IMF Article IV statement calls for Iraqi spending cuts and reforms

An International Monetary Fund (IMF) mission visited Amman on 6-15 March for 2015 Article IV meetings with Iraqi officials.

A statement released on 18 March said:

  • Oil exports are expected to rise to 3.1 million b/d in 2015 from 2.5 million b/d 2014
  • GDP is estimated to have contracted by more than 2 per cent in 2014
  • Growth will rise to more than 1 per cent in 2015
  • Inflation outside ISIS-occupied areas was less than 2 per cent at end-2014, but may rise due to the enforcement of higher custom duties
  • International reserves of the Central Bank of Iraq (CBI) fell to $66bn at the end of 2014 from $78bn at end-2013 because of the decline in oil revenues and the high level of imports.
  • Total foreign assets fell from $84.3 billion to $66 billion in the course of last year
  • The budget deficit in 2014 was estimated at about 3 per cent of GDP compared with 6 per cent in 2013.
  • The lower deficit was “partly” due to the postponement of investment spending, and the suspension of the budget transfer to the KRG. Arrears to the international oil companies were also accumulated
  • The deficit has been mostly financed by domestic borrowing from state-owned banks.
  • The 2015 budget assumes exports of 3.3 million b/d and a price of $56 per barrel. It includes increases in non-oil taxation and strives to contain spending, including from compulsory savings on wages for civil servants
  • The government will have a deficit of about 12 per cent of GDP but it could be higher under more conservative oil revenue assumptions and if unbudgeted payments to international oil companies are taken into account.
  • The government is committed to under-execute budget spending as needed through rigorous cash management, the rationalisation of capital investment, and the postponement of some investment projects.
  • The interest rate spread in the parallel foreign exchange market fell to 3.5 per cent at the end of 2014.
  • The authorities should reconsider caps on CBI foreign exchange sales and the collection of custom duties through commercial banks which are restricting the supply of foreign exchange and lifted parallel market rates to record levels
  • The government is pressing ahead with the restructuring of state-owned banks Rasheed and Rafidain, taking steps to open government business to private banks and introduce key elements of the financial system infrastructure, including a deposit guarantee scheme and a credit bureau
  • Achieving inclusive and diversified economic growth over the medium term will also depend on reforms encompassing state-owned enterprises, the energy sector, labour markets, and the business environment and governance
  • The IMF is ready to support the Iraqi authorities through stepped up policy engagement, technical assistance, and, “if needed”, financial support.