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An IMF report on the Iraqi economy published on 12 January assumes average Iraqi crude oil export prices will fall to $45 a barrel in 2016 from $50 a barrel in 2016.
The report was released the day before Brent blend crude fell to below $30 a barrel, its lowest level for more than a decade. The price of the OPEC basket of crude oils fell to $25 a barrel on 14 January. This was 20 per cent lower than its level on 31 December.
The IMF report said that Iraq is facing a double shock arising from the ISIS attacks and the sharp drop in global oil prices.
“The conflict is hurting the non-oil economy through destruction of infrastructure and assets, disruptions in trade, and deterioration of investor confidence,” the IMF said. “The impact of the oil price decline—already felt in 2014—has fully unfolded in 2015, affecting the budget, the external sector, and medium-term growth potential.”
The IMF said the Iraqi government is responding to the crisis with spending cuts and financing and has the fund to develop an IMF staff-monitored programme (SMP) which will be used to convince potential financiers of the credibility of Baghdad’s economic policy.
IMF said the Iraqi government needed further fiscal consolidation to address the fall in oil revenues and contain central bank financing of the budget and associated losses in foreign exchange reserves.
“The exchange rate peg remains appropriate, provided that the authorities implement the fiscal consolidation programmed under the SMP,” the IMF said. “Public financial management needs to be overhauled in order to improve the quality of spending and the authorities’ control over budget execution. Banking supervision needs to be strengthened in order to monitor and contain the damage inflicted by the crisis on the banking system.”
The IMF report forecasts Iraqi crude oil production will average 4.1m barrels a day (b/d) in 2016 compared with 3.4m b/d in 2014. The budget deficit is estimated to have risen to 14.5 per cent of GDP and forecast to fall to 10.3 per cent of GDP next year. The current account deficit is estimated to have risen to 7 per cent of GDP this year and is forecast to fall to 5.5 per cent of GDP in 2016.
Iraq had gross international reserves of $51bn at the end of 2015, the IMF report says. It says Iraq’s dollar GDP fell by 23 per cent to $172.3bn in 2015.