. The current account surplus shrunk in 2024 amid historically high i mports. The current

### 8. The current account surplus shrunk in 2024 amid historically high imports. The current

### Current account, reserves, and 2024 outcome
- Current account surplus decreased to 2 percent of GDP in 2024, down from 7.5 percent in 2023.
- Exports revenues were nearly unchanged; the decline in the surplus was driven by a near US$20 billion increase in goods imports, reflecting an upsurge in domestic construction activities and improvements in trade finance and the imports recording system.
- The current account surplus was more than offset by over US$18 billion of net financial outflows, driven primarily by:
  - cost recovery payments to international oil companies near US$ 6 billion (equivalent to 7 percent of oil production),
  - a US$7 billion decline in net asset repatriation by residents,
  - US$6 billion of errors and omissions.
- After US$2 billion of positive valuation gains, CBI reserves stood at around US$ 100 billion at the end of 2024, around US$ 11 billion less than in December 2023, covering over 11 months of goods imports.
- External sector assessment: external position broadly in line with fundamentals and desirable policies; intergenerational equity considerations call for a significantly higher current account surplus (Annex II).

### Outlook and key macro projections
- Non-oil GDP growth forecast: 1 percent in 2025.
- Oil GDP projection: expand by 5 percent in 2025 as voluntary production cuts unwind starting in April; gradual increase in oil GDP growth expected from 2026 onward.
- Projected 22 percent decline in oil prices in 2025 will likely put pressure on the trade balance, partially offset by projected moderation in the historically high import volumes of 2023–24.
- Medium-term trade/current account: increasing oil export revenues after 2026 expected to contribute positively but less than previously expected; overall current account expected to remain weak due to growing imports bill and a chronically large services deficit.
- With negative current account flows and net financial outflows, CBI reserves projected to fall to $54 billion by 2030 (around 5 months of imports).
- Balance of risks tilted to the downside: exposure to oil price volatility and OPEC+ decisions; potential regional conflicts; inability to replace electricity imports from Iran; climate-change vulnerabilities.

### Authorities’ views
- Authorities acknowledge short-term challenges and risks of further oil price declines but remain cautiously optimistic on medium-term prospects, emphasizing efforts to expand oil production capacity to enable gradual resumption of capital expenditures.
- Authorities view financial sector strengthening—restructuring state-owned banks and modernizing private banks—as likely to support higher credit provision and economic diversification.

### Fiscal policy assessment and risks
- Fiscal deficits projected to remain elevated over the medium term due to rigid current spending and declining oil revenues; financing pressures compound challenges.
- Oil revenues expected to decline until 2026 before a small recovery; oil revenues will continue to hover at more than 90 percent of government revenue through 2030.
- Share of salaries and pensions in total expenditure projected to increase to 54 percent by 2030.
- Staff assumes full effects of hirings in late 2024 materialize in 2025 and continued hiring in the medical sector and public sector salary growth (in line with CPI) over the medium term.
- Absent concrete plans to rein in the public wage bill or mobilize non-oil revenues, government debt expected to increase by around 23 percentage points of GDP over the medium term; gross financing needs would remain elevated; DSA points to high risks of sovereign distress (Annex IV).
- Given spending rigidities, expenditure restraint will likely rely on lower capital spending, adversely affecting growth.

### Policy recommendations and adjustment framework
- Urgency increased by the 2025 oil price decline: staff recommended cutting or postponing all non-essential expenditure for 2025 and faster non-oil revenue mobilization.
- Monetary financing of the deficit should be avoided as it could fuel inflation, drain FX reserves, and weaken the CBI’s balance sheet and should be a last resort; authorities should prioritize financing from other domestic or external sources.
- Staff recommended fiscal adjustment to stabilize public debt-to-GDP while protecting the vulnerable and containing cuts to capital spending: additional measures of around 5.8 percent of non-oil GDP during 2026-30 (between 1 and 1.5 percent of non-oil GDP per year).
- Social spending to be protected; improve targeting of the public distribution system and explore gradual shift toward cash benefits.
- Specific policy measures (cumulative yields, percent non-oil GDP):
  - Revenue mobilization: measures yielding at least 2.7 percent of GDP (around half of necessary adjustment). Near-term priority measures: (i) modifying customs duties and/or increasing or introducing excise taxes; (ii) implementing a personal income tax (PIT) reform in stages (broadening tax-free allowances; adjusting tax brackets and rates).
  - Additional measures such as possible introduction of a general sales tax should yield at least 0.7 percent of non-oil GDP over the medium term.
  - Current expenditure restraint: capping/eliminating mandatory public sector hiring and comprehensive wage bill reform remain priorities. An attrition rule (e.g., one new hire replacing two retirees) could save at least 2.7 percent of non-oil GDP by 2030, complemented by improved payroll management and public pension reform.

### Suggested policy yields (percent non-oil GDP, cumulative over 2025 to 2030)
- Payroll tax reform: 1.5 - 1.8
- Excise taxes and / or customs duties: 0.5 - 1
- Gradually introducing a GST or VAT: 0.7 - 2.3
- Implementing attrition rule and caps on mandatory hiring: 2.7 - 3
- Improving social safety net targeting: 0.4 - 0.5
- Total policy measures: 5.8 - 8.6

### Implications and use of savings
- Around two-thirds of savings would reduce the overall deficit and stabilize public debt by 2030; one third would support an increase in non-oil investment by around 20 percent relative to the baseline.
- Priority additional investment areas: trade and transportation infrastructure; electricity generation and distribution (authorities estimate over US$ 31 bn needed); natural gas development to increase energy security and reduce reliance on gas imports from Iran.
- Effectiveness of non-oil investment enhanced by improved procurement, PFM, public investment management, and anti-corruption measures.

