IMF Executive Board Concludes 2020 Article IV Consultation with Iraq
IMF News, February 11, 2021
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- Published: February 11, 2021
Overview and immediate impacts
- Real GDP contracted by an estimated 11 percent in 2020, reflecting a slowdown in non-oil activity and cutbacks in oil output as a result of OPEC+ decisions.
- The COVID-19 pandemic and a sharp decline in oil revenues exacerbated Iraq’s longstanding economic vulnerabilities.
- Large fiscal and external current account deficits of 20 and 16 percent of GDP, respectively, constrained the government’s ability to mount an effective fiscal response to the crisis.
- Authorities’ recent measures include a devaluation of the exchange rate by the Central Bank of Iraq and submission of the draft 2021 budget to Parliament, aiming to contain wage and pension bills, raise non-oil revenues, and boost targeted assistance to protect the vulnerable.
- Authorities set aside sizable resources for COVID-19 response, including acquisition and distribution of a vaccine.
Economic outlook and projections
- Real GDP is projected to return to its pre-pandemic level by 2024.
- The fiscal and external current account deficits are projected to decline over the medium term.
- Government debt is expected to peak in 2023 and decline gradually thereafter.
- The outlook is contingent on strong implementation of reforms and faces significant downside risks from political constraints ahead of parliamentary elections, renewed social unrest, security risks, pandemic-related risks, and oil market uncertainties.
Executive Board assessment and policy priorities
- Directors agreed with the staff appraisal and emphasized that implementing strong policies and structural reforms is essential to ensure macroeconomic stability and achieve sustainable and inclusive growth.
- Reducing fiscal imbalances is critical to fiscal and debt sustainability:
- Welcome for planned fiscal reforms in the “White Paper” with encouragement for careful prioritization and swift implementation while minimizing impact on the vulnerable.
- Call for a comprehensive civil service reform to contain the public wage bill and recalibration of the pension system.
- Priority on increasing non-oil revenues and strengthening public financial management to reduce fiscal risks from off-budget expenditures and government guarantees.
- External and monetary policy:
- Directors concurred the recent exchange rate adjustment would help reduce external imbalances and preserve foreign exchange reserves.
- Emphasized a strong fiscal framework to ensure credibility of the new exchange rate peg and minimize future monetary financing of the budget.
- Saw need for further monetary policy measures by the central bank to contain inflation.
- Structural reforms:
- Urgent need to stem financial losses in the electricity sector through governance improvements, better collection, and gradual tariff adjustment to increase cost recovery and reduce arrears.
- Emphasized reducing corruption in key public institutions, continued improvement and effective implementation of the AML/CFT framework, restructuring of large state-owned banks to foster financial stability, and developing the private sector.
- Financing:
- Directors noted the authorities’ interest in emergency financing with the Fund, with some Directors encouraging a longer-term arrangement to address structural challenges.
- Timing:
- Next Article IV consultation expected on the standard 12-month cycle.
Key statistics and selected projections (highlights from Iraq: Selected Economic and Financial Indicators, 2019–26)
- Real GDP (percentage change): 2019: 4.5; 2020: -10.9; 2021: 1.2; 2022: 3.9; 2023: 5.7; 2024: 4.1; 2025: 3.1; 2026: 3.4.
- Non-oil real GDP (percentage change): 2019: -8.0; 2020: 5.0; 2021: 1.1; 2022: 2.5; 2023: 2.7; 2024: 3.6.
- GDP per capita (US$): 2019: 5,687; 2020: 4,286; 2021: 4,287; 2022: 4,498; 2023: 4,705; 2024: 4,865; 2025: 5,020; 2026: 5,203.
- GDP (in ID trillion): 2019: 262.9; 2020: 204.8; 2021: 255.9; 2022: 275.5; 2023: 295.7; 2024: 313.7; 2025: 332.1; 2026: 353.2.
- GDP (in US$ billion) 1/: 2019: 222.4; 2020: 172.0; 2021: 176.5; 2022: 190.0; 2023: 203.9; 2024: 216.4; 2025: 229.1; 2026: 243.6.
- Oil production (mbpd): 2019: 4.58; 2020: 4.00; 2021: 3.95; 2022: 4.18; 2023: 4.50; 2024: 4.73; 2025: 4.87; 2026: 5.01.
- Oil exports (mbpd): 2019: 3.97; 2020: 3.43; 2021: 3.39; 2022: 3.59; 2023: 3.86; 2024: 4.06; 2025: 4.30.
