IMF Executive Board Concludes 2020 Article IV Consultation with Iraq

[yota691]

IMF Executive Board Concludes 2020 Article IV Consultation with Iraq

February 11, 2021

Washington, DC: On February 8, 2021 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation ^[1] with Iraq.

The COVID-19 pandemic and a sharp decline in oil revenues have exacerbated Iraq’s longstanding economic vulnerabilities. Real GDP contracted by an estimated 11 percent in 2020, reflecting a slowdown in non-oil activity and cutbacks in oil output as a result of OPEC+ decisions. Large fiscal and external current account deficits of 20 and 16 percent of GDP, respectively, constrained the government’s ability to mount an effective fiscal response to the crisis.

The authorities have begun to take much-needed steps towards ensuring macroeconomic stability while protecting the vulnerable. To help safeguard foreign exchange reserves and reduce the external imbalance, the Central Bank of Iraq has announced a devaluation of the exchange rate. Alongside, the draft 2021 budget, submitted to Parliament, aims to reduce the fiscal deficit through measures to contain the unsustainable expansion of government wage and pension bills and to raise non-oil revenues, while significantly boosting targeted assistance to shield the most vulnerable. The authorities have also set aside sizable resources in support of their efforts to minimize the loss of life to COVID-19, including through acquisition and distribution of a vaccine.

The economy is expected to gradually recover, and the imbalances to narrow, although the outlook remains challenging. Real GDP is projected to return to its pre-pandemic level by 2024. The fiscal and external current account deficits are projected to decline over the medium term. Government debt is expected to peak in 2023 and decline gradually thereafter.

This outlook hinges on strong implementation of reforms and is subject to significant downside risks. Political constraints ahead of the parliamentary elections, renewed bouts of social unrest, or security risks could undermine the reform efforts, putting macroeconomic stability at risk. Furthermore, pandemic‑related risks and oil market uncertainties could further complicate the economic situation.

Executive Board Assessment ^[2]

Executive Directors agreed with the thrust of the staff appraisal. They noted that the COVID 19 pandemic and the sharp decline in oil revenues have further exacerbated Iraq’s existing significant socio-economic fragilities. Directors also noted the authorities’ efforts to strengthen the health policy response, boost social safety nets, and reduce the fiscal and external deficits. Nevertheless, downside risks to the economic outlook remain significant amid a challenging socio-political environment. Directors emphasized that implementing strong policies and structural reforms is essential to ensure macroeconomic stability and achieve sustainable and inclusive growth.

Directors emphasized that reducing fiscal imbalances is critical to ensuring fiscal and debt sustainability. They welcomed the authorities’ planned fiscal reforms in the “White Paper” and encouraged their careful prioritization and swift implementation while minimizing the impact on the vulnerable. To create room for the much-needed reconstruction and social safety nets, Directors highlighted the importance of strengthening public finances. To this end, they called for a comprehensive civil service reform to contain the public wage bill and recalibration of the pension system to put it on solid financial footing. Priority also needs to be given to increasing non-oil revenues and strengthening public financial management to reduce the fiscal risks stemming from off-budget expenditures and government guarantees.

Directors concurred that the recent exchange rate adjustment would help reduce external imbalances and preserve foreign exchange reserves. They underscored that a strong fiscal framework remains critical to ensuring the credibility of the new exchange rate peg as well as minimizing future need for monetary financing of the budget. Directors also saw need for further monetary policy measures by the central bank to contain inflation.

Directors stressed that wide-ranging structural reforms are necessary to cement macroeconomic stability and pave the way for higher and more inclusive growth. They underscored that reform efforts should focus on stemming the financial losses in the electricity sector. This requires sustained efforts to strengthen governance and improve collection, as well as gradual adjustment of tariffs to increase cost recovery and reduce arrears. In addition, Directors emphasized the importance of reducing corruption in key public institutions, continued improvement and effective implementation of the AML/CFT framework, restructuring of large state-owned banks to foster financial stability, and developing the private sector.

Directors noted the authorities’ interest in emergency financing with the Fund to support their stabilization and reform efforts with some Directors encouraging a longer-term arrangement to address structural challenges.

It is expected that the next Article IV consultation with Iraq will take place on the standard 12-month cycle.

