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International Monetary Fund. Middle East and Central Asia Dept.
Iraq's socio-economic fragilities have been severely aggravated by the pandemic and the sharp decline in oil revenues, which arrived on the heels of widespread social unrest and political instability. The health system’s limited capacity has been strained, while the fiscal position has become untenable as oil revenues declined sharply to a level that barely covers the government’s large wage and pension bills. Although the number of new infections declined recently, Iraq registered the second-highest COVID-related fatalities in the region, and the fiscal response to the pandemic has been one of the lowest. A six-month political paralysis preceding the formation of the government in May 2020 and plans to hold early parliamentary elections in mid-2021 have been weighing on political support for reforms. Risks of social unrest, geopolitical tensions, and insecurity remain elevated.
International Monetary Fund. Middle East and Central Asia Dept.
This 2020 Article IV Consultation with Kuwait highlights that non-oil growth strengthened to estimated 3 percent in 2019, propelled by government and consumer spending. The challenge to reduce dependence on oil and boost savings has become more urgent. The subdued forecast for oil revenues is weighing on near-term growth and fiscal and external balances. Embedding fiscal measures in a comprehensive reform package that promotes private sector growth, strengthens governance and accountability, and improves public services would help build broad support for reforms. A rules-based fiscal framework would improve management of oil revenues. A rule-based framework would help anchor fiscal policy on a long-term objective of intergenerational equity. It should include a well-calibrated operational rule that helps reconcile long-term savings and near-term economic stabilization objectives. Financial sector reforms should focus on bolstering resilience and deepening inclusion. Sustaining reforms to foster private sector-led and diversified growth will be critical. With limited scope for public employment going forward, a vibrant private sector must emerge to absorb the large number of Kuwaitis entering the labor market in coming years.
Mr. George M Kabwe, Elie Chamoun, Riaan van Greuning, Mowele Mohlala, and Ms. Julia Cardoso
Safeguards assessments are a key pillar of the risk management arrangements for IMF lending. Safeguards assessments aim to mitigate the risks of misuse of Fund resources and misreporting of program monetary data under Fund arrangements. Safeguards assessment reports are confidential and therefore the IMF Executive Board is provided with a periodic report on safeguards activities on a biennial basis, in addition to high-level summaries in member country staff reports on key findings and recommendations. This update on safeguards activity covers the period May 2017 to end-April 2019 (the period).
International Monetary Fund. Middle East and Central Asia Dept.
This 2019 Article IV Consultation and Proposal for Post-Program Monitoring highlights that Iraq’s social conditions remain harsh following the war with ISIS, with slow progress at reconstruction, weak public services and a lack of job opportunities. In the absence of policy changes, a widening budget deficit is expected to divert resources away from essential investment to rebuild the country and improve public services, while eroding reserves and posing risks to medium-term sustainability. Expenditure rigidities and limited fiscal buffers imply a significant vulnerability to oil price shocks in a context of volatile prices. The fiscal and external positions are expected to continue to deteriorate over the medium term absent policy changes—with reserves falling below adequate levels and fiscal buffers eroded. In a context of highly volatile oil prices, the major risk to the outlook is a fall in oil prices which would lower exports and budgetary revenues, leading to an even sharper decline in reserves or higher public debt. Geopolitical tensions, the potential for social unrest in a context of weak public services and lack of progress in combatting corruption pose further risks.
International Monetary Fund. Statistics Dept.
In response to a request from the Central Statistical Bureau (CSB) of Kuwait, a government finance statistics (GFS) technical assistance (TA) mission visited Kuwait City, Kuwait during April 29–May 3, 2018. This first GFS TA mission from the IMF’s Statistics Department (STA) aimed to assist the CSB staff in compiling fiscal data according to the Government Finance Statistics Manual 2014 (GFSM 2014) and help them to issue this year’s GFS bulletin according to the GFSM 2014 classification. In addition, the mission discussed with the Ministry of Finance (MoF) the possibility of resuming the reporting of the GFS data to the Fund for surveillance and dissemination in Government Finance Statistics Yearbook (GFSY).
International Monetary Fund. Middle East and Central Asia Dept.
This 2017 Article IV Consultation highlights that non-oil growth in Kuwait has picked up modestly over the past two years, and inflation has moderated. After coming to a standstill in 2015, real non-hydrocarbon growth has recovered and is set to reach 2.5 percent in 2018, driven by improved confidence. Notwithstanding the impact of higher energy and water prices, inflation is on track to reach a multiyear low of 1.75 percent in 2017, owing to a decline in housing rents and favorable food price developments. The government’s underlying fiscal position has improved on the back of spending restraint, but financing needs have remained large.
International Monetary Fund. Middle East and Central Asia Dept.
This 2016 Article IV Consultation highlights that the economic activity in the non-oil sector in Kuwait has continued to expand, albeit at a slower pace, reflecting the impact of lower oil prices. Nonhydrocarbon growth slowed from 5 percent to an estimated 3.5 percent in 2015, as higher uncertainty weighed on consumption. Labor market reforms and efforts to promote the role of the private sector are important to foster diversification and boost job creation for nationals. Better aligning labor market incentives is necessary to encourage nationals to take on private sector jobs and private firms to create opportunities for them.
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Iraq’s First Review of the Three-Year Stand-by Arrangement (SBA) and Financing Assurances Review, and Requests for Waivers of Nonobservance and Applicability of Performance Criteria (PCs). Two PCs at end September appear to have been met on the basis of preliminary unaudited data. One PC at end-June 2016 was missed. One continuous PC was missed. Completion of some structural benchmarks was delayed, but progress is being made for each. Hence, program performance has been mixed, but understandings on sufficient corrective actions have been reached to put the program back on track. The IMF staff recommends completion of the first review under the SBA and the financing assurances review and modification of the PCs and related rephrasing.
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Iraq’s First and Second Reviews of the Staff-Monitored Program (SMP) and Request for a Three-Year Stand-By Arrangement. The oil price decline has resulted in a massive reduction in Iraq’s budget revenue, pushing the fiscal deficit to an unsustainable level. The authorities are responding to the crisis with a mix of necessary fiscal adjustment and financing, maintaining their commitment to the exchange rate peg. The authorities started an SMP in November 2015 to establish a track record of policy credibility and pave the way to a possible IMF financing arrangement. Their performance under the SMP has been broadly satisfactory.
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses the Iraqi authorities’ request for a Staff-Monitored Program (SMP). The authorities have requested an SMP to establish a track record of policy credibility to pave the way to a possible IMF financing arrangement. Under the SMP, the authorities will implement fiscal consolidation that will contain public expenditure in line with available revenue and financing, and aim to reduce the non-oil primary deficit by US$20 billion or 12 percent of non-oil GDP between 2013 and 2016. Under the SMP, agreement has also been reached on measures to strengthen public financial management, anti-money laundering and countering the financing of terrorism, and financial sector stability.