Washington, DC: 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.
At the end of the mission, Mr. Poulain issued the following statement:
“Against the background of a large fiscal expansion, non-oil GDP is expected
to grow by 5 percent in 2023. Continued budget execution should help sustain
strong non-oil growth in 2024. However, lower oil production, following the
closure of the Iraq-Turkey pipeline and OPEC+ production cuts, will reduce
overall GDP growth in 2023 and 2024. 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, and
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, 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.
“Ensuring fiscal sustainability, in context of uncertain outlook for oil
prices, requires gradually tightening the fiscal policy stance while
safeguarding critical infrastructure and social spending needs. This would
require mobilizing additional non-oil revenues, containing the large
government wage bill, and reforming the pension system. These measures
should be supported by moving toward a more targeted social safety net that
better protects the vulnerable.
“The mission welcomed the government’s plans to strengthen public financial
management including steps towards the establishment of the Treasury Single
Account. In this context, the mission reiterated the importance of adhering
to the framework for managing government guarantees.
“The CBI has appropriately tightened its monetary policy, including by
increasing its policy rate and reserve requirement. The mission welcomed
the progress in strengthening the domestic liquidity management framework
and 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 remains pivotal for sustainable and inclusive growth.
Priorities include creating a level playing field for the private sector
through banking and electricity sector reforms, reducing distortions in the
labor market, and continuing efforts to enhance governance and reduce
corruption.
“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.”