### Public pension reform
- Reform necessary to decrease medium-term fiscal burden and mitigate labor market distortions.
- Without reform, State Pension Fund could face depletion by end-2027, potentially requiring increasing budgetary support from around 0.5 percent of GDP annually.
- Recommended reforms: parametric adjustments—raising retirement age, reducing accrual rate, and changing pension benefit calculation methodology; leverage IMF-WB-ILO insights and the 2017 Draft Retirement and Social Security Law for Workers.

### Fiscal institutions and medium-term framework
- Strengthen medium-term fiscal framework, public financial management, and adopt a new debt management strategy.
- Ministry of Finance should improve budget formulation based on realistic financing availability and implementation capacity, oversee line ministries and public enterprises, properly record arrears, and develop a repayment plan.
- Develop a medium-term debt management strategy to assess role, risks, and costs of financing options and support shift away from CBI financing.
- Adopt a rule-based fiscal framework (e.g., targeting steady improvement in non-oil primary balance) to limit pro-cyclicality, save windfalls, and build buffers; prerequisites include better statistics, macro-fiscal forecasting, stronger PFM, Fund capacity development, and durable political consensus.

### Downside scenario (Box 1)
- Constructed consistent with global downside assumptions: oil prices drop further to $57 per barrel in 2025 and 2026 compared with baseline forecasts of $65.9 and $62 respectively.
- Consequences:
  - Overall deficit would widen around 11.5 percent of GDP for 2025 and 2026.
  - Current account projected to turn into a deficit of 4.3 percent in 2025 and 4.6 percent in 2026.
  - Faster decline in gross international reserves expected: almost US$12 billion (2 months of imports) and over US$30 billion lower than in the baseline.
- Policy implications: need for fiscal savings and additional revenues; monetary financing may become unavoidable in the crisis scenario; ad-hoc measures (wage ceilings, limiting food rationing eligibility, ad-hoc levies) could provide temporary relief but are not substitutes for comprehensive reforms such as payroll tax reform.
- Monetary risks: vigilance against inflationary impacts of monetary financing; suggested measures include communicating a clear fiscal consolidation strategy and ramping up sterilization efforts.

*Source: IMF staff summary of the chapter "8. The current account surplus shrunk in 2024 amid historically high imports. The current" from the provided PDF.*

### 22. Excess bank reserves, although

### 22. Excess bank reserves, although

### Excess liquidity and monetary policy transmission
- Excess reserves-to-deposits ratio peaked at 48 percent in June 2024, driven by the central bank’s decision to pause open market operations (OMOs).
- By February this year, excess liquidity declined to around 31 percent.
- The CBI restarted OMOs in November 2024, with two maturities: 14-day and 182-day.
- New OMO participation restrictions introduced:
  - Banks limited to investing 50 percent of a bank’s private sector deposits.
  - Capping participation in a single auction at ID 500 bn.
- Allowing SOBs in 2024 to use part of their reserves to purchase discounted Treasury-bills contributed to the initial decline in excess reserves.
- Elevated excess liquidity can weaken monetary policy transmission, making interest rate adjustments less effective in influencing credit conditions and inflation.

### Policy recommendations to mop up liquidity
- Increase issuances, focusing on CB bills at the short maturity (14-day) issued at the policy rate.
- Revise size limits on individual banks’ bids and cap participation to improve allocation.
- Enhance the CBI’s framework for liquidity forecasting by improving the predictability and frequency of OMOs; accelerate implementation of recent Fund technical assistance.
- Avoid monetary financing of the deficit to:
  - Maintain price stability.
  - Safeguard the CBI balance sheet and preserve credibility.
- Caution against practices that expand the monetary base without corresponding increases in foreign exchange reserves or market-based sterilization, including allowing SOBs to use required reserves to purchase discounted treasury bills.

### State-owned banks (SOBs) and financial sector reforms
- Iraq’s two largest SOBs are undercapitalized due to large legacy assets, have poor corporate governance, weak accounting and risk management practices, and their market dominance has impeded private bank development.
- Authorities’ restructuring plan highlights:
  - Establishment of a new entity, Rafidain First, that will have minority government ownership following transfer of assets and liabilities from Rafidain Bank.
  - Rafidain Bank to remain state-owned focusing on managing government accounts.
  - Al-Rasheed Bank would be merged with Rafidain.
- Clarifications still needed on:
  - Modalities for transfer of assets and liabilities between the old and new bank.
  - Treatment of non-performing loans.
  - Financing sources for recapitalization.
- Reform priorities:
  - Enhance corporate governance and operational capacity.
  - Develop banking digital infrastructure.
  - Explore reform options to strengthen the private banking sector, including ownership structure, business model sustainability, regulatory requirements, a credit bureau, and a stronger deposit guarantee scheme.
- Capital adequacy ratio remains significantly above minimum requirements primarily due to low risk-weights on public sector exposure and very low levels of corporate lending; ratio of nonperforming loans remained elevated, at around 16 percent.

### Trade finance, exchange rate dynamics, and AML/CFT
- Since January 2025, all legitimate international transactions are processed by commercial banks through correspondent banking relationships (CBRs); CBI replenishes their CBR balances at a weekly frequency in line with FX demand and audits usage for AML/CFT compliance.
- Transition supported decline in spread between official and unofficial parallel market exchange rate and increased bank customers.
- Further measures to reduce the spread suggested:
  - Promote use of Iraqi dinars in domestic transactions, including car and real estate transactions.
  - Improve border customs checks to reduce smuggling and informal trade.
  - Support private banks expanding CBR networks (including non-USD currencies) by strengthening regulatory framework, enhancing risk-based supervision (notably on AML/CFT), and fostering collaboration with global financial institutions.
- Iraq adopted a five-year strategy action plan to address deficiencies identified in the 2024 MENAFATF mutual evaluation.
- Update of the National Risk Assessment should deepen understanding of ML/TF risks, including cross border cash smuggling; CBI should strengthen understanding of ML/TF risks of financial activities under its purview to support more effective supervision.

