IMF Staff Completes 2019 Article IV Mission on Iraq

IMF News, May 6, 2019

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Mission led by Gavin Gray visited Amman from April 26 to May 2, to hold discussions with the Iraqi authorities in the context of the 2019 Article IV Consultation.
End-of-Mission press release conveys preliminary findings of IMF staff; the team will prepare a report that, subject to management approval, is tentatively scheduled to be considered by the IMF’s Executive Board in July 2019.
The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Near-term vulnerabilities subsided in 2018, with the budget in surplus and a build-up in central bank reserves.
Post-war reconstruction has been limited so far.
Non-oil growth is expected to increase to 5.4 percent in 2019 on the back of higher investment spending.
Fiscal deficits are projected to rise over the medium term, absent policy changes.
It will be hard to sustain capital spending if current trajectories continue, and growth is likely to slow markedly.
Financing needs implied by rising deficits may crowd out the private sector or erode central bank reserves.

Non-oil growth: 5.4 percent in 2019.
Medium-term fiscal outlook: fiscal deficits projected to rise absent policy changes, making it difficult to sustain capital spending and risking a marked slowdown in growth.
Near-term improvement: 2018 saw a budget surplus and a build-up in central bank reserves, reducing immediate vulnerabilities.

Scale up public investment gradually while building fiscal buffers.
Budgetary savings recommended: around 9 percent of GDP over the medium term through:
- Tight control of current spending, particularly public-sector wages.
- Phased measures to boost non-oil revenue.
Set ceilings on current expenditure in the 2020 budget onwards to:
- Strengthen the fiscal framework’s capacity to support higher capital spending.
- Improve adaptability to oil price shocks.

Containing public-sector wages:
- Short-run compensation measures: capping allowances, bonuses and other non‑base wage payments, and not fully replacing retirees.
- Medium-term structural measures: undertake a functional workforce review and deeper civil service reform once new HR management and information systems are in place.
Electricity reforms:
- Address weak quality of service and high budgetary costs driven by modest tariff rates, chronic non-payment of electricity bills, poor maintenance, over-reliance on expensive generation sources, and losses throughout the generation, transmission, and distribution process.
- Ensure protection of the poor and most vulnerable throughout reform.
Bolstering public financial management:
- Enhance the legal framework and improve commitment and other control systems to minimize misuse of public resources and restore budgetary discipline.

Financial sector:
- Implement a robust plan to restructure the large public banks.
- Enhance supervision to secure financial stability and promote financial development and inclusion.
- Strengthen anti-money laundering and countering financing of terrorism (AML/CFT) controls and oversight to prevent misuse of the financial sector for laundering of criminal proceeds and terrorist financing.
Governance and anti-corruption:
- Develop a comprehensive understanding of corruption risks and implement coherent, coordinated policies to tackle these risks.
- Strengthen the legislative framework to prevent officials from abusing their position or misusing state resources.
- Rapidly adopt laws strengthening the asset declaration regime and criminalizing illicit gains.
- Ensure the independence and integrity of bodies involved in combatting corruption.
- Mobilize the AML/CFT regime to support anti-corruption efforts.

The IMF team will prepare a report based on the mission’s preliminary findings; the report is tentatively scheduled for consideration by the IMF’s Executive Board in July 2019.
The IMF team thanked the authorities for candid and constructive discussions during the visit.

IMF Staff Completes 2019 Article IV Mission on Iraq — Press Release No. 19/142, May 6, 2019.