Iraq: Selected Economic and Financial Indicators, 2019–26
	Act.	Projections
	2019	2020	2021	2022	2023	2024	2025	2026
Economic growth and prices
Real GDP (percentage change)	4.5	-10.9	1.2	3.9	5.7	4.1	3.1	3.4
Non-oil real GDP (percentage change)	5.7	-8.0	5.0	1.1	2.5	2.7	3.4	3.6
GDP deflator (percentage change)	-1.8	-12.6	23.5	3.6	1.6	1.9	2.6	3.2
GDP per capita (US$)	5,687	4,286	4,287	4,498	4,705	4,865	5,020	5,203
GDP (in ID trillion)	262.9	204.8	255.9	275.5	295.7	313.7	332.1	353.2
Non-oil GDP (in ID trillion)	148.9	140.4	160.9	177.5	191.6	205.0	220.4	238.4
GDP (in US$ billion) 1/	222.4	172.0	176.5	190.0	203.9	216.4	229.1	243.6
Oil production (mbpd)	4.58	4.00	3.95	4.18	4.50	4.73	4.87	5.01
Oil exports (mbpd)	3.97	3.43	3.39	3.59	3.86	4.06	4.18	4.30
Iraq oil export prices (US$ pb) 2/	59.7	38.2	47.0	45.8	45.2	44.8	44.8	44.7
Consumer price inflation (percentage change; end of period)	0.1	1.0	11.5	4.6	2.6	2.0	2.0	2.0
Consumer price inflation (percentage change; period average)	-0.2	0.5	7.1	7.1	3.3	2.3	2.0	2.0
National Accounts (in percent of GDP)
Gross domestic investment	15.1	17.2	19.1	16.8	16.4	16.1	16.0	15.9
Of which: public	7.3	7.9	10.6	8.1	7.7	7.4	7.3	7.0
Gross domestic consumption	83.0	96.0	82.9	84.5	84.6	85.0	84.7	84.6
Of which: public	23.6	35.2	37.0	34.5	32.2	29.4	27.4	26.4
Gross national savings	15.6	2.0	15.0	13.4	13.6	13.4	13.7	13.9
Of which: public	8.7	-12.6	-5.7	-3.7	-1.1	1.7	2.8	3.1
Saving - Investment balance	0.5	-15.2	-4.1	-3.3	-2.7	-2.7	-2.4	-2.0
Public Finance (in percent of GDP)
Government revenue and grants	37.8	30.0	40.8	40.5	40.6	40.6	39.5	38.4
Government oil revenue	35.2	27.0	34.3	33.4	33.3	33.1	31.9	30.8
Government non-oil revenue	2.6	3.0	6.5	7.1	7.4	7.5	7.6	7.6
Expenditure, of which:	36.9	50.3	57.0	52.9	48.6	45.5	43.2	41.6
Current expenditure	29.5	42.5	46.4	44.7	40.9	38.1	35.9	34.6
Capital expenditure	7.3	7.9	10.6	8.1	7.7	7.4	7.3	7.0
Overall fiscal balance (including grants)	0.9	-20.3	-16.2	-12.4	-8.0	-4.9	-3.7	-3.2
Non-oil primary fiscal balance, accrual basis (percent of non-oil GDP)	-48.8	-59.4	-68.8	-57.9	-52.4	-46.8	-42.5	-39.7
Adjusted Non-oil primary fiscal balance, accrual basis (excl. KRG, percent of non- oil GDP) 2/	-45.2	-56.1	-63.9	-54.8	-50.0	-44.9	-40.9	-33.6
Adjusted non-oil primary expenditure (excl. KRG, percent of non-oil GDP) 3/	49.7	56.0	68.4	60.3	55.9	51.0	47.2	44.8
Adjusted non-oil primary expenditure (excl. KRG, annual real growth, percent) 4/	10.4	5.7	30.5	-9.1	-3.2	-4.5	-2.4	0.6
Memorandum items
Total government debt (in percent of GDP) 5/	48.5	83.1	83.0	89.7	91.6	91.3	89.9	87.7
Total government debt (in US$ billion) 6/	107.9	117.4	146.6	170.5	186.8	197.5	205.9	213.7
External government debt (in percent of GDP)	31.4	49.6	37.9	33.0	28.8	26.1	23.7	21.7
External government debt (in US$ billion)	69.8	70.0	67.0	62.7	58.6	56.5	54.3	52.8
Monetary indicators (percentage change)
Growth in reserve money	15.8	29.5	38.3	23.3	11.5	6.9	5.0	4.8
Growth in broad money	8.4	27.3	33.3	19.9	10.4	6.9	5.5	5.4
External sector (in percent of GDP)
Current account	0.5	-15.2	-4.1	-3.3	-2.7	-2.7	-2.4	-2.0
Trade balance	10.3	-6.6	3.7	3.8	3.7	3.5	3.6	3.5
Exports of goods	40.3	29.0	34.3	33.0	32.8	32.3	31.6	30.7
Imports of goods	-30.0	-35.6	-30.7	-29.2	-29.1	-28.8	-28.0	-27.2
Overall external balance	0.8	-8.8	-2.1	-2.6	-3.2	-1.5	-1.3	-0.6
Gross reserves (in US$ billion)	68.0	54.1	47.4	40.8	33.2	30.0	27.1	25.6
Total GIR (in months of imports of goods and services)	10.7	9.4	9.2	6.7	5.0	4.3	3.9	3.5
Exchange rate (dinar per US$; period average)	1,182	1,191	1,450	1,450	1,450	1,450	1,450	1,450
Real effective exchange rate (percent change, end of period) 7/	-1.2	...	...	...	...	...	...	...
Sources: Iraqi authorities; and IMF staff estimates and projections.
1/ Converted from GDP in local currency using the period-average exchange rate (1191 in 2020).
2/ Negative price differential of about $2.9 per barrel compared to the average petroleum spot price (average of Brent, West Texas and Dubai oil prices) in 2020 - 2025.
3/ Adjusted to exclude (i) full year estimates of federal government transfers to the Kurdistan Regional Government, and (ii) non-oil tax revenues from the KRG to the federal government.
4/ Adjusted to exclude full year estimate of federal government transfers to the Kurdistan Regional Government.
5/ Includes arrears. The debt stock includes legacy arrears to non-Paris Club creditors on which the authorities have requested (but not yet obtained) Paris-Club comparable relief. Implementing comparable terms will substantially reduce debt (e.g. by 15 percent of GDP in 2017). The 14 percentage points increase in 2020 is partly attributed to a devaluation in mid-December 2020 which led to an upward revision of external debt.
6/ Converted from the total government debt in local currency using the end-of-period exchange rate (1450 in 2020).
7/ Positive means appreciation.