### Structural and fiscal context relevant to liquidity and banking stability
- Non-oil GDP growth potential estimated to range between 3 and 4 percent, mostly driven by demographics.
- Non-oil sector growth slowed from 13.8 percent in 2023 to an estimated 2.5 percent in 2024.
- Oil price required to balance the budget increased to around $84 in 2024, up from $54 in 2020.
- A sizable fiscal adjustment is recommended:
  - In the very short term, review 2025 current and capital spending plans and limit or postpone all non-essential expenditure.
  - Over the medium term, stabilizing debt would require an additional fiscal consolidation of 1-1.5 percent of non-oil GDP per year.
  - Revenue-side options: strengthen tax administration; increase customs duties and excise taxes; reform personal income tax including by limiting exemptions; introduce a general sales tax in the medium term.
  - Spending-side options: comprehensive public wage bill reforms (limit mandatory hiring and adopt an attrition rule); improve targeting of the public distribution system and shift to cash-based social safety nets; reform public pension system by raising retirement age and reducing accrual and replacement rates.
- Fixing the electricity sector is critical:
  - Close to ID 16 trillion in operating expenses in 2022 and only around ID 2 trillion in revenues collected for electricity sold, most from public entities.
  - Measures taken: installing smart meters, introduced a subscription fee, streamlined payment processes; deployment slow and collection weak.
  - Recommendations: strengthen bills collection and enforcement; authorize contracts with private providers for electricity distribution; aim for full cost recovery through increased collection and tariff increases with limited cross-subsidization for low-income users.
- Anti-corruption and data improvements:
  - Iraq’s Corruption Perception Index improved from 16 in 2013 to 26 in 2024, but corruption remains a major public concern.
  - Recommended actions: improve anti-corruption legal and institutional frameworks; enact an updated anti-corruption strategy prioritizing macro-critical vulnerabilities; align corruption offences with UNCAC; strengthen enforcement; enact a Law on Transparency and Access to Information; fully implement the 2019 Standard of the Extractives Industries Transparency Initiative (EITI); publish asset and interest declarations of top-level officials and improve enforcement; enhance independence of the Federal Commission of Integrity (NAZAHA).
  - Staff urged intensifying efforts to improve data collection and dissemination, especially external sector and national accounts statistics; authorities are collaborating with the Fund on technical assistance.

### Authorities’ views and recent actions
- CBI is reviewing its liquidity management framework and is considering increasing issuance of the 14-day instrument at the policy rate to absorb excess liquidity.
- Authorities view transition to the new trade finance system as smooth and contributing to narrowing the exchange rate spread.
- Authorities reaffirm commitment to restructuring the two largest state-owned banks and to modernizing the private banking sector.
- Authorities remain committed to implementing recommended actions from the MENAFATF mutual evaluation.
- COSIT acknowledged weaknesses in National Accounts data and the need for more resources and better training management.

*Source: IMF staff report excerpt on Iraq (chapter text).*

### 43. A comprehensive structural reform agenda is vital to unlock growth potential.

### 43. A comprehensive structural reform agenda is vital to unlock growth potential.

### Structural reform priorities and potential impact
- Estimates suggest reforms in the labor market, business regulation, financial sector, and governance could double non-oil potential GDP growth in the medium term.
- Key reform priorities:
  - Enhance labor force participation, especially among women, by improving education and removing legal barriers.
  - Reform public sector hiring to boost productivity.
  - Improve vocational training programs to align skills with market needs.
  - Simplify regulations and reduce bureaucratic obstacles to encourage formal economy participation and support private sector development.
  - Undertake electricity sector reform to address chronic power shortages and inefficiencies that weigh on productivity and economic growth.
- Electricity sector sequencing:
  - Authorities are encouraged to speed up efforts to improve billing and collection.
  - Once collection substantially improves, achieving cost recovery will also require electricity tariff increases, with carefully calibrated subsidies targeted to low-income users.

### Governance and anti-corruption measures
- Further actions are needed to combat pervasive corruption and address governance weaknesses despite progress in implementing the national anti-corruption strategy and improving corruption perception.
- Essential measures to strengthen enforcement and protect economic rights:
  - Strengthen accountability in state-owned and private enterprises.
  - Comply strictly with EITI standards.
  - Enact a Law on Transparency and Access to Information.
  - Align legal frameworks with international best practices.
  - Enhance the independence of NAZAHA.
- Strengthening governance would also enhance the effectiveness of core state functions critical to economic activity, such as fiscal governance and financial sector oversight.

### Data gaps and statistical priorities
- Major data deficiencies in Iraq can significantly undermine the robustness of IMF surveillance by leading to incomplete or inaccurate assessments of the economic situation and possibly jeopardizing effective policy recommendations.
- Building on the numerous CD (capacity development) efforts Iraq has received, it is essential to:
  - Focus on the most pressing data gaps.
  - Incorporate pilot initiatives into disseminated data in a timely manner.

### Consultation timing
- It is proposed that the next Article IV consultation with Iraq take place on the standard 12-month cycle.

*Source: IMF staff report excerpt.*

### Annex I. Implementation of the 2024 Article IV Recommendations

### Annex I. Implementation of the 2024 Article IV Recommendations

### Fiscal
- Recommendation: Stabilizing debt over the medium term through fiscal adjustment, while protecting critical social and capital spending, can be achieved by reducing the outsized public wages and mobilizing additional non-oil revenues. Improving the public financial management through strictly controlled and monitored access to extrabudgetary funds and adhering to the government guarantee framework.
- Status: Not Implemented.
- Findings:
  - "The authorities have yet to design their medium-term consolidation plan and specific policy measures to better control the wage bill and mobilize non-oil revenue."

### Monetary and financial sector
- Recommendation: Absorbing the large excess liquidity by ensuring better coordination between fiscal and monetary policies and improving monetary policy transmission. Restructure largest SOBs.
- Status: Partially Implemented.
- Findings:
  - "Excess liquidity declined as CBI resumed its liquidity operations in November 2024, but it remains at relatively high levels."
  - "Plans for SOB restructuring have been laid out, but implementation has not started yet."

