The IMF Reports Iraq's Non-Oil Economy Set for Growth, But Risks Remain
The IMF says an increased drop in oil prices, extended Opec+ cuts, and escalating geopolitical tensions could hurt the country's economy.
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In this article we learn more about what the International Monetary Fund recommends for a stable Iraqi economy. Iraq could easily be on the path to a higher exchange rate, depending on whether these conditions are met or not. It all depends on what Iraq decides to do.
Automated translation:
Despite risks to the outlook, Iraq's non-oil economy is expected to continue its growth momentum in 2024 after expanding by 6 percent in 2023.
At the end of an official staff mission to the country, the Washington-based fund said on Sunday that the country's economy is projected to rebound in 2024. Still, risks from lower oil prices or Opec+ cuts could affect its fiscal and external accounts.
According to the report, if tensions in the Middle East escalate, further disruptions to shipping routes and damage to oil infrastructure could result in production losses that may outweigh the potential benefits of higher oil prices.
As a result of existing obstacles to private sector development, Iraq's non-oil growth is projected to stabilize at about 2.5% in the medium term.
For economic diversification and private sector development, the IMF called for wide-ranging structural reforms.
To absorb the rapidly growing labor force, increase non-oil exports and government revenue, and reduce the economy's vulnerability to oil price shocks, Iraq needs higher and more sustainable non-oil growth, according to Jean-Guillaume Poulain of the IMF mission.
Despite higher oil prices, Iraq remains vulnerable to market fluctuations, according to the IMF
IMF says Iraq needs fiscal discipline and reforms to maintain growth momentum.
Despite low international food and energy prices and the February 2023 currency revaluation, headline inflation declined from 7.5% in January 2023 to 4% by year's end.
A surplus of 2.6% of GDP is expected to have been recorded in the country's current account.
Iraq's fiscal position worsened last year despite increased international reserves to $112 billion.
From a surplus of 10.8% of GDP in 2023, its fiscal balance dropped to 1.3% in 2023. The result was a decrease in oil revenue and an increase in expenditure of 8 percentage points of GDP, of which salaries and pensions accounted for 5 percent.
Since Iraq's fiscal break-even price is projected to exceed $90 this year, its vulnerability to declining oil prices has increased.
As oil prices are predicted to decrease gradually in the medium term, the fiscal deficit is expected to reach 7.6 percent this year and widen further without new policy measures.
By 2029, the public debt will almost double to 86 percent from 44 percent today.
In January, the IMF cut its growth forecast for the Mena region due to Israel's war in Gaza.
According to the lender, the Mena region is projected to grow by 2.9% in 2024, assuming the war eases after the first quarter.
According to the IMF, that represents a downward revision of 0.5 percentage points from the October 2023 estimates of 3.4% growth for Mena economies.
Yemeni Houthi rebels are also attacking ships passing through the main trade route connecting Asia and Europe in retaliation for Israel's military assault on Gaza in the Red Sea. The Houthi strikes in the Red Sea could also disrupt Middle East energy producers.
The IMF asked Iraqi authorities to control the public wage bill and increase non-oil tax revenue to achieve fiscal sustainability.
The IMF identified key reform priorities
Among these measures are an employment strategy aimed at phasing out mandatory hiring in the public sector, a financial sector reform aimed at improving access to credit, and a comprehensive pension reform.
According to the fund, measures to combat corruption, improve governance, and remove barriers to business are also needed.
Original Report on IMF Blog
