IMF Executive Board Concludes 2017 Article IV Consultation with Iraq

IMF News, August 9, 2017

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Published: August 9, 2017

Main findings on recent economic developments

Iraq faced a double shock from the conflict with ISIS and the plunge in oil prices.
Real GDP increased by 11 percent in 2016, driven by a 25 percent increase in oil production, which was little affected by the conflict with ISIS.
In 2017, economic activity was expected to remain muted due to a 1.5 percent contraction in oil production owing to the OPEC + agreement and only a modest recovery of the non-oil sector.
The decline in oil prices reduced international reserves from $54 billion at end-2015 to $45 billion at end-2016.
Fiscal pressures continued: the government deficit increased from 12 percent of GDP in 2015 to 14 percent in 2016 despite ongoing fiscal consolidation, driven by weaker oil prices and rising humanitarian and security spending.
The authorities maintained the exchange rate peg; simplification of documentation requirements by the Central Bank of Iraq led to a decline in the parallel market spread to 6 percent in June 2017.

Medium-term outlook and risks

Medium-term growth prospects were characterized as positive, driven by a projected moderate increase in oil production and a rebound in non-oil growth supported by improved security and structural reform implementation.
Risks identified as "very high" included:
- Volatile security
- Political tensions
- Poor policy implementation

IMF support

The Fund supported Iraq through a three-year Stand-By Arrangement in the amount of SDR 3.831 million ($5.380 billion), equivalent to 230 percent of quota.
The Executive Board had approved the Stand-By Arrangement for Iraq on July 7, 2016 and completed its first review on December 5, 2016.

Executive Board assessment and policy recommendations

Directors welcomed policies implemented to respond to the armed conflict with ISIS, the humanitarian crisis, and the oil price collapse.
Directors encouraged resolute implementation of the authorities’ program, including:
- Continued efforts toward fiscal consolidation.
- Strengthening the financial sector.
- Implementing structural reforms to promote private sector activity and improve the business environment.
Fiscal policy and public finance recommendations:
- Continue consolidation measures in 2017–18 to keep the program on track and ensure external and debt sustainability.
- Find fiscal space to enhance human capital and rebuild physical capital.
- Tackle the low level of non-oil tax revenue and the very high level of public consumption to create fiscal room for growth-enhancing investment.
- Overhaul public financial management, including completing a regular inventory, paying down any arrears, and strengthening expenditure commitment and cash management to prevent accumulation of new arrears.
- Implement the budget-sharing agreement between the Federal and Kurdistan Regional governments.
Financial sector and central bank recommendations:
- Bolster supervision and move forward with plans to restructure state-owned banks that dominate the banking system.
- Strengthen the legal framework of the Central Bank.
- Eliminate a remaining exchange restriction and a multiple currency practice.
- Accelerate implementation of AML/CFT and anti-corruption measures.
Structural reform priorities:
- Implement reforms to improve the investment climate, diversify the economy, and achieve sustainable growth.
- Address weaknesses in administrative capacity and data provision.

Selected economic and financial indicators (2013–22) — key figures and projections

Quota: SDR 1,663.8 million
Population: 37.5 million, 2016 est.
Poverty rate: 23 percent, 2014
Main export: Crude oil

Economic growth and prices

Real GDP (percentage change): 2013: 7.6; 2014: 0.7; 2015: 4.8; 2016: 11.0; 2017 Est.: -0.4; 2018 Prog.: 2.9; 2019 Proj.: 1.7; 2020 Proj.: 2.0; 2021 Proj.: 2.1; 2022 Proj.: (not listed)
Non-oil real GDP (percentage change): 2013: 12.4; 2014: -3.9; 2015: -9.6; 2016: -8.1; 2017 Est.: 1.5; 2018 Prog.: 3.0; 2019 Proj.: 3.9; 2020 Proj.: 4.0; 2021 Proj.: 4.1
GDP deflator (percentage change): 2013: 0.0; 2014: -0.7; 2015: -26.9; 2016: -12.9; 2017 Est.: 12.9; 2018 Prog.: 2.3; 2019 Proj.: 3.8; 2020 Proj.: 4.4; 2021 Proj.: 4.7
GDP per capita (US$): 2013: 7,021; 2014: 6,517; 2015: 4,869; 2016: 4,533; 2017 Est.: 4,958; 2018 Prog.: 5,091; 2019 Proj.: 5,194; 2020 Proj.: 5,362; 2021 Proj.: 5,569; 2022 Proj.: 5,806
GDP (in US$ billion): 2013: 234.6; 2014: 234.7; 2015: 179.8; 2016: 171.7; 2017 Est.: 192.7; 2018 Prog.: 202.9; 2019 Proj.: 212.3; 2020 Proj.: 224.8; 2021 Proj.: 239.5; 2022 Proj.: 256.2
Oil production (mbpd): 2013: 3.1; 2014: 3.7; 2015: 4.6; 2016: 4.9
Oil exports (mbpd): 2013: 2.4; 2014: 2.6; 2015: 3.4; 2016: (not listed)
Iraq oil export prices (US$ pb): 2013: 102.9; 2014: 96.5; 2015: 45.9; 2016: 35.6; 2017 Est.: 45.3; 2018 Prog.: 45.4; 2019 Proj.: 44.9; 2020 Proj.: 45.2; 2021 Proj.: 47.1
Consumer price inflation (percentage change; average): 2013: 1.9; 2014: 2.2; 2015: 1.4; 2016: 0.4

