Iraqi econ­omy con­tin­ues to face num­ber of eco­nomic chal­lenges

The Pak Banker - - COMPANIES/BOSS -

An In­ter­na­tional Mone­tary Fund (IMF) mis­sion led by Chris­tian Josz vis­ited Amman from March 17-29, 2016 to re­view the Staff-Mon­i­tored Pro­gram (SMP) and be­gin dis­cus­sions on a StandBy Ar­range­ment (SBA) with the Iraqi au­thor­i­ties. At the end of the visit, Mr. Josz said Iraq con­tin­ues to face a num­ber of chal­lenges. Key among those is the on­go­ing armed con­flict with ISIS, which con­tin­ues to strain the coun­try's re­sources and re­sults in new waves of in­ter­nally dis­placed peo­ple, now reach­ing over 4 mil­lion. The other key chal­lenge is the steep fall in oil prices, caus­ing a large ex­ter­nal shock to the bal­ance of pay­ments and bud­get rev­enue, which de­pend pre­dom­i­nantly on oil ex­port re­ceipts.

Real GDP con­tracted by 2.1 per­cent in 2015 ow­ing to the con­flict, de­struc­tion of in­fra­struc­ture and as­sets, dis­rup­tions in trade, and de­te­ri­o­ra­tion of in­vestor con­fi­dence. The in­crease in oil pro­duc­tion, which is lo­cated in ar­eas un­der con­trol of the Iraqi gov­ern­ment and the Kur­dis­tan Re­gional Gov­ern­ment, helped to mit­i­gate the eco­nomic de­te­ri­o­ra­tion in the non-oil sec­tor. The cur­rent ac­count deficit of the bal­ance of pay­ment widened to 5.1 per­cent of GDP in 2015. As a re­sult, for­eign ex­change re­serves dropped by $13 bil­lion to $54 bil­lion at end-2015.

Pre­lim­i­nary es­ti­mates in­di­cate that the au­thor­i­ties con­tinue to make progress un­der the SMP. Three out of the five in­dica­tive targets at end-De­cem­ber 2015 were met, ow­ing to the un­der ex­e­cu­tion of ex­pen­di­ture on wages and pen­sions, goods and ser­vices, and trans­fers. The tar­get on so­cial spend­ing was missed by a small mar­gin. The tar­get on non-ac­cu­mu­la­tion of ex­ter­nal ar­rears was missed due to the gov­ern­ment's cash con­straint. One out of three struc­tural bench­marks was met and the other two were not yet met but good progress has been made and au­thor­i­ties ex­pect to meet them shortly.

The Iraqi au­thor­i­ties and IMF staff have made good progress to­wards reach­ing an un­der­stand­ing on a pro­gram of eco­nomic and fi­nan­cial poli­cies that could be sup­ported by fi­nanc­ing.

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