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.
This paper highlights Chad’s Fifth Review Under the Extended Credit Facility (ECF) Arrangement and Financing Assurances Review. Chad’s performance under the Fund’s ECF-supported program has been broadly satisfactory, reflecting strong commitment by the authorities despite a challenging environment, including security concerns and a tense social situation. Good progress on the structural reform agenda has been made, despite some delays. Looking ahead, it is essential that the authorities continue to pursue prudent fiscal policy, particularly in the run up to the upcoming elections, create enough fiscal space for increased social and development spending, and pay down domestic debt and arrears. Chad’s program is supported by the implementation of supportive policies and reforms by the regional institutions in the areas of foreign exchange regulations and monetary policy framework and to support an increase in regional net foreign assets, which are critical to the program’s success.
We build and estimate open economy two-bloc DSGE models to study the transmission and impact of shocks in Russia, Saudi Arabia and the United Kingdom. After accounting for country-specific fiscal and monetary sectors, we estimate their key policy and structural parameters. Our findings suggest that not only has output responded differently to shocks due to differing levels of diversification and structural and policy settings, but also the responses to fiscal consolidation differ: Russia would benefit from a smaller state foot-print, while in Saudi Arabia, unless this is accompanied by structural reforms that remove rigidities, output would fall. We also find that lower oil prices need not be bad news given more oil-intensive production structures. However, lower oil prices have hurt these oil producers as their public finances depend heavily on oil, among other factors. Productivity gains accompanied by ambitious structural reforms, along with fiscal and monetary reforms could support these economies to achieve better outcomes when oil prices fall, including via diversifying exports.