IMF Staff Completes 2020 Article IV Mission with Iraq

IMF News, December 13, 2020

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IMF team led by Tokhir Mirzoev held a virtual mission with the Iraqi authorities from November 11 to December 10.
End-of-mission press release issued December 12, 2020 (Press Release No. 20/372).
Statement notes that views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Press officer: Wafa Amr. Phone: +1 202 623-7100. Email: MEDIA@IMF.org.

"The COVID-19 pandemic and the sharp decline in oil prices and output have aggravated Iraq’s economic vulnerabilities."
Real GDP growth is expected at "-11 percent in 2020", reflecting a contraction of oil output and an interruption of non-oil economic activity.
Sharp decline in oil revenue is expected to widen:
- Fiscal deficit to "20 percent of GDP".
- External current account deficit to "16 percent of GDP".
Overcoming the health crisis is identified as "the highest priority," including acquiring and distributing a viable vaccine.

A comprehensive package of near-term economic policies anchored in a credible fiscal strategy is needed to:
- Overcome the health crisis.
- Ensure economic stability.
- Protect the vulnerable.
Fiscal efforts in the 2021 budget should target key areas of fiscal vulnerability, notably:
- Reversing the unsustainable expansion of wage and pension bills.
- Reducing inefficient energy subsidies.
- Raising non-oil revenues.
Protecting the vulnerable requires:
- Boosting significantly the targeted cash transfers and expanding their coverage.
- Improving targeting of other parts of the social safety net.
Additional fiscal resources will be required for the next phase of the pandemic, including vaccine-related costs, "supported by a strong governance framework."
A comprehensive policy package is needed to reduce fiscal and external imbalances, relieve financing constraints, ensure debt sustainability, and safeguard international reserves.

Achieving durable and inclusive medium-term growth requires sustained implementation of wide-ranging structural reforms to:
- Strengthen public finances to enable critical health and social expenditure needs.
- Reform the electricity sector.
- Fight corruption.
- Expand institutional capacity.
Specific measures highlighted:
- Comprehensive civil service reform to strengthen public sector effectiveness while reducing fiscal costs.
- Recalibration of the pension system to ensure sustainability.
- Stemming the electricity sector’s mounting financial losses and reforming the sector to enhance service provision and ensure financial viability.
- Overhauling tax and customs policy and administration to help diversify fiscal revenues.
- Improvements in public financial management and reforms to minimize fiscal risks from government guarantees and other contingent liabilities.
Uncertain medium-term oil market prospects and strong population growth increase the urgency of advancing the reform agenda.

Addressing governance weaknesses and reducing corruption are described as "vital for Iraq’s future economic development."
Recommended actions:
- Simplification, digitalization, and greater transparency of key public services and institutions to reduce corruption risks, especially in public procurement.
- Strengthening audits and improving legal and regulatory frameworks in line with international standards and conventions.
- Expanding capacity for risk-based supervision and enforcing compliance with AML/CFT rules to strengthen public trust and investor sentiment.

A decisive strategy to reform the large state-owned banks and level the playing field in the financial sector is required to:
- Enable private sector development.
- Secure financial stability.
Recommended actions for state-owned banks:
- Strengthen control over these banks’ governance and enhance supervision.
- Perform an international audit of the large state-owned banks to inform options for their restructuring.

The team exchanged views with:
- Senior officials of the Central Bank of Iraq (CBI) and the Ministry of Finance.
- Members of the Parliamentary Finance Committee.
- Other ministries, government agencies, and representatives from civil society.
The IMF team thanked the authorities for "candid and productive discussions during this mission."

IMF Staff Completes 2020 Article IV Mission with Iraq — Press Release No. 20/372, December 12, 2020.