 

---

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

[yota691]

Iraq’s economy to return to its pre-pandemic level by 2024, IMF says

 

The country's GDP is expected to surge 1.2% this year

 

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Iraq’s economy, which shrank by almost 11 per cent last year due to the Covid-19 pandemic and a sharp decline in oil revenues, is projected to return to its pre-pandemic level by 2024, the International Monetary Fund said.

The slowdown in the real gross domestic product reflects a drop in non-oil activity and reductions in oil output as a result of Opec+ decisions, the fund said.

“Large fiscal and external current account deficits of 20 per cent and 16 per cent of the GDP, respectively, constrained the government’s ability to mount an effective fiscal response to the crisis,” the IMF said.

The IMF has stressed up on the importance of reducing corruption in key public institutions and restructuring of large state-owned banks to foster financial stability and developing the private sector.

The Iraqi authorities have started taking much-needed steps towards ensuring future economic stability. To help safeguard foreign exchange reserves and reduce the external imbalance, the Central Bank of Iraq has announced a devaluation of the exchange rate. Iraq devalued its currency by about 23 per cent against the US dollar on December 20. This adjustment would help reduce external imbalances and preserve foreign exchange reserves, the fund said.

 

 

 

The draft 2021 budget aims to reduce the fiscal deficit through various measures to contain the unsustainable expansion of government wage, pension bills and to raise non-oil revenues, the IMF added.

Owing to the efforts, Iraqi economy is expected to gradually recover this year. It is expected to grow 1.2 per cent and 3.9 per cent in 2021 and 2022, respectively, according to the IMF forecast. The economy grew 4.5 per cent in 2019.

The fiscal and external current account deficits are projected to decline over the medium term. Government debt is expected to peak in 2023 and decline gradually thereafter, the fund said.

Iraq, Opec’s second-largest oil producer, is highly reliant on oil revenue to foot 90 per cent of government expenditure, including $5 billion spent on salaries for public servants each month.

The IMF also cautioned that political constraints ahead of the parliamentary elections and renewed bouts of social unrest could undermine the reform efforts.

Furthermore, pandemic‑related risks and oil market uncertainties could further complicate the economic situation, it added.

Published: February 12, 2021 03:46 PM

[Laid Back]

I noticed they don’t mentioned the use of the dollar as an anchor of the economy. Like they did in the past IV consultation.

 

”Directors also saw need for further monetary policy measures by the central bank to contain inflation”

“Directors emphasized the importance of reducing corruption in key public institutions, continued improvement and effective implementation of the AML/CFT framework, restructuring of large state-owned banks to foster financial stability, and developing the private sector.”

 

Iraq still has some work in their quest to an open market economy.

 

Our wait continues.... keep calm and relax.!

 

 

 

 

[64jaguar]

Thanks Laid Back, I'd like to hear more on the referenced articles Adam mentioned about Iraq losing their ability to use the U.S. Dollar as they have for the past approx. 17 years. Adam said it was rumored... 