### Governance
- Recommendation: Continue to strengthen AML/CFT framework including in the financial sector. Adopting an updated anti-corruption strategy for the 2025-2030 period, along with designing and enforcing adequate follow-up mechanisms. Enhancing Public procurement framework and business regulations, updating asset declaration and conflict of interest policies, and protecting enforcement officials' independence.
- Status: Partially Implemented.
- Findings:
  - "To address the deficiencies identified in the MENAFATF report, the authorities are taking steps that include submitting to Parliament an amended AML/CFT law and reassessing sector level risks (¶27)."
  - "A new anti-corruption strategy for the period 2025-2030 has not been adopted. However, authorities have taken steps to design and adopt the new strategy."

### Social safety nets
- Recommendation: Expanding targeted social transfers by ensuring PDS target the more vulnerable households. A comprehensive pension reform by setting rules and benefits, aligning public and private pension systems to reduce distortions in the labor market and reduce burden on public sector.
- Status: Partially Implemented.
- Findings:
  - "The improved targeting of PDS for the most vulnerable households resulted in savings of 0.5 percent of GDP."
  - "Pension system reform remains urgent."

### Labor markets
- Recommendation: Enact legislative reforms to remove gender-based work restrictions and increase equality and protection in the labor market. Reduce costs of formalization, enact legislative reforms to phase-out mandatory hiring in the public sector. Strengthen vocation training and technical and digital skills.
- Status: Not Implemented.

### Electricity Sector
- Recommendation: Develop a reform strategy to improve cost recovery, reduce arrears.
- Status: Partially Implemented.
- Findings:
  - "The Ministry of Electricity has developed a plan to reduce distribution losses and increase revenues, resulting in a 20 percent increase in collection in 2024."
  - "However, improvements to the distribution network, including the installation of smart meters, lag behind."
  - "Moreover, full cost recovery can only be achieved by increasing the tariff rate and limiting subsidization as, for most consumers, the average tariff remains below service cost."

*Annex I. Implementation of the 2024 Article IV Recommendations*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors

### Coverage and recording issues
- Coverage of the SRDSA is for central government only; the authorities do not reported consolidated accounts including EBFs and SSFs.
- Authorities: mission enquired debt data availability for EBFs and SSFs and are waiting for the authorities' response.
- Basis of recording / valuation notes present, including:
  - Nominal value: "the amount the debtor owes to the creditor."
  - Face value: "the undiscounted amount of principal to be paid at (or before) maturity."
  - Market value: "the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values."
- Reporting on intra-government debt holdings: entries show various holders (Central govt, Extra-budget. funds, Social security funds, State govt., Local govt., Nonfin pub. corp., Central bank, Oth. pub. fin. corp.) but the coverage fields in the source table are 0 or blank, indicating missing consolidation across these sectors.

### Public debt structure indicators (central government perimeter)
- Debt by currency and instrument dynamics presented in figures (central government perimeter only).
- Projection narrative: "Over the medium term, the baseline assumes increased net financing from domestic banks and some access to foreign bond markets. However, residual financing needs are expected to rise substantially, met by the CBI through the issuance of T-bills, amortized over 10 years—reflecting an implicit assumption of continued rollover."
- Residual maturity: "6. years"
- Maturity buckets shown: "≤ 1 year", "1-5 years", "> 5 years" (percent of GDP charts for marketable vs nonmarketable debt).

### Medium-term risk assessment and stress indicators
- Debt fanchart and risk indices:
  - Debt fanchart index (DFI): 4.5
  - Risk signal: 3/High (per legend)
  - Probability of debt non-stabilization: 96.60.8 (percent) — values presented together in the source.
  - Terminal debt-to-GDP x: 70.91.5 (percent) — values presented together in the source.
- Gross Financing Needs (GFN) module:
  - Average baseline GFN: 17.76.0 (percent of GDP) — values presented together in the source.
  - Initial Banks' claims on the gen. govt (pct bank assets): 15.65.0 — values presented together in the source.
  - Change in banks' claims in stress (pct banks' assets): 44.214.8 — values presented together in the source.
  - GFN financeability index (GFI): 25.9
  - Risk signal: 4/High
- Final medium-term assessment:
  - "Final assessment: Prob. of missed crisis, 2025-2030, if stress not predicted: 81.8 pct."
  - "Prob. of false alarms, 2025-2030, if stress predicted: 0.0 pct."
- Comparator group: "emerging markets, commodity exporter, surveillance."

### Realism of baseline assumptions
- Forecast track record and historical output gap revisions are illustrated; color-code notes indicate percentile comparisons versus peers.
- Laubach (2009) rule referenced: "a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio."
- Scenarios for fiscal adjustment and growth use multipliers: "Multiplier=0.5", "Multiplier=1", "Multiplier=1.5".
- Distribution percentiles noted for 3-year debt reduction and 3-year adjustment in cyclically-adjusted primary balance (percentile thresholds such as 75th percentile values cited in figure notes).

