IMF Staff Country Reports

The 2024 Article IV Consultation highlights that domestic stability has improved since the new government took office in October 2022, facilitating the passage of Iraq’s first three-year budget, which entailed a large fiscal expansion starting in 2023. The ongoing fiscal expansion is expected to boost growth in 2024, at the expense of a further deterioration of fiscal and external accounts and Iraq’s vulnerability to oil price fluctuations. Without policy adjustment, the risk of medium-term sovereign debt stress is high and external stability risks could emerge. Key downside risks include much lower oil prices or a spread of the conflict in Gaza and Israel. A fiscal adjustment is needed to stabilize debt over the medium term while protecting critical social and capital spending. Large savings can be attained from containing the outsized public wage bill and policy measures aimed at mobilizing additional non-oil revenues. Private sector development and economic diversification are crucial to ensure long-term external sustainability and foster private job creation.