Front Matter Page
IMF Country Report No. 17/251
IRAQ
2017 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE THREE-YEAR STAND-BY ARRANGEMENT, AND REQUESTS FOR WAIVERS OF NONOBSERVANCE AND APPLICABILITY OF PERFORMANCE CRITERIA, AND MODIFICATION OF PERFORMANCE CRITERIA—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR IRAQ
August 2017
In the context of the 2017 Article IV Consultation and Second Review under the Three-Year Stand-by Arrangement with Iraq, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its August 1, 2017 consideration.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on August 1, 2017, following discussions that ended on June 4, 2017, with the officials of Iraq on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 25, 2017.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Iraq.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Iraq*
Memorandum on Economic and Financial Policies by the authorities of Iraq*
Technical Memorandum of Understanding*
*Also included in Staff Report
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2017 International Monetary Fund
Front Matter Page
IRAQ
STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE THREE-YEAR STAND-BY ARRANGEMENT, AND REQUESTS FOR WAIVERS OF NONOBSERVANCE AND APPLICABILITY OF PERFORMANCE CRITERIA, AND MODIFICATION OF PERFORMANCE CRITERIA
July 25, 2017
Key Issues
Context: Iraq is an oil-dependent and state-dominated fragile economy that has been hit hard by the conflict with ISIS and the fall in oil prices. The conflict has hurt the economy through displacement and impoverishment of millions of people, and destruction of infrastructure and assets. The oil price decline has resulted in a massive reduction in budget revenue, pushing the fiscal deficit to an unsustainable level. The authorities are responding to the crisis with ambitious but necessary fiscal adjustment while maintaining their commitment to the exchange rate peg, which provides a key nominal anchor in a highly uncertain environment.
Second Review Under the SBA. Program performance under the Stand-By Arrangement (SBA) has been frail. Further fiscal consolidation was achieved in 2016, but at a slower pace than envisaged mainly because of weak investment expenditure control but also due to spending pressure stemming from the military campaign against ISIS and humanitarian needs. To move the program forward, the authorities are implementing strong corrective measures as prior actions and are committed to further fiscal measures in 2018 to ensure external and debt sustainability.
Outlook and Risks. With the current outlook for oil prices, and assuming that the authorities implement the programmed fiscal consolidation, the budget deficit of 14 percent of GDP in 2016 can be eliminated by 2021, the public debt-to-GDP ratio stabilized by 2018, and the balance of payments brought back into surplus by 2021. But risks remain very high, arising primarily from a further fall in oil prices, setbacks in security, political tensions ahead of elections in 2018, and weak administrative capacity.
Key Policy Recommendations:
Implement a supplementary 2017 budget to bring the fiscal program back on track.
Protect social spending.
Create fiscal space to enhance the human capital and rebuild the physical capital of the country by increasing the very low level of non-oil tax revenue and decreasing the very high level of public consumption.
Approved By
Aasim M. Husain and Vitaliy Kramarenko
Discussions took place in Amman during March 5–17, in Washington, D.C. during April 21–23 and in Amman during May 31–June 4, 2017. Staff representatives comprised Christian Josz (head), Ritu Basu, Amgad Hegazy (all MCD), Csaba Feher (FAD), Neree Noumon (SPR), and Marwa Alnasaa (Resident Representative for Iraq based in Amman). Maya Choueiri (Senior Advisor, OED) joined the missions. Bianca Perez, Mustafa Farzad, and Gregory Basile assisted in the preparation of the report.
Contents
BACKGROUND: IRAQ IS FACING AN ACUTE FISCAL AND BALANCE OF PAYMENTS CRISIS
A. Background
B. Recent Economic Developments
C. Outlook and Risks
D. Performance Under the Stand-By Arrangement
ECONOMIC POLICIES TO ADDRESS THE CRISIS
A. Managing External Pressures
B. Implementing Fiscal Consolidation to Achieve Debt Sustainability
C. Monitoring Financial Risks to Preserve Financial Sector Stability
STRUCTURAL REFORMS FOR DIVERSIFIED AND INCLUSIVE GROWTH
A. Create Fiscal Space for More Inclusive Growth
B. Strengthen the Business Environment
PROGRAM MODALITIES AND RISKS
STAFF APPRAISAL
BOXES
1. Implementation of Key Recommendations from 2015 Article IV Consultation
2. Non-Oil Primary Balance Achieving the PIH Level
3. Priority Measures to Increase Non-Oil Tax Revenue
FIGURES
1. An Oil Dependent Economy with Little Progress in Diversification
2. A State-Dependent Economy with Sub-Par Public Service Delivery
3. Violence and Weak Governance Deter Private Sector Development
4. Recent Economic Developments and Outlook, 2012–22
TABLES
1. Selected Economic and Financial Indicators, 2013–22
2. National Accounts, 2013–22
3. Central Government Fiscal Accounts, 2013–22
4. Central Government Fiscal Accounts, 2013–22 (In percent of GDP)
5. Central Government Fiscal Accounts, 2013–22 (In percent of Non-Oil GDP)
6. Balance of Payments, 2013–22
7. Monetary Survey, 2013–22
8. Central Bank Balance Sheet, 2013–22
9. Schedule of Reviews and Purchases Under the Stand-By Arrangement, 2016–19
10. Indicators of Fund Credit, 2015–22
11. Total Financing Requirements and Sources, 2016–19
12. Reserve Adequacy Indicators, 2014–22
13. Financial Soundness Indicators, 2015–16
ANNEXES
I. Risk Assessment Matrix
II. External Sector Assessment
III. Public and External Debt Sustainability Analysis
APPENDICES
I. Letter from the Prime Minister
II. Letter of Intent
Attachment I. Memorandum on Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Front Matter Page
IRAQ
STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE THREE YEAR STAND-BY ARRANGEMENT, AND REQUESTS FOR WAIVERS OF NONOBSERVANCE AND APPLICABILITY OF PERFORMANCE CRITERIA, AND MODIFICATION OF PERFORMANCE CRITERIA—INFORMATIONAL ANNEX
July 25, 2017
Prepared By
Middle East and Central Asia Department (In consultation with other departments)
Contents
RELATIONS WITH THE FUND
RELATIONS WITH THE WORLD BANK GROUP
STATISTICAL ISSUES
Front Matter Page
Press Release No. 17/311
FOR IMMEDIATE RELEASE
August 1, 2017
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
Front Matter Page
Press Release No. 17/323
FOR IMMEDIATE RELEASE
August 9, 2017
International Monetary Fund
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Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