### Baseline scenario (selected series from Table 2)
- Public debt (percent of GDP), Actual 2024 and projections 2025–2034:
  - 2024: 47.25
  - 2025: 54.36
  - 2026: 62.36
  - 2027: 66.97
  - 2028: 71.17
  - 2029: 74.57
  - 2030: 77.68
  - 2031: 81.68
  - 2032: 85.58
  - 2033: 89.39
  - 2034: 92.6
- Change in public debt (percent of GDP):
  - 2024: 5.1
  - 2025: 7.2
  - 2026: 8.0
  - 2027: 4.6
  - 2028: 4.2
  - 2029: 3.4
  - 2030: 3.1
  - 2031: 4.0
  - 2032: 3.9
  - 2033: 3.9
  - 2034: 3.3
- Contribution of identified flows (percent of GDP):
  - 2024: 5.3
  - 2025: 5.5
  - 2026: 7.6
  - 2027: 4.5
  - 2028: 4.2
  - 2029: 3.4
  - 2030: 3.1
  - 2031: 3.8
  - 2032: 3.8
  - 2033: 3.7
  - 2034: 3.2
- Primary deficit (percent of GDP):
  - 2024: 3.6
  - 2025: 6.0
  - 2026: 7.7
  - 2027: 6.7
  - 2028: 6.1
  - 2029: 5.5
  - 2030: 5.3
  - 2031: 5.3
  - 2032: 5.3
  - 2033: 5.3
  - 2034: 5.3
- Noninterest revenues (percent of GDP): 2024: 39.2; 2025: 36.8; 2026: 34.5; 2027–2034 generally around 35.0–34.8.
- Noninterest expenditures (percent of GDP): 2024: 42.8; 2025: 42.8; 2026: 42.3; 2027: 41.7; 2028: 41.2; subsequent years 40.6–40.1.
- Automatic debt dynamics (percent of GDP): 2024: -0.3; 2025: 1.6; 2026: 0.5; 2027: -2.4; 2028: -2.0; 2029: -2.3; 2030–2034 range -2.3 to -1.6 etc.
- Real interest rate and relative inflation (percent): 2024: -1.0; 2025: 3.0; 2026: 1.2; 2027: 0.8; 2028: 0.5; 2029: 0.5; 2030: 0.6; 2031: 1.4; 2032: 1.6; 2033: 1.7; 2034: 1.3
  - Real interest rate (component): 2024: -1.1; 2025: 4.7; 2026: 1.6; 2027: 0.9; 2028: 0.4; 2029: 0.4; 2030: 0.6; 2031: 1.6; 2032: 1.7; 2033: 1.8; 2034: 1.3
  - Relative inflation (component): 2024: 0.0; 2025: -1.7; 2026: -0.4; 2027: -0.1; 2028: 0.1; 2029: 0.1; 2030: 0.0; 2031: -0.1; 2032: -0.1; 2033: -0.1; 2034: 0.0
- Real growth rate (percent): 2024: 1.0; 2025: -1.4; 2026: -0.7; 2027: -3.2; 2028: -2.5; 2029: -2.8; 2030: -3.0a.; 2031: -3.1; 2032: -3.2; 2033: -3.4; 2034: -3.5
- Other identified flows (percent of GDP): 2024: 2.1; 2025: -2.1; 2026: -0.6; 2027: 0.2; 2028–2034: 0.2 each year.
- Contribution of residual (percent of GDP): 2024: -0.3; 2025: 1.7; 2026: 0.4; 2027: 0.1; 2028: -0.1; 2029: -0.1; 2030: 0.0; 2031: 0.1; 2032: 0.1; 2033: 0.2; 2034: 0.1
- Gross financing needs (GFN) (percent of GDP):
  - 2024: 7.3
  - 2025: 14.8
  - 2026: 18.1
  - 2027: 18.4
  - 2028: 17.7
  - 2029: 18.2
  - 2030: 19.0
  - 2031: 20.1
  - 2032: 21.3
  - 2033: 22.5
  - 2034: 23.5
- Of which: debt service (percent of GDP):
  - 2024: 3.8
  - 2025: 8.9
  - 2026: 10.4
  - 2027: 11.8
  - 2028: 11.7
  - 2029: 12.7
  - 2030: 13.7
  - 2031: 14.9
  - 2032: 16.1
  - 2033: 17.3
  - 2034: 18.3
- Memo items:
  - Real GDP growth (percent): 2024: -2.3; 2025: 3.1; 2026: 1.4; 2027: 5.4; 2028: 3.9; 2029: 4.1; 2030–2034: 4.1 each year.
  - Inflation (GDP deflator; percent): 2024: 2.6; 2025: -6.3; 2026: -0.1; 2027: 1.4; 2028: 2.2; 2029: 2.3; 2030: 2.2; 2031: 0.9; 2032: 0.9; 2033: 0.9; 2034: 1.6
  - Nominal GDP growth (percent): 2024: 0.2; 2025: -3.4; 2026: 1.2; 2027: 6.9; 2028: 6.2; 2029: 6.4; 2030–2034: 6.4 each year.
  - Effective interest rate (percent): 2024: 0.0; 2025: 3.3; 2026: 2.9; 2027: 2.9; 2028: 2.9; 2029: 2.9; 2030: 3.0; 2031: 3.0; 2032: 3.1; 2033: 3.1; 2034: 3.1
- Local currency vs foreign currency gross financing composition (percent of GDP):
  - Local currency GFN: 2024: 2.7; 2025: 7.2; 2026: 8.8; 2027: 10.2; 2028: 10.8; 2029: 12.2; 2030: 13.1; 2031: 14.3; 2032: 15.5; 2033: 16.8; 2034: 17.9
  - Foreign currency GFN: 2024: 1.1; 2025: 1.7; 2026: 1.6; 2027: 1.6; 2028: 0.9; 2029: 0.6; 2030: 0.6; 2031: 0.6; 2032: 0.5; 2033: 0.5; 2034: 0.4

