Press Release No. YY/XX
FOR IMMEDIATE RELEASE
[Month, Day, Year]
International Monetary Fund
Washington, D.C. 20431 USA
IMF Staff Concludes the 2015 Article IV Mission for Iraq
The views expressed in this statement are those of the IMF staff and do not necessarily
represent the views of the IMF’s Executive Board. Based on the preliminary findings of this
mission, staff will prepare a report that, subject to management approval, will be presented to
the IMF's Executive Board for discussion and decision.
An International Monetary Fund (IMF) mission led by Carlo Sdralevich visited Amman from
March 6–15 to conduct the 2015 Article IV Consultation discussions with the Iraqi
authorities.
At the conclusion of the visit, Mr. Sdralevich issued the following statement:
“The Iraqi authorities are taking proactive steps to address the double shock of the Islamic
State of Iraq and Syria (ISIS) insurgency and the collapse in oil prices, which have hit the
economy hard. These efforts have led to the swift approval of a streamlined 2015 budget,
based on encouraging progress towards a permanent agreement between Baghdad and the
Kurdistan Regional Government (KRG) on oil exports from the north.
“The ISIS insurgency has not halted the expansion of the oil sector from all oil-producing
regions. Exports are expected to rise from 2.5 million barrels per day (mbpd) in 2014 to 3.1
mbpd this year, benefiting from the agreement with the KRG. Nevertheless, due to the
decline in economic activity in the areas occupied by ISIS and stagnating government
spending, GDP growth is estimated to have contracted by over 2 percent in 2014 and is
projected to recover to just over 1 percent this year. Inflation outside ISIS-occupied areas is
low, at less than 2 percent at end-2014, but may rise following the ongoing enforcement of
higher custom duties.
“International reserves of the Central Bank of Iraq (CBI) have declined from $78 billion at
end-2013 to $66 billion at end-2014 because of the decline in oil revenues and the high level
of imports. The level of international reserves at end-2014 reflects the $0.7 billion balance of
the Development Fund for Iraq, which was moved to the CBI in Baghdad in May. Therefore,
total foreign assets fell from $84.3 billion to $66 billion in the course of last year.
“The external shock, combined with security and humanitarian spending pressures, is
weighing on fiscal performance. In 2014, the fiscal rule triggered by the lack of an approved
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budget helped contain spending below 2013 levels. As a result, the budget deficit is estimated
at about 3 percent of GDP (from 6 percent of GDP in 2013). However, this outcome was
partly due to the postponement of investment spending, and the suspension of the budget
transfer to the KRG. Arrears to the international oil companies were also accumulated. The
deficit has been mostly financed by domestic borrowing from state-owned banks.
“The 2015 budget, assuming exports of 3.3 mbpd and a price of $56 per barrel, includes
increases in non-oil taxation and strives to contain spending, for example through
compulsory savings on wages of civil servants. Nevertheless, due to the large fall in oil
revenues, it still envisages a deficit of about12 percent of GDP. Under more conservative oil
revenue assumptions, and taking into account unbudgeted payments to international oil
companies, the deficit may well reach much higher levels. To address this downside risk, the
government is committed to under-execute budget spending as needed through rigorous cash
management, the rationalization of capital investment, and the postponement of some
investment projects.
“However, further fiscal consolidation through revenue and spending measures will be
needed to contain the 2015 deficit to a level consistent with financing constraints, alleviate
pressure on the domestic banking system and tighten domestic demand to contain the decline
in international reserves. Consolidation measures should be permanent to underpin mediumterm fiscal and external sustainability, which would be particularly important because of the
weak oil price outlook.
“The foreign exchange market has remained stable in 2014 following steps taken by the CBI
to liberalize it, and the parallel market spread had declined to 3.5 percent at the end of the
year. However, the authorities should reconsider the caps on CBI foreign exchange sales and
the collection of custom duties through commercial banks. These measures are effectively
restricting the supply of foreign exchange to the Iraqi economy and have boosted the parallel
market rates to record levels in the past weeks.
“Aware of the importance of the financial system for development of the private sector and
growth, the authorities are pressing ahead with the restructuring of state-owned banks
Rasheed and Rafidain. They are also taking steps to open government business to private
banks, and introduce key elements of the financial system infrastructure, such as a deposit
guarantee scheme and a credit bureau.
“Achieving inclusive and diversified economic growth over the medium term will also
depend on a wide set of reforms, encompassing state-owned enterprises, the energy sector,
and the labor markets, and improvements in the business environment and governance.
“The mission indicated that the IMF stands ready to support the Iraqi authorities through
stepped up policy engagement, technical assistance, and, if needed, financial support.
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“The mission met with Minister of Finance Hoshyar Zebari, Minister of Oil Adil Abdul
Mehdi, Acting Governor of the Central Bank (CBI) of Iraq Ali Allaq and officers from the
ministries of finance, oil, trade, electricity, and the CBI.
“The mission would like to thank the Iraqi authorities for their cooperation and the open and
productive discussions.”