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IRAQ: First Review of the Three-Year Stand-by Arrangement and Financing Assurances Review, Requests for Waivers of Nonobservance and Applicability of Performance Criteria, Modification of Performance Criteria, and Rephasing of the Arrangement— Informational Annex

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
December 2016
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Relations with the Fund

(As of October 31, 2016)

Membership Status: Joined December 27, 1945; Article XIV

General Resources Account

SDR MillionPercent of Quota
Quota1,663.80100.00
Fund Holdings of Currency2,720.16163.49
Reserve Tranche Position289.9517.43

SDR Department

SDR MillionPercent of Allocation
Net Cumulative Allocation1,134.50100.00
Holdings18.561.64

Outstanding Purchases and Loans

SDR MillionPercent of Quota
Stand-By Arrangements455.0027.35
Emergency Assistance1891.3053.57
1Emergency Assistance may include Emergency Assistance for Natural Disasters (ENDA), Emergency Post-Conflict Assistance (EPCA), and Rapid Financing Instrument (RFI).
1Emergency Assistance may include Emergency Assistance for Natural Disasters (ENDA), Emergency Post-Conflict Assistance (EPCA), and Rapid Financing Instrument (RFI).

Latest Financial Arrangements

TypeDate of ArrangementExpiration DateAmount Approved (SDR Million)Amount Drawn (SDR Million)
Stand-ByJul 07, 2016Jul 06, 20193,831.00455.00
Stand-ByFeb 24, 2010Feb 23, 20132,376.801,069.56
Stand-ByDec 19, 2007Mar 18, 2009475.360.00
Overdue Obligations and Projected Payment to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs)1
Forthcoming
20162017201820192020
Principal111.41502.53561.74
Charges/Interest3.8216.6316.6413.466.74
Total3.8216.63128.05515.98568.48
1When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.
1When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Implementation of HIPC Initiative: Not Applicable

Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

Implementation of Catastrophe Containment and Relief (CCR): Not Applicable

As of February 4, 2015, the Post-Catastrophe Debt Relief Trust has been transformed to the Catastrophe Containment and Relief (CCR) Trust.

Safeguards Assessments

The most recent safeguards assessment of the Central Bank of Iraq (CBI) was completed in April 2016. It concluded that the CBI continues to face capacity constraints in its operations, as well as a difficult security situation on the ground. The loss of budget revenue from falling oil prices has made it necessary for the CBI to engage in indirect financing of the government to close the budget gap. Since the 2010 assessment, there has been no concerted effort to strengthen the legal framework, and internal audit remains underdeveloped in spite of extensive assistance from consultants. Priority should be given to addressing the ongoing weaknesses in these areas, along with strengthening the control environment and the internal audit function. A positive development was the substantial improvement in the quality of financial reporting, which was accomplished in part with the assistance of the external auditors.

Exchange Arrangement

Iraq’s de jure and de facto exchange rate arrangements have been retroactively reclassified to a conventional peg arrangement, effective January 15, 2012. The Central Bank Law provides the Board of the CBI with power to formulate exchange rate policy. The CBI Board undertook a realignment of the peg from 1166 to 1182 dinar per USD on December 1, 2015, unifying the effective rates applicable to cash sales and transfers at 1190 including the central bank commission. The CBI stands ready to provide foreign exchange at the official exchange rate plus commissions for permissible transactions through its daily auctions (allocations), establishing a peg. However, because certain transactions are excluded from the access to the CBI auctions, many transactions take place at parallel market exchange rates. The CBI publishes the daily volume of the auction allocation on its website.

Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or multiple currency practices subject to Article XIV, Section 2, and currently maintains two exchange restrictions and one multiple currency practice (MCP) subject to Fund approval under Article VIII, Sections 2(a) and 3.

The exchange restrictions arise from (i) the requirement to pay all obligations and debts to the government before proceeds of investments of investors, and salaries and other compensation of non-Iraqi employees may be transferred out of Iraq, and (ii) an Iraqi balance owed to Jordan under an inoperative bilateral payments agreement.

The MCP arises from the official action to limit the purchase of foreign exchange, with no mechanism to ensure that exchange rates in the official auction and in the market do not deviate from each other by more than two percent. The average spread between the official and market rates was around 3 percent in December 2015 and has increased to about 9 percent since May 2016.

