Iraqi economy continues to face number of economic challenges
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.