International Monetary Fund
IMF Country Report No.16/379
FIRST REVIEW OF THE THREE-YEAR STAND-BY
ARRANGEMENT AND FINANCING ASSURANCES REVIEW,
REQUESTS FOR WAIVERS OF NONOBSERVANCE AND
APPLICABILITY OF PERFORMANCE CRITERIA,
MODIFICATION OF PERFORMANCE CRITERIA, AND
REPHASING OF THE ARRANGEMENT—PRESS RELEASE;
STAFF REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR IRAQ
Page 58 & 59 of 109 pages
D. Foreign Exchange Policy
23. The government is committed to maintaining the peg with the U.S. dollar. The peg provides a key nominal anchor in a highly uncertain environment with policy capacity weakened by the conflict with ISIS. In August 2016, the CBI increased the amount of daily foreign exchange sales (¶14), without significant impact on the spread so far. To address concerns that foreign exchange sales by the CBI would finance terrorism or money laundering of illegal activities, the CBI has been strengthening its procedures to allocate foreign exchange with the technical assistance of the U.S. Treasury and the Federal Reserve Board and the recourse to external auditors. The CBI has also requested the technical assistance of the IMF Monetary and Capital Markets Department to analyze the reasons why the exchange rate spread between the official rate of the CBI foreign exchange sales and the parallel market rate has increased since the end of 2015 and to make recommendations to reduce the spread.
24. The government will gradually remove remaining exchange restrictions and a multiple currency practice (MCP) with a view to eliminating exchange rate distortions. Such a move towards acceptance of the obligations under
6 The downward revision of the debt-to-GDP ratios compared to the SBA request stems from: (i) the downward revision of the stock of external public debt by $1 billion at end-2015 due to the elimination of double counting of one debt; the upward revision of nominal GDP in 2014–15 explained above (¶6); and the upward revision of oil production by 0.2 mbpd; and the upward revision of oil prices by about $2.5 per barrel in the medium term compared to the SBA request.
Article VIII of the IMF’s Articles of Agreement will send a positive signal to the investment community that Iraq is committed to maintain an exchange system that is free of restrictions and MCPs for current international transactions and thus facilitate creation of a favorable business climate. As a first step, on October 16, 2016, the CBI made the weekly limits on the purchase of cash at the foreign currency auctions indicative, in the sense that any bank requiring additional cash for their clients’ legitimate travel expenses will be able to obtain the required amount above these limits on the basis of appropriate documentation. As a second step, the CBI will issue clarifying implementing regulations, to remove the limitation on transfer of investment proceeds that gives rise to an exchange restriction (SB, Table 2), as recommended by a recent technical assistance mission of the IMF.