In addition, one exchange restriction maintained for security reasons should be notified to the IMF under the framework of Decision 144- (52/51).

Article IV Consultation

Upon the approval of the new 36-month Stand-By Arrangement on July 7, 2016, Iraq was placed on the 24-month consultation cycle. The last Article IV consultation was concluded on July 29, 2015, along with a request for purchase under the Rapid Financing Instrument. The staff report (IMF Country Report No. 15/235) was published on August 18, 2015, and is available on the internet.

Technical Assistance, 2005-16

DepartmentDatePurpose
FADMay 2010Public Financial Management
March 2012Public Financial Management (METAC)
May 2012Public Financial Management (METAC)
December 2012Public Financial Management (METAC)
May 2013Budget Functional Classification workshop (METAC)
March 2014Budget Classification (METAC)
June 2015Status of Public Financial Management Reforms (METAC)
November 2015Public Financial Management Law, budget execution and program-based budgeting
March 2016Public Financial Management Law
LEGApril 2010Phase One of the Three-Phase AML/CFT Capacity Enhancement and Sustainability Training Program
July 2010Phase Two of the Three-Phase AML/CFT Capacity Enhancement and Sustainability Training Program
October 2012Article VIII acceptance and AML/CFT technical assistance
December 2012AML/CFT Legislative Drafting
May 2015Desk review of the draft AML/CFT Law
June 2015Article VIII acceptance
September 2015Desk review of the draft AML/CFT Law
January 2016Anti-money Laundering Activities
March 2016Cross-border Financial Flows
MCMApril 2010Islamic banking workshop
August 2010Reserve management
August 2010Remote assistance on liquidity management and treasury market development
December 2010Government Securities/Monetary Operations
January 2011Government Securities/Monetary Operations
January 2011Training on New Developed Regulations and Call Reports (METAC)
January 2011Training on Off-Site Supervision and Report Development (METAC)
April 2011Risk management workshop (stress testing)
May 2011Bank restructuring
May 2011Reserve management
July 2011Reserve management
September 2011Reserve management workshop
March 2012Bank restructuring
October 2012Article VIII acceptance
March 2014Assessment of Banking Needs (METAC)
April 2014Central Bank Reserve Management
May 2015Asset Management
November 2015Banking Supervision (METAC)
November 2015Prudential Regulations: Review and Assessment (METAC)
March 2016Seminar on Foreign Exchange Regimes and Controls (Joint LEG/MCM)
September 2016Reserve Management Workshop
STAApril 2010External Sector Statistics
July 2010Monetary and Financial Statistics
February 2012External Sector Statistics
March 2012National Accounts Statistics
May 2012Monetary and Financial Statistics
April 2013National Accounts Statistics
December 2013Balance of Payments Statistics
December 2014Balance of Payments Statistics (METAC)
March 2015Government Finance Statistics (ArabStat)
May 2015Government Finance Statistics
November 2015Consumer Price Index (METAC)
January 2016National Accounts Statistics (METAC)
March 2016Government Finance Statistics
March 2016External Sector Statistics
April 2016Financial Stability Indicators
INSJanuary 2010Financial Programming and Policies

Relations with the World Bank Group

(As of September 30, 2016)

TitleProductsProvisional and Actual Timing of MissionsExpected and Actual Delivery Date
A. Mutual Information on Relevant Work Program
The World Bank work program in the next 12 months1Economic Policy Analysis and Advice WB:

- Systematic Country Diagnostic (SCD)
September 2016December 2016
-Kurdistan Regional Government, Reimbursable Advisory Services: Economic Growth DiagnosticDecember 2015/ Feb/April/June/September 2016October 2016
-Assessment of Decentralization and Service Delivery in IraqNovember 2015March 2016 (Delivered)
-Road Maps for reforming Customs and Taxation in IraqNovember 2015January 2016 (Delivered)