### Data adequacy and quality (Annex V)
- Data Adequacy Assessment Rating: D (overall). Median Rating row: D B D D B C D (sectoral ratings shown).
- Detailed questionnaire results highlight serious shortcomings in multiple areas:
  - National accounts: major revisions, delays, lack of regular reliable and comprehensive source data for some industries and for GDP by expenditure.
  - Prices: CPI covers only urban areas in all governorates; CPI weights being updated from 2022 HSES; technical challenges and delays reported.
  - Government finance statistics: serious shortcomings in coverage (e.g., lack of data on pension funds and KRG), expenditure by function, and reconciliation; limited reporting of stock and transactions in assets and liabilities.
  - Monetary and Financial Statistics: reported by CBI with delays and monthly frequency; IIP not reported since 2016 (refers to 2014 data point); CBI does not report data on non-bank institutions.
  - External sector statistics: serious timeliness and quality shortcomings due to weak inter-institutional data sharing, absence of reliable customs data, inadequate source data for international oil company transactions; private sector imports undercoverage (only imports paid through Iraqi banking system captured); external trade statistics omit Kurdistan region and make no smuggling estimates.
- Changes since last Article IV: limited changes since the 2024 Article IV; monetary and financial statistics rate downgraded because CBI does not provide data on non-financial institutions.
- Corrective actions and capacity development priorities:
  - METAC missions in 2024 to improve national accounts, price statistics, financial and monetary statistics, and external sector statistics.
  - Assistance to CSO for supply and use tables and CPI weight updates (using HSES rapid response survey data; full update pending HSES).
  - Assistance to improve customs data including implementation of ASYCUDA (pilot phase).
  - Remote 2024 STA balance of payments mission validated key data sources and suggested way forward.
  - METAC diagnostic mission under GFS and PSDS workstream assessed conditions and future TA needs for fiscal and debt statistics.

### Table of Common Indicators Required for Surveillance (high-level notes)
- As of May 2025, data provision status summarized for standard indicators (exchange rates, international reserve assets, reserve/base money, broad money, central bank balance sheet, consolidated banking sector balance sheet, interest rates, CPI, government revenue/expenditure/balance, stocks of central government and central government-guaranteed debt, external current account balance, exports and imports of goods and services, GDP/GNP, gross external debt, IIP).
- Example timeliness/frequency entries (as presented):
  - Exchange Rates: Latest observation Apr-25; Date Received May-25; Frequency D; Expected Timeliness D
  - International Reserve Assets and Reserve Liabilities: Latest observation Jan-25; Date Received Apr-25; Frequency M; Expected Timeliness 1M 2M
  - Reserve/Base Money: Latest observation Jan-25; Date Received Apr-25; Frequency M; Expected Timeliness 2M 1M
  - Stocks of Central Government and Central Government-Guaranteed Debt: Latest observation Dec-24; Date Received Feb-25; Frequency A; Expected Timeliness 2Q 2-  3M
  - External Current Account Balance: Latest observation Sep-23; Date Received Dec-24; Frequency Q; Expected Timeliness 1Q 9-15M
- Several entries for Gross External Debt and International Investment Position are marked "NA" for Latest observation / Date received.

*Source: IMF staff estimates, projections, and data presented in the chapter "5. Debt consolidation across sectors."*

### Annex VI. Improving Governance and Reducing Corruption

### Annex VI. Improving Governance and Reducing Corruption

### Key findings on governance and corruption
- Iraq’s score on Transparency International’s Corruption Perceptions Index (CPI) rose from 16 in 2013 to 26 in 2024.
- Audits by the Bureau of Supreme Audit (BSA), initiatives to strengthen public financial management, and digitization of corruption-prone processes contributed to recent improvements in international corruption perception indices.
- A third of Iraqis continue to identify corruption as the most pressing challenge facing the country.
- The National Risk Assessment considers corruption as posing one of the two highest threat of money laundering in Iraq.
- Corruption vulnerabilities are particularly acute in public spending and the oil and electricity sectors.
- Political agreements adopted post-2003 are viewed as having fostered exploitation of state institutions for personal and partisan gain, undermining credibility and obstructing reform.
- Government contracts in the oil industry have been affected by favoritism and embezzlement.
- The electricity sector exhibits significant corruption vulnerabilities, hampering development of a self-sufficient energy grid and prompting corruption investigations.

### Anti-corruption and transparency frameworks (gaps and needs)
- The National Anti-corruption Strategy has not been updated after the expiry of the previous one in 2024.
- Iraq's Penal Code No. 111 of 1969 criminalizes offering or accepting gifts or benefits to influence official duties (Articles 307 to 314) but lacks adequate provisions on trading in influence, illicit enrichment, and private sector bribery.
- Recommendation in text: the Penal Code should be reformed to include a comprehensive range of missing corruption offenses, with clear definitions and penalties aligned with the United Nations Convention Against Corruption (UNCAC).
- A draft Right of Access to Information Law filed with Parliament in 2024 has not been approved and contains significant shortcomings (vague exceptions, inadequate oversight). The draft should be aligned with best practices and enacted promptly.
- The asset and interest declaration regime is weak and poorly enforced:
  - Top-level public officials are legally required to submit asset declarations, but compliance is inconsistent and enforcement mechanisms are inadequate.
  - The Federal Integrity Commission (NAZAHA) lacks necessary autonomy and resources to audit and enforce compliance effectively.
  - Enhancing NAZAHA’s capacity and ensuring publication of asset declarations are critical.
- Extractive Industries Transparency Initiative (EITI) implementation is incomplete:
  - Challenges remain in timely publication of beneficial ownership data and comprehensive reporting on state-owned enterprise transactions.
  - Accelerating implementation of the 2019 EITI Standard is essential for improved governance in oil and gas sectors.
- Institutional safeguards are required to protect the independence of oversight bodies:
  - NAZAHA and the BSA face insufficient operational autonomy despite producing important audit results.
  - Current appointment mechanism for the head of NAZAHA relies solely on nomination by the Prime Minister, with limited transparency and no formal competitive or merit-based selection requirement; parliamentary approval offers limited insulation from political influence.
  - Absence of clear legal safeguards on dismissal increases vulnerability of NAZAHA leadership.
  - Strengthening appointment frameworks through open, competitive processes involving independent oversight is recommended.