National accounts (in percent of GDP)

Gross domestic investment: 2013: 26.9; 2014: 25.7; 2015: 24.4; 2016: 20.6; 2017 Est.: 19.1; 2018 Prog.: 18.8; 2019 Proj.: 18.3; 2020 Proj.: 17.9; 2021 Proj.: 17.8; 2022 Proj.: (not listed)
Of which: public (percent of GDP): 2013: 17.4; 2014: 18.0; 2015: 15.1; 2016: 11.4; 2017 Est.: 10.5; 2018 Prog.: 10.1; 2019 Proj.: 9.5; 2020 Proj.: 8.9; 2021 Proj.: 8.8; 2022 Proj.: 8.6
Gross domestic consumption: 2013: 69.5; 2014: 69.9; 2015: 81.6; 2016: 87.8; 2017 Est.: 87.0; 2018 Prog.: 85.4; 2019 Proj.: 85.6; 2020 Proj.: 84.6; 2021 Proj.: 83.6; 2022 Proj.: 82.4
Gross national savings: 2013: 21.0; 2014: 22.3; 2015: 22.9; 2016: 23.7; 2017 Est.: 22.2; 2018 Prog.: 21.1; 2019 Proj.: 19.7; 2020 Proj.: 16.9; 2021 Proj.: 11.6; 2022 Proj.: 13.0
Saving - Investment balance (percent of GDP): 2013: 1.1; 2014: -6.5; 2015: -8.7; 2016: -6.4; 2017 Est.: -6.7; 2018 Prog.: -4.1; 2019 Proj.: -3.2; 2020 Proj.: -2.1; 2021 Proj.: -0.6

Public finance (in percent of GDP unless otherwise indicated)

Government revenue and grants: 2013: 42.2; 2014: 38.2; 2015: 30.3; 2016: 27.4; 2017 Est.: 36.0; 2018 Prog.: 36.5; 2019 Proj.: 34.6; 2020 Proj.: 33.8; 2021 Proj.: 33.1
Government oil revenue: 2013: 38.6; 2014: 27.5; 2015: 23.2; 2016: 31.8; 2017 Est.: 31.7; 2018 Prog.: 30.6; 2019 Proj.: 29.4
Government non-oil revenue: 2013: 3.5; 2014: 2.8; 2015: 5.0; 2016: 5.2; 2017 Est.: 5.5
Expenditure (percent of GDP): 2013: 48.0; 2014: 43.5; 2015: 42.6; 2016: 41.5; 2017 Est.: 41.0; 2018 Prog.: 41.2; 2019 Proj.: 37.3; 2020 Proj.: 35.0; 2021 Proj.: 31.1
Current expenditure (percent of GDP): 2013: 25.5; 2014: 30.1; 2015: 30.5; 2016: 27.8; 2017 Est.: 26.1; 2018 Prog.: 24.3; 2019 Proj.: 22.6
Capital expenditure (percent of GDP): (values listed in table under capital expenditure heading but not fully reproduced in source text)
Primary fiscal balance (percent of GDP): 2013: -5.4; 2014: -5.1; 2015: -11.7; 2016: -13.4; 2017 Est.: -3.8; 2018 Prog.: -3.6; 2019 Proj.: 0.8; 2020 Proj.: 1.8
Overall fiscal balance (including grants) (percent of GDP): 2013: -5.8; 2014: -12.3; 2015: -14.1; 2016: -5.0; 2017 Est.: -4.7; 2018 Prog.: -1.6; 2019 Proj.: -0.5
Non-oil primary fiscal balance (percent of non-oil GDP): 2013: -67.6; 2014: -56.1; 2015: -45.1; 2016: -44.6; 2017 Est.: -47.8; 2018 Prog.: -43.4; 2019 Proj.: -39.6; 2020 Proj.: -35.4; 2021 Proj.: -32.0; 2022 Proj.: -28.9

