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Iraq: Staff Report for the 2019 Article IV Consultation and Proposal for Post-Program Monitoring—Informational Annex

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
July 2019
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Fund Relations

(As of May 31, 2019)

Membership Status: Joined December 27, 1945; Article XIV General Resources Account

SDR MillionPercent of Quota
Quota1,663.80100.00
Fund Holdings of Currency3,425.13205.86
Reserve Tranche Position289.9517.43

SDR Department

SDR MillionPercent of Allocation
Net Cumulative Allocation1,134.50100.00
Holdings2.640.23

Outstanding Purchases and Loans

SDR MillionPercent of Quota
Stand-By Arrangements1,494.2089.81
Emergency Assistance1557.0633.48

Emergency Assistance may include Emergency Assistance for Natural Disasters (ENDA), Emergency Post-Conflict Assistance (EPCA), and Rapid Financing Instrument (RFI).

Emergency 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, 20193,831.001,494.20
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 (as of June 14, 2019) (SDR Million; based on existing use of resources and present holdings of SDRs)1

Forthcoming
20192020202120222023
Principal279.70862.26690.23219.08
Charges/Interest27.3342.3925.7414.7912.35
Total307.03904.65715.95233.8612.35

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

When 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. In line with the IMF safeguards assessment’s recommendations the Governing Council of the CBI approved a new charter for the Audit Committee prohibiting CBI executive representation on the committee. Also, the Parliament has approved amendments to the Law on the Central Bank of Iraq to strengthen CBI governance and the internal control framework. However, progress in strengthening the capacity of internal audit and financial reporting has been slow.

Exchange Arrangement

Iraq’s de jure and de facto exchange rate arrangements are classified as a conventional peg arrangement. The Central Bank Law gives the Board of the Central Bank of Iraq (CBI) the authority to formulate exchange rate policy. Effective January 2, 2017, the cash and transfer exchange rate was set at ID 1,184 plus ID 6 (fees) per U.S. dollar. Effective May 24, 2018, the official exchange rate was set at ID 1,190 per U.S. dollar including the Central Bank commission (ID 1,182 plus ID 8 (fees)) according to the closing prices of the daily bulletin of gold & main currencies published on the CBI website (www.cbi.iq).

The CBI provides foreign exchange at the official exchange rate for permissible transactions through its daily auctions (allocations), establishing a peg. However, because certain transactions are excluded from 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 one multiple currency practice (MCP) subject to Fund approval under Article VIII, Section 3.1

The MCP arises from the lack of a mechanism to ensure that the exchange rate at the CBI foreign exchange window and the market rates (retail exchange rates of commercial banks and exchange bureaus for the sale of foreign currency from sources other than the CBI foreign exchange window) do not deviate from each other by more than 2 percent.

A previously identified exchange restriction arising from an Iraqi balance owed to Jordan under an inoperative bilateral payment agreement has been eliminated.

Article IV Consultation

Upon the approval of the 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 August 1, 2017, along with the Second Review under the Three-Year Stand-by Arrangement. The staff report (IMF Country Report No. 17/251) was published on August 9, 2017, and is available on the internet.

Resident Representative

Mr. Kareem Ismail has been the resident representative for Iraq, based in Amman, since June 2018.

Technical Assistance, 2014–19

DepartmentDatePurpose
FADMarch 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
February 2017Revenue administration: tax policy
February 2017PFM: commitment controls, cash management, treasury single account (METAC)
March 2017Advice on a modern LTO/ Tax administration
July 2017Seminar on Commitment Control System
January 2018Assist in the Development of an IT System
February 2018Commitment controls, cash management and TSA
March 2018Improved Integration of Asset and Liability Management Framework
April 2018Follow up on establishment and functioning of large taxpayer office
July 2018Follow-up on Treasury Single Account and Cash Flow Management Unit (METAC)
July 2018Budget Classification and Chart of Accounts (METAC)
August 2018Implementation Plan for New Sales Taxes (METAC)
March 2019Budget Classification and Chart of Accounts (METAC)
LEGMay 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
June 2016AML/CFT: review of the framework to implement targeted financial sanctions
December 2016UNODC Seminar on Strengthening the legal regime against terrorism in Iraq
December 2016Program TA in Central Bank Law
December 2017Review of AML/CFT law and integration of internal comments
January 2018Review of the “AML/CFT Regulations for Dealers in Precious Metals and Stones”
January 2018Review of the “Process for Implementing Targeted Financial Sanctions”
MCMMarch 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
November 2016Regulations on capital adequacy and liquidity (METAC)
March 2017Regulations on credit risk (METAC)
March 2017Banking supervision: upgrade CBI prudential regulations (METAC)
April 2017Banking supervision (METAC)
June 2017Improving Regulatory Framework (METAC)
February 2018Improving Regulatory Framework – Follow-up (METAC)
September 2018Regulatory Framework of Internal Audit (METAC)
November 2018Training on dealing with weak banks (METAC)
November 2018Forecasting and Policy Analysis System (FPAS)
STADecember 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
January 2017National accounts (METAC)
January 2017External sector statistics (METAC)
February 2017Price statistics (METAC)
August 2017National accounts (METAC)
April 2018External sector statistics (METAC)
August 2018National accounts (METAC)
October 2018Price statistics (METAC-EDDI2)
December 2018Government Finance Statistics
December 2018FSI: Financial Soundness Indicators

Relations with Other International Financial Institutions

World Bank: http://projects.worldbank.org/search?lang=en&searchTerm=&countrycode_exact=IQ

Statistical Issues

(As of May 31, 2019)