### Rule of law (issues and needs)
- Public confidence in the judiciary is low: 42 percent of Iraqis express significant trust in the legal system, while 44 percent report having no trust at all.
- Enforcement of property rights and contract enforcement is hampered by outdated procedures, limited digitalization, lack of transparency in property registries, institutional capacity constraints, and competing land governance regimes.
- Recent efforts to accelerate E-land governance in Iraq are welcomed.
- Judicial independence is fragile:
  - Constitutional provisions assert judiciary independence, but judges face external pressures and internal clashes among high courts within the judiciary.
  - Political interference is a concern in high-profile or sensitive cases.
  - Absence of robust mechanisms to protect judges from pressure undermines impartial adjudication.
  - Strengthening judicial independence requires secure tenure, transparent appointment and promotion processes, and protections against intimidation and undue influence.

### Recommendations (as presented)
- Transparency
  - Strengthen oversight over the extractive sector by fully implementing the EITI Standard, publishing contracts, and disclosing beneficial ownership data. — Leading agency: Ministry of Oil
  - Reform the asset and interest declaration regime, ensuring digital submission, public access, and risk-based audits of top officials' declarations. — Leading agency: NAZAHA
  - Align draft law on Access to Information with best practice and enact promptly. — Leading agencies: NAZAHA and Ministry of Communications
- Anti-corruption Policy Instrument
  - Adopt an updated National Anti-corruption Strategy, with clear goals, follow up instruments, and a coordinating body. — Leading agency: NAZAHA
- Institutional Arrangement
  - Bolster the independence of NAZAHA through legal and institutional reforms, ensuring a merit-based selection process with strong vetting protocols conducted by credible anti-corruption experts with international experience. — Leading agencies: NAZAHA, BSA, Ministry of Justice
- Rule of Law
  - Enhance contract enforcement and property rights protection by digitizing registries, improving access to legal information, and ensuring due process. — Leading agency: Ministry of Justice (General Directorate of Land Registry and Cadastre (GDLRC))
  - Accelerate the put in place of an E-Land management platform. — Leading agency: Ministry of Justice (GDLRC)
- Legal frameworks
  - Reform the Penal Code or adopt dedicated anti-corruption legislation, clearly defining or revamping all corruption-related offenses, including trading in influence, obstruction of justice, private-sector corruption, and illicit enrichment. — Leading agency: Ministry of Justice

*Source: Annex VI. Improving Governance and Reducing Corruption (excerpt).*

### 2016. It concluded that the CBI continues to face capacity constraints in its operations, as well as a

### 1irqea2025001-source-pdf - 2016. It concluded that the CBI continues to face capacity constraints in its operations, as well as a

### Governance and capacity constraints
- The 2016 assessment concluded that the CBI continues to face capacity constraints in its operations, as well as a difficult security situation on the ground.
- In line with the IMF safeguards assessment's recommendations the Governing Council of the CBI approved a new charter for the Audit Committee prohibiting CBI executive representation on the committee.
- The Parliament has approved amendments to the Law on the Central Bank of Iraq to strengthen CBI governance and the internal control framework.
- Progress in strengthening the capacity of internal audit and financial reporting has been slow.

### Exchange Rate Arrangement
- Iraq’s de jure and de facto exchange rate arrangements are classified as a conventional peg arrangement.
- The Central Bank Law gives the Board of the Central Bank of Iraq (CBI) the authority to formulate exchange rate policy.
- Effective February 8, 2023, the official exchange rate was set at ID 1,320 according to the closing prices of the daily bulletin of gold & main currencies published on the CBI website (www.cbi.iq).
- Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2 but no longer maintains any restrictions under this provision.
- Iraq does not maintain any current account exchange restrictions or MCPs.
- Starting January 2025, all international transactions have been routed through commercial banks via their correspondent banking relationships (CBRs).
- The Central Bank of Iraq (CBI) replenishes these balances weekly based on foreign exchange demand and conducts audits to ensure that the allocated funds are used in compliance with AML/CFT regulations.
- Private banks are also encouraged to broaden their CBR networks, particularly with non-U.S. financial institutions.

### Article IV Consultation
- The last Article IV consultation was concluded on May 13, 2024.
- The staff report (IMF Country Report No. 2024/128) was published on May 16, 2024, and is available on the internet.

### Resident Representative
- Mr. Mohamed Jaber has been the Resident Representative for Iraq, based in Amman since July 2024.

### Iraq: Technical Assistance, 2016–25 (high-level chronology by Department)
- FAD
  - March 2016: Public financial management law
  - August 2016: Implementing a commitment controls system (METAC)
  - February 2017: Revenue administration: tax policy
  - February 2017: PFM: commitment controls, cash management, treasury single account (METAC)
  - March 2017: Advice on a modern LTO/Tax administration
  - July 2017: Seminar on commitment control system
  - January 2018: Assist in the development of an IT System
  - February 2018: Commitment controls, cash management and TSA (FAD-METAC)
  - March 2018: Improved integration of asset and liability management framework
  - April 2018: Follow-up on establishment and functioning of large taxpayer office
  - July 2018: Follow-up on Treasury Single Account and Cash Flow Management Unit (METAC)
  - July 2018: Budget classification and chart of accounts (METAC)
  - August 2018: Implementation plan for new sales taxes (METAC)
  - March 2019: Budget classification and chart of accounts (METAC)
  - June 2019: Managing guarantees and extra-budgetary funds (METAC)
  - December 2020: Operationalizing the guarantee framework (METAC)
  - April 2021: Customs valuation, rules of origin and tariff classification of goods (METAC)
  - August 2021: Audit and verification for Large Taxpayers Department (METAC)
  - September 2021: Expenditure control (METAC)
  - November 2021: Cash forecasting (METAC)
  - December 2021: Audit and verification for industry sectors in Large Taxpayers Department (METAC)
  - February 2022: Program and performance budgeting (METAC)
  - April 2022: Annual cash forecasting (METAC)
  - August 2022: Modernizing the organizational structure of HQ and regional offices (METAC)
  - September 2022: Participation in Word Bank TADAT assessment (METAC)
  - May 2023: Assess Readiness of the General Commission for Taxes in Applying the Self-Assessment System (METAC)
  - July 2023: Follow-up Mission on Modernizing the Organizational Structure of the HQand the Regional offices (METAC)
  - October 2023: Design Necessary Legislative Amendments to Support Implementation of the Self-Assessment (METAC)
  - November 2023: Customs Law Review and Legal Drafting Mission (with METAC and LEG)
  - December 2023: Support General Commission of Taxes to Develop Medium-term Reform Plan (METAC)
  - February 2024: Customs Law: Draft and Review Risk Management Regulations (with METAC and LEG)
  - April 2024: Completing the New Organizational Model of the General Commission of Taxes (METAC)
  - May 2024: Support Iraq Customs on its Law Review (with METAC and LEG)
  - July 2024: Review and Redesign of the Self-Assessment Implementation Mechanism (METAC)
  - July 2024: TSA Workshop 1
  - October 2024: Customs Law-implementing Regulations (with METAC and LEG)
  - December 2024: Review and Redesign Tax Forms (METAC)
  - January 2025: Review Large Taxpayers Criteria (METAC)
  - January 2025: TSA Workshop 2

