IMF Staff Meets with Iraq Here's What Happened
During Dec 12-17, a team of IMF staff members led by Jean-Guillaume Poulain met with Iraqi authorities in Amman, Jordan, to discuss recent economic developments. (Video coming soon on this topic)
Following the mission, Mr. Poulain issued the following statement:
With a significant increase in government spending, non-oil economic output is expected to expand by 5 percent in 2023. This trend is expected to continue into 2024 with the ongoing implementation of the budget. However, due to the closure of the Iraq-Turkey pipeline and OPEC+ production cuts, there will be a decrease in overall GDP growth for both 2023 and 2024. While inflation reached its peak in January, it has since decreased and is predicted to remain stable in the near future, thanks to the CBI's stricter monetary policies, effects from the exchange rate revaluation, lower global food prices, and improved adherence to the new AML/CFT framework for trade finance.
In June 2023, Iraq's budgeting practice underwent a significant change with the approval of a three-year budget. This aimed to enhance fiscal planning and sustain crucial development projects over the next few years. Despite a delayed start to implementing the budget, it is expected that there will be a shift from a surplus to a deficit in fiscal balance in 2023. In fact, our staff predicts that this deficit will continue to widen in 2024 due to the full impact of recent measures. The notable increase in public hiring and pensions as part of the sizeable fiscal expansion will result in permanent spending and place strain on public finances in the medium term.
The fiscal policy stance must be gradually tightened while safeguarding critical infrastructure and social spending needs in the context of uncertain oil prices to ensure fiscal sustainability. To accomplish this, additional non-oil revenue streams would have to be mobilized, the government wage bill contained, and the pension system reformed. To protect the vulnerable better, we should move towards a social safety net that is more targeted.
During the mission, the mission welcomed the government's plans to strengthen public financial management, including establishing the Treasury Single Account. In light of this, the mission reiterated the importance of adhering to the framework for managing government guarantees.
As a result of tightening its monetary policy, the CBI has increased its policy rate and reserve requirement. To strengthen monetary policy transmission, the mission welcomed the progress made in strengthening domestic liquidity management frameworks and encouraged continued efforts to mop up excess liquidity and develop an interbank market.
To achieve sustainable and inclusive growth, structural reforms are crucial to spurring economic diversification and job creation by the private sector. Through banking and electricity sector reforms, we intend to level the playing field for the private sector, reduce labor market distortions, and continue to reduce corruption and enhance governance.
"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."