May 2016 (Delivered)
-Kurdistan Regional Government Economic Reform Road MapMarch 2016October 2016
-Kurdistan Regional Government Action Plan to Mitigate Power CutsJuly/September 2016 July/October/December 2016February 2017
-Iraq Energy Subsidies and Tariff Reforms (both Iraq and Kurdistan Regional Government)October/December 2016February 2017
-Iraq Energy Sector Programmatic Technical Assistance: Deliverable Gas-to-Power Action PlanDecember 2016March 2017
- Iraq Country Partnership Framework (CPF)
Technical Assistance WB:
-Public Financial Management (Public Expenditure and Financial Accountability, Capacity Needs Assessment and Integrated Financial Management Information System Request for Proposal)February/May/October/November 2016December 2016
-Public Investment Management in Kurdistan Regional GovernmentMarch 2016June 2016 (Delivered)
-Kurdistan Regional Government Support to Develop a Social Protection FrameworkFebruary/May 2016June 2016 (Delivered)
-Extractive Industries Transparency InitiativeJanuary/March 2016December 2016
-Pension Reform TANovember 2015 January/October/December 2016June 2017
-Doing Business ReformsJanuary/May/November 2016, January/March 2017April 2017
-Central Bank payment systemJuly/November 2016, January/March 2017May 2017
-Anti Money launderingJanuary/February/April/September/ October 2016, April 2017May 2017
-Regulatory reformDecember 2015-March/ October 2016December 2016
-Water Sector Public Expenditure ReviewJanuary-June 2016June 2016 (Delivered)
-Poverty TAJune 2016-May 2017June 2017
- (Baghdad RAS) Gas value chain in IraqJanuary/April/September/ October/ December 2016April 2017
-Kurdistan Regional Government, Reimbursable Advisory Services: Procurement reformJanuary-April 2016June 2016 (Delivered)
-Kurdistan Regional Government, Reimbursable Advisory Services: Social safety Nets and pensionJune 2016-May 2017Ongoing
-Kurdistan Regional Government, Reimbursable Advisory Services: Support to Shura CouncilJune 2016-May 2017Ongoing
IFC: Investments (pipeline and portfolio)

-Power sector

-Basic manufacturing and agribusiness

-Telecom
November 2015

March 2016

June 2016

December 2016
Advisory
-United Bank for Investment restructuringJune 2020
-Construction reform projectOngoing
-Dairy sector developmentOngoing
-Small and Medium Enterprises training with Business EdgeOngoing
-Corporate governanceTBD
-Financial markets infrastructureTBD
-Risk management for banksTBD
-Small and Medium Enterprises banking
-Investment policy
-Suleymaniah Wastewater treatment
-Public Private Partnerships prioritization and regulatory framework (Northern Iraq)
The Fund work program in the next 12 mon thsMacroeconomic Policy Analysis and Advice
-First Review of the Staff-Monitored Program and Discussion of a Stand-By ArrangementMarch 2016May 2016
-First and Second Reviews of the Staff-Monitored Program and Request for a Three-Year Stand-By ArrangementMay 2016July 2016
-First Review of the Stand-By ArrangementSeptember 2016December 2016
-Second Review of the Stand-By ArrangementMarch 2017June 2017
-Third Review of the Stand-By ArrangementSeptember 2017December 2017
Technical Assistance
-Public financial managementSeptember 2016November 2016
-Fiscal accounts reportingSeptember 2016November 2016
-Tax Policy
-Public Debt Statistics
-Financial Soundness Indicators
-Foreign Exchange (Article VIII Issues)
-Bank Restructuring
-AML/CFT: Law and Institutions
-Banking Supervision (METAC)
B. Requests for Work Program Inputs
Fund request to BankUpdate on sector reforms (electricity, capture of flared gas, state-owned enterprise, pension),Ongoing basis
Bank request to Fund-Fiscal data to be shared regularly

-Coordination on macroeconomic policy

-Macroeconomic and financial data to be shared regularly, including any foreign exchange transaction

-Sector-specific data

-Consultations outcomes to be shared
Ongoing basis
C. Agreement on Joint Products and Missions
Joint products in the next 12 monthsn/a

Statistical Issues

(As of November 2016)