I. Assessment of Data Adequacy for Surveillance
General
Data provision to the Fund has serious shortcomings that significantly hamper surveillance. Data availability also continues to impair policy-making in Iraq. The Central Statistics Organization (CSO) lacks adequate technical expertise and resources to address the requirements for a modern statistical system. Both the CSO and the Central Bank of Iraq (CBI) face challenges with interagency data sharing as well as issues surrounding data collection responsibilities.
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). The lack of regular, reliable and comprehensive source data for some industries and for GDP by expenditure undermine the quality of the national accounts. Volume estimates of GDP suffer from shortcomings, and delays in source data affect the timeliness 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 introduce 2012 as a new base/benchmark year, and to implement core concepts and definitions of the 2008 SNA and to improve the compilation methodology and coverage of GDP. Access to administrative data could be a very significant data input for national accounts estimates, but this 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 rebased in 2016, based on the 2012 Household Social and Economic Survey. However, the CPI covers only the urban areas in all governorates and there are insufficient resources 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. An upcoming STA TA mission will provide 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.
STA GFS TA missions have proposed 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 the Government Finance Statistics Manual 2014 (GFSM 2014). The missions have also assisted in setting up a reporting tool on quarterly and monthly statements of government operations for budgetary central government. Iraq resumed reporting government finance statistics for publication in the Government Finance Statistics Yearbook (GFSY) but the time lag remains long.
Monetary and Financial Statistics
The CBI reports monetary statistics for the central bank and other depository corporations (ODCs) for publication in the IMF’s International Financial Statistics (IFS), 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. With technical assistance from a monetary and financial statistics mission in December 2017, the updated SRF 1SR for the central bank is now broadly in line with the Monetary and Financial Statistics Manual and Compilation Guide (MFSMCG). The publication of SRF data in IFS has been resumed. However, more efforts are required to improve the compilation of the SRF 2SR for ODCs as the current source data lack the required breakdowns. Source data improvement will also address the inconsistencies between financial soundness indicators for deposit takers and the SRF 2SR for ODCs. As part of efforts to improve data quality, the CBI plans to use a more detailed form to collect data from commercial banks. According to the CBI, some foreign-owned companies operating in Iraq are classified as nonresidents—a deviation from international standards regarding the application of the residence concept. In addition, monetary statistics do not cover bank operations in Kurdistan Region due to problems with data collection. Iraq reports some data and indicators of the Financial Access Survey (FAS), including the two indicators adopted by the UN to monitor Target 8.10.1 of the Sustainable Development Goals (SDGs). There is room for improvement in reporting to the FAS, especially for series on use of financial services (depositors, deposit accounts, borrowers, and loan accounts).
Financial Sector Surveillance
Following a mission on financial soundness indicators (FSIs) in April 2016, the CBI has compiled the 12 core FSIs and 7 of the 13 additional FSIs for state banks and a similar set of FSIs for private banks with quarterly frequency. The last FSI mission in December 2018 assisted in compiling the sectoral FSIs, covering the entire banking sector, merging the FSIs for the state-owned and private banks, and prepared metadata. The dissemination of the sectoral FSIs and metadata on the IMF’s FSI website awaits the CBI’s approval.
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. The latest TA mission on external sector statistics (ESS) was conducted in April 2018. Despite some progress in reducing net errors and omissions (NEOs), they remain high and persistently negative, suggesting capital flight. STA will continue assisting the CBI in improving data reliability by addressing the most probable sources of the large NEOs, including the recording of oil sector transactions, cross-border trade with Kurdistan, arrears, and in-kind payments for external borrowing. 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 is not being used at the customs border due to the security situation and the lack of Customs Department resources at the border outlets. The compilation of external trade statistics has been hampered by a lack of interinstitutional coordination among key data providers.
Coverage of private sector imports is constrained by a 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 international oil companies) are not recorded in the balance of payments. The coverage of the external trade statistics excludes 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 non-oil exports, which amount to the equivalent of 3–5 percent of total exports, are derived from information on the customs export form. Non-oil export data are provided to the CBI monthly for crosschecking purposes.
Transactions related to oil exploration, extraction, and development payments to international oil companies have recently been included in the balance of payments.
II. Data Standards and Quality
Iraq has been participating in e-GDDS since 2009, but has not yet launched a National Summary Data Page for the dissemination of key macroeconomic statistics. 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.
Iraq: Table of Common Indicators Required for Surveillance(As of May 16, 2019)
Date of Latest Observation (For all dates in table dd/mm/yy)Date ReceivedFrequency of Data7Frequency of Reporting7Frequency of Publication7
Exchange rates01/201903/07/2019MMM
International reserve assets and reserve liabilities of the monetary authorities112/201803/2019MMM, 4–6-week lag
Reserve/Base money12/201803/2019MMM, 4–6-week lag
Broad money12/201803/2019MMM, 4–6-week lag
Central bank balance sheet12/201803/2019MMM, 4–6-week lag
Consolidated balance sheet of the banking system12/201803/2019MMQ, 4–6-week lag
Interest rates201/201702/03/2017MMM, 4–6-week lag
Consumer price index03/201904/2019MMM, 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 balanceQ4/201804/2019QQQ,
Exports and imports of goods and servicesQ4/201804/2019QQQ,
GDP/GNP03/201604/2016QQQ,
Gross external debt12/201503/2016N/AN/AN/A
International investment position612/201412/06/2016QQQ,

Any 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.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic non-bank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Any 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.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic non-bank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

1

The authorities have imposed a requirement that, to access the CBI foreign exchange window, a purchaser must have at least one bank account that has been opened for a minimum of six months. This requirement does not apply for access to foreign exchange from other sources, including purchases of foreign exchange from commercial banks’ own resources. Staff will monitor the implementation of this requirement to ascertain whether any undue burdens on access to foreign exchange for current international transactions emerge from its application in practice.

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