- LEG
  - January 2016: Anti-money laundering activities
  - March 2016: Cross-border financial flows
  - June 2016: AML/CFT: Review of the framework to implement targeted financial sanctions
  - December 2016: UNODC seminar on Strengthening the Legal Regime Against Terrorism in Iraq
  - December 2016: Program TA in Central Bank Law
  - December 2017: Review of AML/CFT law and integration of internal comments
  - January 2018: Review of the "AML/CFT Regulations for Dealers in Precious Metals and Stones"
  - January 2018: Review of the "Process for Implementing Targeted Financial Sanctions"
  - June 2019: Guarantees and extra-budgetary funds management
  - March 2023: AML/CFT

- MCM
  - March 2016: Seminar on foreign exchange regimes and controls (Joint LEG/MCM)
  - September 2016: Reserve management workshop
  - November 2016: Regulations on capital adequacy and liquidity (METAC)
  - March 2017: Regulations on credit risk (METAC)
  - March 2017: Banking supervision: upgrade CBI prudential regulations (METAC)
  - April 2017: Banking supervision (METAC)
  - June 2017: Improving regulatory framework (METAC)
  - February 2018: Improving regulatory framework—follow-up (METAC)
  - September 2018: Regulatory framework of internal audit (METAC)
  - November 2018: Training on dealing with weak banks (METAC)
  - November 2018: Forecasting and Policy Analysis System (FPAS)
  - September 2019: Implementation of Basel III (METAC)
  - January 2020: Basel II & III capital adequacy requirements (METAC)
  - June 2020: Basel II & III capital adequacy requirements (METAC)
  - July 2021: Risk Management Regulation
  - October 2021: Regulation and Supervision of E-Money Institutions
  - March 2022: Regulation and Supervision
  - August 2022: Capital Framework for Islamic Banks
  - March 2023: Central Bank Liquidity Instruments (METAC)
  - April 2023: Financial Supervision and Regulation of Commercial Banks (METAC)
  - October 2023: Central Bank Operations: Domestic Interbank Market (METAC)
  - March 2024: Supervision and Regulation of Islamic Banks
  - April 2024: Enhancing Regulatory Reporting for Islamic Banks (METAC)
  - June 2024: Internal Capital Adequacy Assessment Process (ICAAP) Regulation Development (METAC)
  - November 2024: Monetary Operations and Liquidity Monitoring (METAC)
  - December 2024: Supervisory Review Process (METAC)
  - January 2025: Supervisory Review Process (SRP)/Development of the Risk Matrix (METAC)
  - February 2025: Supervisory Review Process (SRP)/Development of the Risk Matrix Follow-up (METAC)

- STA
  - January 2016: National accounts statistics (METAC)
  - March 2016: Government finance statistics
  - March 2016: External sector statistics
  - April 2016: Financial stability indicators
  - January 2017: National accounts (METAC)
  - January 2017: External sector statistics (METAC)
  - February 2017: Price statistics (METAC)
  - August 2017: National accounts (METAC)
  - April 2018: External sector statistics (METAC)
  - August 2018: National accounts (METAC)
  - October 2018: Price statistics (METAC-EDDI2)
  - December 2018: Government finance statistics
  - December 2018: FSI: Financial soundness indicators
  - July 2019: Consumer price index and producer price index (METAC)
  - September 2019: External sector statistics (METAC)
  - February 2020: FSI: Financial soundness indicators
  - February 2020: National accounts (METAC)
  - July 2020: Producer price index (METAC)
  - September 2020: Consumer price index and producer price index
  - October 2020: National accounts (METAC)
  - December 2020: Producer price index
  - June 2021: Improvement of annual national accounts
  - December 2021: External sector statistics
  - December 2021: Government finance statistics
  - February 2022: Supply and use tables
  - June 2022: Producer Price Index and Residential Property Price Index
  - October 2022: Consumer Price Index (METAC)
  - February 2023: Supply and use tables (METAC)
  - March 2023: Consumer Price Index (METAC)
  - July 2023: Supply and use tables (METAC)
  - August 2023: Residential Property Price Statistics
  - November 2023: Consumer Price Index (METAC)
  - March 2024: Consumer price index improvement (with METAC)
  - November 2024: External sector statistics
  - January 2025: Expand GFS and PSDS coverage (with METAC)
  - April 2025: Producer price index (with METAC)

- ICD
  - March 2022: Macroeconomic Frameworks
  - November 2022
  - April 2023
  - November 2023
  - June 2024

### Relations with the World Bank Group
- As of April 8, 2025, the activities of the World Bank Group in Iraq can be found at: World Bank: Projects (worldbank.org)

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1irqea2025001-source-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1irqea2025001-source-pdf.pdf_