I. Assessment of Data Adequacy for Surveillance
General
Data provision to the Fund has serious shortcomings that significantly hamper surveillance. Macroeconomic statistics suffer from years of neglect and recent turmoil has added to the difficulties. While the Central Statistics Organization (CSO) remained in place, it lacks adequate technical expertise and resources to address the requirements for a modern statistical system. At the Central Bank of Iraq (CBI), statistical capacity is slightly better, but issues of interagency data sharing and data collection responsibilities are hampering progress on external sector statistics—this issue also affects the CSO.
National Accounts
The CSO compiles annual and quarterly GDP at current and constant (2007) prices from the production approach, and in current prices from the expenditure approach. The national accounts mainly follow the 1968 System of National Accounts (SNA). Poor and lack of regular comprehensive source data for some industries and for GDP by expenditure have a negative impact on the quality of the national accounts. Volume estimates of GDP suffer from some shortcomings and delays in source data that affect the timelines of the annual estimates. Reduced regional coverage of source data due to the conflicts in four provinces has further weakened the GDP measures. Ongoing TA from METAC is helping the CSO to gradually move to the concepts of the 2008 SNA and to improve methodology. Access to administrative data could be a very significant data input for national accounts estimates, but it would require strong ministerial support and proactive collaboration with other government institutions.
Price Statistics
The CSO compiles and disseminates a monthly CPI for all-Iraq (including Kurdistan) and for each governorate. The index was recently rebased to 2012, based on the Household Social and Economic Survey. However, the CPI only covers the urban areas in all governorates and resources are insufficient to expand coverage. Starting June 2014 official data on CPI do not include the four conflict-affected governorates. A quarterly PPI for manufacturing is also compiled on a 2012 base. A recent STA/METAC TA mission provided advice on further improvements to the CSO’s price statistics.
Government Finance Statistics
Despite the difficult security situation, which has a direct impact on data compilation and analysis, the provision of fiscal data for program monitoring purposes has been satisfactory. Infrequent submission delays occur, and coverage of Kurdistan remains sketchy. However, the authorities are taking measures to address these shortcomings.
In March 2015, an STA mission—overlapping with the Article IV mission—discussed a work plan aimed at improving the frequency and timeliness of fiscal reporting data and setting a migration plan to improve fiscal statistics based on Government Finance Statistics Manual 2014 (GFSM 2014). In March and August 2016, follow-up STA missions assisted in setting up a reporting tool on quarterly statement of government operations for the budgetary central government. Iraq resumed reporting government finance statistics for publication in the Government Finance Statistics Yearbook (GFSY). Currently there are no fiscal statistics published by the government beyond the summary estimates and outturn for the budgetary central government.
Monetary and Financial Statistics
The CBI reports monetary statistics for the central bank and other depository corporations for publication in the IMF’s International Financial Statistics, using the standardized report forms (SRFs). However, the quality and timeliness of the data continue to be hampered by the lack of staff capacity, particularly at the commercial bank level and source data quality. While most banks, including state-owned banks are using the new report forms, which were developed based on the IMF’s Monetary and Financial Statistics Manual, some banks continue to have data reporting problems (e.g., missing data, reporting errors, and reporting delay). As a result, data are reported with a long lag. In addition, monetary statistics do not cover the northern region (Kurdistan) due to problems with data collection, and the reporting of Fund accounts in SRF 1SR for central bank needs improvement. A recent mission on financial soundness indicators in April 2016 found potential departures from international standards in applying the residence concept and classifying state-owned enterprises, and some other areas that need investigation and improvement.
Financial Sector Surveillance
Following a discussion during the 2015 Spring Meetings in Washington, D.C., the CBI requested TA in compiling financial soundness indicators (FSIs). An STA mission was fielded in April 2016 to develop a framework for compiling FSIs. As a result, the CBI has started compiling and reporting the 12 core FSIs and 7 of the 13 additional FSIs for state banks and a similar set of FSIs for private banks on a quarterly basis. However, there are data issues that need to be addressed before FSIs can be used for publication and surveillance, and a follow-up mission to the CBI is planned for FY17.
External Sector Statistics
Balance of Payments and IIP Statistics
