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IMF update on outlook for Iraq

Wednesday 26, March 2014 by Robin Amlôt
An IMF mission led by Carlo Sdralevich, Mission Chief for Iraq, visited Amman during the period March19-24 to meet with an official Iraqi delegation led by Acting Minister of Finance, Dr. Safa Al Safi. The mission also met with the Acting Governor of the Central Bank, Dr. Abdul Basit Al Turki Said, and officials from the ministries of finance, planning, and oil, the Central Bank, and the Board of Supreme Audit.

The IMF team also consulted with representatives of Iraqi private sector and diplomatic community in Amman. The mission reviewed recent macroeconomic developments and the current fiscal and monetary issues. This work will help prepare the 2014 Article IV consultation with Iraq later in the year.

At the conclusion of the mission, Sdralevich noted that the Central Bank of Iraq is pressing ahead with the improvement of its operations and the reform of the financial sector by preparing new central bank, commercial bank, and anti-money laundering/combating the financing of terrorism legislation, and introducing a new payment system. However, he added that more needs to be done by the Government and the Central Bank to restructure the large state-owned banks, and levelling the playing field for the private banking sector, gradually increasing its access to government business.

Regarding the performance of the Iraqi economy, Sdralevich said, “Iraq maintained macroeconomic stability in 2013, despite lower than projected oil production and exports. Growth remained solid at 4.2 per cent, thanks to non-oil activity of about seven per cent, driven by construction and retail trade. Inflation declined slightly to 3.1 per cent from 3.6 per cent in 2012, reflecting stable world food and fuel prices. The exchange rate remained stable, and international reserves grew by $7 billion to $78 billion at end-2013 (about 10 months of imports of goods and services).

“Economic activity is projected to strengthen in 2014, with GDP growth rising to over six per cent thanks to oil production of 3.2 million barrels per day (mbpd) and oil exports of 2.6 mbpd, even though non-oil activity is affected by the security situation.

“However, in 2013, lower than expected oil revenues and increased spending pressures—largely arising from the difficult security situation—weighed on the overall fiscal performance. As a result, the budget deficit rose to 6 per cent of GDP for 2013, financed though the Development Fund for Iraq, which declined from over $18 billion to $6.5 in the course of the year.

“The draft 2014 budget envisages large spending outlays reflecting new commitments for security, social assistance and pensions, and transfers to the provinces. To preserve macroeconomic stability, planned expenditure commitments should be scaled down, while preserving key social spending. In the longer run, Iraq should strive to manage well its large, and rising, oil revenues by containing current spending and building up fiscal and external buffers.

“In this connection, we also underlined the importance of strengthening public financial management, including budgetary processes, classification, and reporting, and introducing an integrated information system, to help prepare and execute sustainable fiscal policies.”

 

original source: http://www.cpifinancial.net/news/post/25933/imf-update-on-outlook-for-iraq

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