The Executive Board of the International Monetary Fund (IMF) today approved a three-year Stand-By Arrangement (SBA) for Iraq for SDR 3.831 billion (about US$5.34 billion, or 230 percent of quota) to support the government’s economic reform program. The Board’s approval enables the disbursement of SDR 455 million (about US$634 million). In July 2015, Iraq received disbursement under the Rapid Financing Instrument equivalent to SDR 891.3 million (about US$1.24 billion at the time of approval).
Iraq’s economic reform program supported by the SBA aims to address the urgent balance of payments need, bring spending in line with lower global oil prices, and ensure debt sustainability. The program also includes measures to protect the poor, strengthen public financial management, enhance financial sector stability, and curb corruption. Iraq will require the support of the international community to implement these policies.
The IMF’s Management today also completed the first and second reviews of the Staff-Monitored Program (SMP) with Iraq that was approved by the Managing Director on January 12, 2016.
Following the Executive Board’s decision, Mr. Min Zhu, Deputy Managing Director and Acting Chair of the Board, issued the following statement:
“The Iraqi economy has been hit hard by the double shock arising from the ISIS attacks and the sharp drop in global oil prices.
“The policies put in place by the authorities to deal with this double shock are appropriate. In the fiscal area, the authorities are implementing sizable fiscal adjustment, mostly through inefficient capital expenditure retrenchment while protecting social spending, and financing. In the external area, the authorities are maintaining the peg to the U.S. dollar, which provides a key anchor to the economy.
“The fiscal adjustment envisaged in 2016–19 is appropriate to address the pressure from lower oil revenue and higher humanitarian and security spending. But the composition of the fiscal adjustment should be improved over time, in order to make room for increased but more efficient investment expenditure. Overhaul of the public financial management system is necessary to improve fiscal discipline and the quality of spending. Implementation of the budget-sharing agreement with the Kurdistan Regional Government will put both the federal government and the Kurdistan Regional Government in a better position to address the ISIS attacks and the oil-price shock.
“The accumulation of large external arrears to international oil companies and domestic arrears in 2015 was unfortunate. Existing arrears should be paid down, following a due process of checking their validity, and the implementation of controls to prevent further accumulation of arrears to international oil companies and domestic suppliers. The prevention of future external arrears would ensure that the envisaged oil revenue stream—needed to finance public expenditure and imports—is achieved; the prevention of future domestic arrears would preserve financial sector stability.
“To strengthen growth and financial sector stability, the legal framework of the Central Bank of Iraq needs to be strengthened, state-owned banks need to be restructured, and exchange restrictions need to be gradually removed. Additionally, measures need to be implemented to prevent money-laundering, counter the financing of terrorism, and strengthen the anti-corruption legislation.”