If true, I can't imagine that doesn't create a sense of urgency for Iraq to give their currency some value? 

[Longtimelurker]

”Directors also saw need for further monetary policy measures by the central bank to contain inflation”

 

This quote indicates stopping the currency auction to me. They used to control inflation with the auction but now need other ways?

 

 

[Dinarrock]

5 minutes ago, Longtimelurker said:

”Directors also saw need for further monetary policy measures by the central bank to contain inflation”

 

This quote indicates stopping the currency auction to me. They used to control inflation with the auction but now need other ways?

 

 

The only way is to raise the value of the dinar if they do stop the auctions!!

[Longtimelurker]

30 minutes ago, Dinarrock said:

The only way is to raise the value of the dinar if they do stop the auctions!!

Thats what I'm thinking!

[Officiallytook]

What in the ..... .... Iraq what are you doing... 2024 so really they mean 2027 or something... Man hurry this along before the people of iraq take iraq off the map

[jmartin1145]

4 hours ago, Officiallytook said:

What in the ..... .... Iraq what are you doing... 2024 so really they mean 2027 or something... Man hurry this along before the people of iraq take iraq off the map

No kidding bud. Enough is enough.

[yota691]

The IMF expects the Iraqi economy to recover in 2024

Monday 15th February 2021 10

 

 Baghdad: Morning

 

The International Monetary Fund expected that the Iraqi economy will recover gradually, and that imbalances will diminish, although the prospects remain fraught with challenges. In a statement followed by Al-Sabah, the Fund expected, in its Executive Board’s consultations for Article IV of 2020 with Iraq, which were held in Washington, that the real GDP would return to the pre-pandemic level by 2024, and that the fiscal deficit and the external current account would decline in the long term. Average government debt is expected to reach its peak in 2023 and then gradually decline.

Executive Directors agreed with the guideline for the IMF staff’s assessment, noting the exacerbation of the existing socio-economic vulnerabilities in Iraq due to the Covid-19 pandemic and the sharp decline in oil revenues. The draft 2021 budget referred to Parliament aims to reduce the fiscal deficit to contain the unsustainable expansion of government wages and pension costs and to increase non-oil revenues, with a significant increase in aid directed to protect the most vulnerable groups.

Directors emphasized that reducing public financial imbalances is necessary to ensure the sustainability of public finances and that debt remains within sustainable limits. They welcomed the fiscal reforms that the authorities are planning to undertake, as mentioned in the White Paper, and urged that care be taken in setting their priorities and speeding up their implementation with the limit. Of its impact on the categories Fragile.

They stressed the importance of strengthening public financial resources, a comprehensive reform of the civil service to contain the public sector wage bill, and re-adjusting the pension system to put it on a stable fiscal path. Priority should also be given to increasing non-oil revenues and strengthening public financial management to reduce spending outside allocations.

 The budget.

They agreed that adjusting the exchange rate would help reduce external imbalances and preserve foreign exchange reserves. They stressed that a strong fiscal framework is still necessary to ensure the credibility of the new exchange rate against the dollar and reduce the need for monetary financing for the budget in the future. 

Directors noted the authorities' interest in entering into an emergency financing agreement with the fund to support their efforts for stabilization and reform, while some urged a longer-term arrangement to address structural challenges.

[rvmydinar]

10 hours ago, yota691 said:

The IMF expects the Iraqi economy to recover in 2024

I don't believe if iraq has to rv until 2024 or 2100 or what year they like to say. Because imf has no authority to determine the rate and rv the iqd.

[yota691]

The IMF expects the Iraqi economy to recover in 2024

 

money and business Economy News _ Baghdad The International Monetary Fund expected, on Monday, that the Iraqi economy will gradually recover, and that imbalances will reduce, even if the prospects remain fraught with challenges.  In a statement followed by Al-Eqtisad News, the fund said that it expected in its Executive Board’s consultations for Article IV of 2020 with Iraq, held in Washington, that the real GDP would return to the pre-pandemic level by the year 2024, and that the public finance and current account deficit would decline. In the medium term, government debt is expected to reach its peak in 2023 and then gradually decline. Executive Directors agreed with the general line of the IMF's staff assessment, noting the exacerbation of the existing socio-economic vulnerabilities in Iraq due to the Covid-19 pandemic and the sharp decline in oil revenues. The draft 2021 budget referred to Parliament aims to reduce the fiscal deficit to contain the unsustainable expansion of government wages and pension costs and to increase non-oil revenues, with a significant increase in aid directed to protect the most vulnerable groups. Directors emphasized that reducing public financial imbalances is necessary to ensure the sustainability of public finances and that debt remains within sustainable limits. They welcomed the fiscal reforms that the authorities are planning to undertake, as mentioned in the White Paper, and urged that care be taken in setting their priorities and speeding up their implementation with the limit. Of its impact on vulnerable groups. They stressed the importance of strengthening public financial resources, comprehensive civil service reform to contain the public sector wage bill, and re-adjusting the pension system to put it on a stable fiscal path. Priority should also be given to increasing non-oil revenues and strengthening public financial management to reduce spending outside the budget allocations. They agreed that adjusting the exchange rate would help reduce external imbalances and preserve foreign exchange reserves. They stressed that a strong fiscal framework is still necessary to ensure the credibility of the new exchange rate against the dollar and reduce the need for monetary financing for the budget in the future.  Directors noted the authorities' interest in entering into an emergency financing agreement with the IMF to support their efforts for stability and reform, while some urged a longer-term arrangement to address structural challenges.

