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IMF Country Report No. 21/38
IRAQ
2020 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR IRAQ
February 2021
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2020 Article IV consultation with Iraq, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its February 8, 2021 consideration of the staff report that concluded the Article IV consultation with Iraq.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 8, 2021, following discussions that ended on December 10, 2020, 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 January 22, 2021.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director, Alternate Executive Director, and Senior Advisor for Iraq.
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.
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IRAQ
STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION
January 22, 2021
Key Issues
Context. 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.
Policies. The authorities are implementing a broad-ranging policy package to stabilize the economy and ensure debt sustainability. Key short-term measures include fiscal reforms in the 2021 budget, which aim to curb the wage bill, reduce inefficient energy subsidies, and boost non-oil revenue. Alongside, the budget includes a significant boosting of targeted cash transfers and health spending. In addition, the Central Bank of Iraq has devalued the exchange rate to safeguard reserves and ensure external sustainability.
Key Recommendations. A comprehensive health crisis response, including acquisition and distribution of a vaccine, will be critical to save lives. The authorities’ decisive recalibration of short-term policies will help ensure macroeconomic stability in the near term. In addition, deep and broad-ranging structural reforms will be essential to ensure fiscal sustainability and achieve sustainable and inclusive growth. Key priorities include comprehensive reforms of the civil service and the pension system, stemming losses in the electricity sector, strengthening public financial management, reducing corruption, and restructuring large state-owned banks.
Approved By
Taline Koranchelian and Kristina Kostial
Discussions took place from November 11–December 10, 2020 via video conference. The mission team comprised Tokhir Mirzoev (head), Gazi Shbaikat, Gareth Anderson, Moheb Malak, Jiayi Ma, Ling Zhu, Imad Alakhdar (all MCD), Gee Hee Hong (FAD), Arz Murr (LEG), Kareem Ismail (Resident Representative). Mr. Mohieldin and Ms. Choueiri (OED) participated in discussions. Staff held discussions with senior officials of the Central Bank of Iraq (CBI) and the Ministry of Finance, members of the Parliamentary Finance Committee, as well as other ministries, government agencies, and representatives from the civil society and donor community. Laila Azoor and Cecilia Pineda provided production assistance and Jawed Sakhi provided research assistance.
Contents
CONTEXT
LONG-STANDING VULNERABILITIES LAID BARE BY THE PANDEMIC
A. Before the Crisis
B. Economic Fallout from COVID-19 and Policy Developments
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Stabilizing the Economy
B. Supporting a Durable and Inclusive Recovery
STAFF APPRAISAL
BOX
1. Iraq’s Social Welfare System
FIGURES
1. Economic Developments and Medium-Term Projections, 2015–26
2. Fiscal and Debt, 2015–26
TABLES
1. Selected Economic and Financial Indicators, 2016–26
2. Central Government Fiscal Accounts, 2016–26 (In trillions of Iraqi dinars)
3. Central Government Fiscal Accounts, 2016–26 (In percent of GDP)
4. Central Government Fiscal Accounts, 2016–26 (In percent of non-oil GDP)
5. Balance of Payments, 2016–26
6. Monetary Survey, 2016–26
7. Central Bank Balance Sheet, 2016–26
8. Reserve Adequacy Indicators, 2016–26
9. Indicators of Fund Credit, 2018–25
ANNEXES
I. External Sector Assessment
II. Public and External Debt Sustainability Analysis
III. Risk Assessment Matrix
IV. Public Wage Bill in Iraq
V. Iraq’s Electricity Sector Challenges
VI. The Authorities’ Medium-Term Reform Program (“White Paper”)
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IRAQ
STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION— INFORMATIONAL ANNEX
January 22, 2021
Prepared By
Middle East and Central Asia Department (In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
