International Compact with Iraq, Statement by Adam Bennett, Senior Advisor, Middle East and Central Asia Department, International Monetary Fund

IMF News, May 29, 2008

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Canonical URL: International Compact with Iraq, Statement by Adam Bennett, Senior Advisor, Middle East and Central Asia Department, International Monetary Fund

Fund began to reengage with Iraq in the summer of 2003.
Financial support provided:
- Emergency Post-Conflict Assistance in September 2004
- Stand-By Arrangement in December 2005
- Second Stand-By Arrangement in December 2007
The International Compact with Iraq (established on May 3, 2007) and the Fund's two Stand-By Arrangements are based on the same medium-term macroeconomic framework and share consistent objectives.

Macroeconomic stabilization and inflation reduction:
- Inflation reduced from 65 percent at the end of 2006 to 5 percent at the end of 2007, "a rate at which it has remained so far in 2008."
Oil production and exports:
- Oil exports had remained virtually constant at 1.4 mpbd for four years.
- Oil exports averaged 1.8 mbpd in the first four months of 2008.
Fiscal policy and subsidies:
- Explicit fuel subsidies have been all but eliminated.
- Domestic fuel prices were further increased in 2007, after earlier adjustments in late 2005 and in 2006.
Structural reforms:
- Amendments to the new pension law, putting the pension system on a sustainable fiscal footing, were passed in October last year.
- Audits of the country's two largest state banks (Rafidain and Rasheed banks) are underway as a first step to developing a restructuring program.
- The Central Bank of Iraq has been making progress in improving its accounting and governance structure.

Security:
- "First and foremost is the continuing challenge to improve security."
Macroeconomic and fiscal discipline:
- Maintain a stable macroeconomic environment.
- Keep wages and other current public spending under control and at levels that the economy can sustain without reigniting inflation.
Institutional and structural reforms:
- Strengthen the rule of law and improve the business climate to enable implementation of investment plans and private sector development.
Debt relief and creditor negotiations:
- The third and final stage of the Paris Club debt-reduction agreement is scheduled for December 2008 and is contingent on completion of the second and final review of the Stand-By Arrangement.
- Continue to make progress in reaching bilateral debt agreements with Iraq's non-Paris Club creditors to secure fiscal space for reconstruction.

Near-term review:
- Discussions on the first review under the current Stand-By Arrangement were scheduled to begin shortly, with the hope of a positive outcome and completion of the review.
Expected Fund support:
- The Fund will continue to support the International Compact with Iraq through the medium-term macroeconomic policy framework under the Stand-By Arrangement.
- The Fund will continue to provide policy advice and technical assistance.
Policy linkage and expected benefits:
- Keeping the IMF-supported program on track will help Iraq secure economic reform objectives and achieve long-term debt sustainability.
- The Stand-By Arrangement and the Compact have worked together to help the Iraqi government achieve its economic goals, and their joint continuation is expected to yield further successes.

Statement by Adam Bennett, Senior Advisor, Middle East and Central Asia Department, International Monetary Fund, Stockholm, Sweden, May 29, 2008.