The CBI compiles and reports annual as well as quarterly balance of payments data in the format of the IMF’s Balance of Payments Manual, sixth edition (BPM6) to the IMF. The CBI also compiles and disseminates an annual international investment position (IIP) statement. However, the latest 2013-2015 balance of payments data have not yet been included in STA’s publications due to very large net errors and omissions, which have raised concerns over data coverage and quality. The latest TA mission on external sector statistics (ESS), conducted in March 2016, noted that errors and omissions could be attributed to: lack of coverage and/or under-coverage of (i) transactions related to production sharing agreements with foreign oil companies and long-term construction work by foreign companies in Iraq; (ii) trade data for the Kurdistan region; and (iii) incomplete recording of counterpart entries for the net borrowing in the financial account of the balance of payments in 2013 and 2014, which is inconsistent with the significant surpluses recorded in the current account. The mission assessed that the current data sources to compile the ESS are not comprehensive. The paucity of data exists particularly in the areas of external trade in goods and services and foreign direct investment. In light of these findings, the mission has made several recommendations, including enhancement of international transactions reporting system, estimation techniques for Kurdistan imports and securing data on payments made by the Ministry of Oil to international oil companies. International reserves are compiled consistent with international methodologies and published in the IFS since end-2006.
External Trade Statistics
External trade data have serious problems of timeliness and are of poor quality, given the absence of reliable customs data. A new customs form for imports is available but it is not being used at the customs border due to the security situation and the lack of Customs Department resources at the border outlets.
Coverage of private sector imports is constrained by lack of data sources. Only goods that are paid for through the Iraqi banking system are captured. Thus goods that are imported under external payments arrangements (for example, imports for direct investment projects by the international oil companies) are not recorded in the balance of payments. The coverage of the external trade statistics excludes the northern region of the country (Kurdistan), and no estimates for smuggling are made.
Export data from the oil sector are received from the Balance of Payments Statistics Division at the CBI. The data on nonoil exports, which amount to the equivalent of 3-5 percent of total exports, are derived from information on the customs export form. Nonoil export data are provided to the CBI on a monthly basis for crosschecking purposes.
II. Data Standards and Quality
The country is an e-GDDS participant. The metadata, some of which have been updated in early 2016, for key macroeconomic indicators are available on the country page on the IMF’s Dissemination Standards Bulletin Board.No data ROSC is available.
Iraq: Table of Common Indicators Required for Surveillance(As of October 31, 2016)
Date of latest observation (For all dates in table dd/mm/yy)Date receivedFrequency of Data7Frequency of Reporting7Frequency of Publication7Memo Items:8
Data Quality-Methodological Soundness9Data Quality-Accuracy and Reliability
Exchange Rates05/25/201606/2/2016DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities106/201610/24/2016MMM, 4-6-week lag
Reserve/Base Money05/201607/06/2016MMM, 4-6-week lag
Broad Money05/201605/25/2016MMM, 4-6-week lag
Central Bank Balance Sheet04/201607/06/2016MMM, 4-6-week lag
Consolidated Balance Sheet of the Banking System04/201610/06/2016MMQ 4-6-week lag
Interest Rates209/201610/04/2016MMM, 4-6-week lag
Consumer Price Index03/31/201605/2016MMM, 3-week lag
Revenue, Expenditure, Balance and Composition of Financing3 - General Government406/201609/2016MMN/A
Revenue, Expenditure, Balance and Composition of Financing3- Central Government06/201609/2016MMN/A
Stocks of Central Government and Central Government-Guaranteed Debt512/201503/2016N/AN/AN/A
External Current Account Balance12/201503/2016QQQ 9-month lag
Exports and Imports of Goods and Services12/201503/2016QQQ 9-month lag
GDP/GNP03/201604/2016QQQ 3-month lag
Gross External Debt12/201503/2016N/AN/AN/A
International Investment Position612/201406/01/2015QQQ 9-month lag
1Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
2Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
3Foreign, domestic bank, and domestic nonbank financing.
4The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
5Including currency and maturity composition.
6Includes external gross financial asset and liability positions vis-à-vis nonresidents.
7Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).
8These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.
9Iraq has not had the data ROSC or the Substantive Update.
1Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
2Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
3Foreign, domestic bank, and domestic nonbank financing.
4The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
5Including currency and maturity composition.
6Includes external gross financial asset and liability positions vis-à-vis nonresidents.
7Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).
8These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.
9Iraq has not had the data ROSC or the Substantive Update.
1Not including infrastructure investments.

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