## Iraq: Concluding Statement of the 2025 IMF Article IV Mission

_IMF News, May 15, 2025_

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## Bibliographic details
- Published: May 15, 2025

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### Mission overview
- An IMF mission, led by Mr. Jean-Guillaume Poulain, met with the Iraqi authorities in Amman and Baghdad during May 4–13 to conduct the 2025 Article IV consultation.
- The mission issued this concluding statement at the end of the mission.

### Recent economic developments, outlook and risks
- Non-oil sector growth and inflation:
  - Non-oil GDP grew 13.8 percent in 2023 and is expected to have moderated to 2.5 percent in 2024.
  - Non-oil GDP is projected to slow to 1 percent in 2025.
  - Overall growth contracted by 2.3 percent in 2024.
  - Inflation dropped to 2.7 percent by end-2024.
- Sectoral and external developments:
  - Agriculture, manufacturing, and construction sectors remained resilient, benefiting from post-drought recovery, expanded refining capacity, and strong growth in credit to households.
  - Decline in oil production weighed on overall growth.
  - Current account surplus narrowed from 7.5 percent to 2 percent of GDP in 2024 due to a surge in goods imports.
  - External buffers: reserves at US$100.3 billion at end-2024—covering over 12 months of imports.
- Risks and outlook:
  - A highly uncertain global environment, falling oil prices, and acute financing pressures are taking a toll on economic activity and exacerbating vulnerabilities.
  - The current account is expected to weaken considerably in 2025 primarily due to declining oil export revenues.
  - The deterioration in the external position is projected to weigh on foreign reserves.

### Fiscal position and financing
- Fiscal deterioration and financing constraints:
  - 2024 fiscal deficit is estimated at 4.2 percent of GDP, compared to 1.1 percent in 2023.
  - Rising spending on wages and salaries and energy purchases contributed to the deterioration.
  - Financing constraints have led to reemergence of arrears notably in energy and capital expenditure.
- Oil-dependence and fiscal breakeven:
  - Dependence on oil revenues has worsened; the oil price required to balance the budget increased to around $84 in 2024, up from $54 in 2020.

### Policy priorities and recommendations
- Immediate/very short-term actions:
  - Review current and capital spending plans for 2025 and limit or postpone all non-essential expenditure.
  - Explore increasing non-oil revenues by revising customs duties and introducing or raising excise taxes.
  - Explore options to diversify the creditors base to increase financing availability.
  - Avoid monetary financing of the deficit to prevent fueling inflation, draining FX reserves, and weakening the CBI’s balance sheet.
- Medium-term fiscal consolidation and revenue measures:
  - Implement a sizable fiscal consolidation to mitigate macro-fiscal risks, ensure debt sustainability, and rebuild fiscal buffers.
  - Revenue-side reforms:
    - Gradually reform personal income tax by limiting exemptions and increasing rates.
    - Strengthen tax administration through digitalization, improved enforcement, and better collection.
    - A more effective tax administration should allow for eventually introducing a general sales tax.
  - Spending-side reforms:
    - Curb current expenditures, particularly via comprehensive wage bill reforms, limiting mandatory hiring, and adopting attrition rules.
    - Further improve targeting of the public distribution system and eventually shift to cash-based social safety nets.
    - Urgently reform the public pension system through raising the retirement age and reducing both the accrual and replacement rates.
- Reallocation to capital spending:
  - Implementing reforms would create fiscal space to increase capital spending, especially non-oil investment in trade and transportation infrastructure.
  - Substantial investments needed to modernize the electricity sector and develop natural gas resources.
  - Improve procurement, public financial management, and corruption control to enhance effectiveness of public investment.

### Monetary policy and banking system
- Central Bank of Iraq (CBI) guidance:
  - Continue modernizing the banking system and supporting private banks in expanding their corresponding banking relationships.
  - Continue to avoid financing the government deficit to safeguard the CBI’s balance sheet and preserve credibility.
- Liquidity management measures recommended:
  - Further mop up excess liquidity to improve monetary policy transmission.
  - Increase issuance of CB-bills, focusing on the short maturity (14-day) at the policy rate.
  - Revise size limits on individual banks’ bids.
  - Improve liquidity forecasting tools and practices.
- Trade finance and exchange rate considerations:
  - Commended the CBI for successful transition to the new trade finance system; trade finance now fully processed by commercial banks through their correspondent banking relationships.
  - This has supported a recent decline in the spread between the official and parallel market exchange rates.
  - Additional measures to further reduce the spread include imposing Iraqi dinar usage for car and real estate transactions, improving customs controls to curb smuggling, and simplifying FX access.

### Financial sector reform and AML/CFT
- State-owned banks and restructuring:
  - Initial steps to reform state-owned banks are encouraging; the restructuring plan should be finalized without delay.
  - Restructuring should encompass treatment of non-performing loans and recapitalization needs.
- Broader banking sector reforms:
  - Undertake a comprehensive banking sector overhaul, including enhancing corporate governance, digital infrastructure, and cybersecurity, while promoting a stronger role for private banks.
- AML/CFT:
  - Continue efforts to enhance AML/CFT measures by tackling deficiencies identified in the MENAFATF Mutual Evaluation report.

### Electricity sector
- Key challenges:
  - Chronic power shortages, electricity losses and excessive tariff subsidization continue to weigh on the economy.
  - In 2024, distribution losses reached 55 percent, driven by theft and illegal connections, leading to significant financial losses.
  - Recent disruptions in electricity imports from Iran underscore the need for diversified supply and development of gas projects.
- Policy measures:
  - Deploy smart meters and accelerate measures to enhance billing and collection.
  - Once collection substantially improves, achieve cost recovery through electricity tariff increases, with carefully calibrated subsidies targeted to low-income users.
  - Invest in modernization of the electricity sector and gas development to improve energy security and reduce dependence on gas imports.

### Governance, anticorruption, and structural reforms
- Anticorruption and governance:
  - Steps taken in implementation and upgrade of the national anticorruption strategy and improvements in corruption perception indices are positive.
  - Corruption remains a significant hurdle for growth.
  - Priorities include strengthening accountability frameworks for state-owned and private enterprises in the oil, electricity and construction sectors.
  - Ensure thorough compliance with Extractives Industries Transparency Initiative standards and enact the law on Transparency and Access to Information.
  - Align anticorruption legal frameworks with international covenants and best practice and strengthen the independence of the judiciary.
- Structural reform agenda to unlock growth:
  - A comprehensive set of reforms covering the labor market, business regulation, the financial sector and governance could double non-oil potential GDP growth over the medium term (mission estimate).
  - Labor market reforms:
    - Increase labor force participation, particularly among women, by improving female education and reducing barriers to work and mobility.
    - Reform public sector hiring practices that distort labor markets and reduce productivity.
    - Intensify efforts to better align skills with labor market needs.
  - Business environment reforms:
    - Simplify regulations and reduce bureaucratic impediments in areas such as business registration and tax administration to increase participation in the formal economy and help private sector development.

### Closing
- The mission thanked the Iraqi authorities and various stakeholders for their hospitality, cooperation, and candid discussions during the mission.

*Iraq: Concluding Statement of the 2025 IMF Article IV Mission (May 15, 2025).*

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## References

- [Iraq and the IMF](http://www.imf.org/external/country/IRQ/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)
- [Mission Concluding Statements](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2025/05/15/mcs-iraq-concluding-statement-of-the-2025-imf-article-iv-mission_