IMF Staff Concludes Staff Visit with Iraq

IMF News, December 19, 2023

Source details

Non-oil GDP is expected to grow by 5 percent in 2023.
Overall GDP growth is reduced in 2023 and 2024 due to lower oil production following the closure of the Iraq-Turkey pipeline and OPEC+ production cuts.
Inflation has declined from its January peak and is projected to stabilize in the coming months—helped by:
- the Central Bank of Iraq’s (CBI) tighter monetary policy,
- passthrough from the exchange rate revaluation,
- lower international food prices,
- normalization of trade finance as compliance to the new anti-money laundering/combating the financing of terrorism (AML/CFT) framework improved.

The three-year budget approved in June 2023 marked a shift in Iraq’s budgeting practice and envisaged to improve fiscal planning and continue important development projects over the medium term.
Despite a late start of budget implementation, the fiscal balance is expected to shift from a large surplus in 2022 to a deficit in 2023.
Staff projects that the deficit would widen further in 2024 reflecting the full year impact of recent measures.
The large fiscal expansion, including a substantial increase in public hiring and pensions, creates permanent spending that will put pressure on public finances over the medium term.
The large fiscal expansion in the three-year budget law poses significant risks to fiscal and external sustainability over the medium term.

Gradually tighten the fiscal policy stance while safeguarding critical infrastructure and social spending needs.
Mobilize additional non-oil revenues.
Contain the large government wage bill.
Reform the pension system.
Move toward a more targeted social safety net that better protects the vulnerable.
Adhere to the framework for managing government guarantees.

Mission welcomed the government’s plans to strengthen public financial management, including steps towards the establishment of the Treasury Single Account.

The CBI has appropriately tightened its monetary policy, including by increasing its policy rate and reserve requirement.
Mission welcomed progress in strengthening the domestic liquidity management framework.
Mission encouraged continued efforts to mop up excess liquidity and develop an interbank market to strengthen monetary policy transmission.

Structural reforms to spur private sector–led economic diversification and job creation remain pivotal for sustainable and inclusive growth.
Priorities identified:
- Creating a level playing field for the private sector through banking and electricity sector reforms.
- Reducing distortions in the labor market.
- Continuing efforts to enhance governance and reduce corruption.

A staff team of the International Monetary Fund (IMF) led by Jean-Guillaume Poulain met with the Iraqi authorities in Amman, Jordan during Dec 12-17 to discuss recent economic developments and outlook as well as policy plans.
End-of-Mission press releases convey preliminary findings after a visit; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
IMF Communications Department — MEDIA RELATIONS — PRESS OFFICER: Mayada Ghazala — Phone: +1 202 623-7100 — Email: MEDIA@IMF.org — @IMFSpokesperson
“The IMF staff team stands ready to support the authorities in their reform efforts and would like to thank them for candid and productive discussions during this mission.”

IMF Staff Concludes Staff Visit with Iraq — Press Release No. 23/462, December 19, 2023.