Memorandum items

Tax revenue/non-oil GDP (in percent): 1.0; 5.6; 5.7; 5.8 (years implied from table)
Total government debt (percent of GDP): 2013: 31.2; 2014: 32.0; 2015: 55.1; 2016: 66.9; 2017 Est.: 63.8; 2018 Prog.: 65.3; 2019 Proj.: 64.2; 2020 Proj.: 61.4; 2021 Proj.: 57.3; 2022 Proj.: 51.9
Total government debt (in US$ billion): 2013: 73.1; 2014: 75.2; 2015: 98.0; 2016: 114.6; 2017 Est.: 122.9; 2018 Prog.: 132.4; 2019 Proj.: 136.2; 2020 Proj.: 138.0; 2021 Proj.: 137.1; 2022 Proj.: 132.9
External government debt (percent of GDP): 2013: 25.3; 2014: 24.8; 2015: 36.8; 2016: 39.3; 2017 Est.: 38.1; 2018 Prog.: 40.7; 2019 Proj.: 40.2; 2020 Proj.: 36.7; 2021 Proj.: 32.6; 2022 Proj.: 27.7
External government debt (in US$ billion): 2013: 59.3; 2014: 58.1; 2015: 66.1; 2016: 67.5; 2017 Est.: 73.4; 2018 Prog.: 82.6; 2019 Proj.: 85.3; 2020 Proj.: 82.5; 2021 Proj.: 78.1; 2022 Proj.: 71.0

Monetary indicators

Growth in reserve money: 2013: 12.6; 2014: -12.6; 2015: 7.1
Growth in broad money: 2013: 15.9; 2014: 3.6; 2015: -9.0; 2016: 7.2; 2017 Est.: 6.3; 2018 Prog.: 7.0; 2019 Proj.: 8.2
Policy interest rate (end of period): … (not specified)

External sector

Current account: (values presented in table headings)
Trade balance (percent of GDP): 2013: 9.9; 2014: -0.1; 2015: -1.8; 2016: 3.3
Exports of goods (percent of GDP): 2013: 38.3; 2014: 39.6; 2015: 31.4; 2016: 29.1; 2017 Est.: 32.4; 2018 Prog.: 30.7; 2019 Proj.: 29.6; 2020 Proj.: 28.5; 2021 Proj.: 27.4; 2022 Proj.: 26.0
Imports of goods (percent of GDP): 2013: -28.4; 2014: -28.7; 2015: -31.5; 2016: -30.9; 2017 Est.: -31.7; 2018 Prog.: -30.2; 2019 Proj.: -29.0; 2020 Proj.: -27.4; 2021 Proj.: -26.0; 2022 Proj.: -24.5
Overall external balance (percent of GDP): 2013: -1.3; 2014: -10.0; 2015: -7.1; 2016: -0.9; 2017 Est.: -2.7; 2018 Prog.: -1.1; 2019 Proj.: 0.2
Gross reserves (in US$ billion): 2013: 77.8; 2014: 66.7; 2015: 53.7; 2016: 41.4; 2017 Est.: 40.8; 2018 Prog.: 39.7; 2019 Proj.: 37.1
In months of imports of goods and services: 2013: 10.8; 2014: 9.2; 2015: 6.7; 2016: 6.2; 2017 Est.: 5.4; 2018 Prog.: 5.3
Exchange rate (dinar per US$; period average): 2013: 1,166; 2014: 1,167; 2015: 1,180
Real effective exchange rate (percent change, end of period) 1/: 2013: 6.6; 2014: 6.8 (Positive means appreciation.)

Process and next steps

It is expected that the next Article IV Consultation with Iraq will be held in accordance with the Executive Board decision on consultation cycle for members with Fund arrangements.

Sources: Iraqi authorities, and IMF staff estimates and projections. Executive Board conclusions as reported on August 1, 2017; Press Release No. 17/323.