- Iraq oil export prices (US$ pb) 2/: 2019: 59.7; 2020: 38.2; 2021: 47.0; 2022: 45.8; 2023: 45.2; 2024: 44.8; 2025: 44.7.
- Consumer price inflation (percentage change; end of period): 2019: 0.1; 2020: 1.0; 2021: 11.5; 2022: 4.6; 2023: 2.0.
- National Accounts (in percent of GDP) highlights:
- Gross domestic investment: 2019: 15.1; 2020: 17.2; 2021: 19.1; 2022: 16.8.
- Gross domestic consumption: 2019: 83.0; 2020: 96.0; 2021: 82.9; 2022: 84.5.
- Gross national savings: 2019: 15.6; 2020: 15.0; 2021: 13.4; 2022: 13.6.
- Public Finance (in percent of GDP) highlights:
- Government revenue and grants: 2019: 37.8; 2020: 30.0; 2021: 40.8; 2022: 40.5.
- Government oil revenue: 2019: 27.0; 2020: 34.3; 2021: 33.4; 2022: 33.3.
- Overall fiscal balance (including grants): 2019: 0.9; 2020: -20.3; 2021: -16.2; 2022: -12.4; 2023: -4.9; 2024: -3.2.
- Non-oil primary fiscal balance, accrual basis (percent of non-oil GDP): 2019: -48.8; 2020: -59.4; 2021: -68.8; 2022: -57.9; 2023: -52.4; 2024: -46.8; 2025: -42.5; 2026: -39.7.
- Memorandum items:
- Total government debt (in percent of GDP) 5/: 2019: 48.5; 2020: 83.1; 2021: 89.7; 2022: 91.6; 2023: 91.3; 2024: 89.9; 2025: 87.7.
- Total government debt (in US$ billion) 6/: 2019: 107.9; 2020: 117.4; 2021: 146.6; 2022: 170.5; 2023: 186.8; 2024: 197.5; 2025: 205.9; 2026: 213.7.
- External government debt (in percent of GDP): 2019: 31.4; 2020: 49.6; 2021: 37.9; 2022: 33.0; 2023: 28.8; 2024: 26.1; 2025: 23.7; 2026: 21.7.
- External government debt (in US$ billion): 2019: 69.8; 2020: 70.0; 2021: 67.0; 2022: 62.7; 2023: 58.6; 2024: 56.5; 2025: 54.3; 2026: 52.8.
- Monetary indicators (percentage change): Growth in reserve money: 2019: 15.8; 2020: 38.3; 2021: 23.3; 2022: 6.9; 2023: 4.8. Growth in broad money: 2019: 8.4; 2020: 27.3; 2021: 19.9; 2022: 5.5; 2023: 5.4.
- External sector (in percent of GDP) highlights:
- Current account: 2019: 0.8; 2020: -8.8; 2021: -2.1; 2022: -2.6; 2023: -1.5; 2024: -1.3; 2025: -0.6.
- Exports of goods: 2019: 40.3; 2020: 29.0; 2021: 32.8; 2022: 32.3; 2023: 31.6; 2024: 30.7.
- Imports of goods: 2019: -30.0; 2020: -35.6; 2021: -30.7; 2022: -29.2; 2023: -29.1; 2024: -28.8; 2025: -28.0; 2026: -27.2.
- Gross reserves (in US$ billion): 2019: 68.0; 2020: 54.1; 2021: 47.4; 2022: 33.2; 2023: 27.1; 2024: 25.6.
- Total GIR (in months of imports of goods and services): 2019: 10.7; 2020: 9.4; 2021: 9.2; 2022: 6.7; 2023: 4.3.
- Exchange rate (dinar per US$; period average): 2019: 1,182; 2020: 1,191; 2021: 1,450.
- Notes and specific technical points:
- 1/ Converted from GDP in local currency using the period-average exchange rate (1191 in 2020).
- 2/ Negative price differential of about $2.9 per barrel compared to the average petroleum spot price (average of Brent, West Texas and Dubai oil prices) in 2020 - 2025.
- 5/ Includes arrears. The debt stock includes legacy arrears to non-Paris Club creditors on which the authorities have requested (but not yet obtained) Paris-Club comparable relief. Implementing comparable terms will substantially reduce debt (e.g. by 15 percent of GDP in 2017). The 14 percentage points increase in 2020 is partly attributed to a devaluation in mid-December 2020 which led to an upward revision of external debt.
- 6/ Converted from the total government debt in local currency using the end-of-period exchange rate (1450 in 2020).
- 7/ Positive means appreciation.
IMF Communications Department — Press Release No. 21/37 (February 11, 2021).