Number of observations 127   Date of addendum 02/15/2021

[yota691]

The International Monetary Fund expects a date for the return of the Iraqi economy to before the Corona pandemic

 

 

554 Economie 02/15/2021 09:12 am Baghdad Today-

Follow up The International Monetary Fund has stated that Iraq's economy, which shrank by 11% last year due to the measures to ban the Corona epidemic and the sharp decline in oil price revenues, is hoped to return to pre-pandemic levels by 2024 . "The slowdown in real GDP reflects a decrease in non-oil activity and a reduction in crude oil production due to compliance with OPEC Plus decisions," the fund said in a statement carried by the National website. He added, "The large fiscal deficit of 20% of the GDP, as well as the external current account deficit of 16% of the GDP, have restricted the government's ability to propose an effective financial treatment for the crisis." The International Monetary Fund stressed, "the importance of fighting corruption in the main public institutions and restructuring the huge government banks in order to enhance financial stability and develop the private sector." According to the Fund’s expectations, by relying on these efforts, “Iraq's economy is expected to gradually recover and grow by 1.2% and 3.9% in 2021 and 2022, respectively. The growth rate of Iraq's economy in 2019 was 4.5 % .” He pointed out that "it is expected that the real GDP will return to the pre-pandemic level by the year 2024, and that the fiscal deficit and the external current account will decline in the medium term." He indicated, "It is expected that both the fiscal deficit and the external current account will decline over the medium term, while the rate of government debt is expected to reach its highest level in 2023 and then gradually decline after that." On the other hand, the Fund stated that "the political turmoil and convulsions that precede the parliamentary elections and renew periods of instability, which may undermine and impede reform efforts." Iraq had begun to take steps described as necessary towards ensuring future economic stability . In December, the central bank reduced the currency’s value against the dollar by 23%, a step through which the fund is expected to help reduce external imbalances and preserve reserves of hard currency . The 2021 draft budget resorted to reducing the fiscal deficit by taking several measures to raise non-oil financial returns and contain the unsupported expansion of pension bills and state employees' wages .

[yota691]

 

THE IMF: THE POLITICAL TENSIONS IN IRAQ HINDER REFORM EFFORTS

15 Feb 2021

Baghdad-Al-Sharqiya, February 15: The International Monetary Fund warned that reform efforts in Iraq were stalled due to the political turmoil and convulsions that precede the parliamentary elections and the resulting instability. The National website quoted the International Monetary Fund as saying that the slowdown in GDP reflects a decrease in non-oil activity and a reduction in crude oil production due to the OPEC Plus agreement. The IMF indicated that the large fiscal deficit of 20 percent of GDP, and the deficit in the external current account, which reached 16 percent of GDP, restricted the government's ability to offer an effective financial treatment. The International Monetary Fund stressed the importance of combating corruption in public institutions and restructuring large government banks in order to enhance financial stability and develop the private sector.

 

 

[Laid Back]

From IMF
 

“The international Monetary Fund stressed the importance of combating corruption in public institutions and restructuring large government banks in order to enhance financial stability and develop the private sector.”

 

From UN

 

“The head of the United Nations Assistance Mission for Iraq, Jeanine Hennes Plasschaert, ruled out reaching a "final and lasting" agreement between Erbil and Baghdad on the budget and the rest of the "major" issues.”

 

This is Iraq reality.....Same story... Different year.

 

 

 

 

 

 

 

 

 

 

[DoD]

I would think the WB, IMF, EU, USA would strongly suggest Iraq dissolve this circus they call a parliament. Not that the USA is experts on how to run elections or a government but they are experts in what not to do. This yearly circus in trying to pass a budget has gotten to be an annual joke for Iraq an needs some adult supervision. Stop all payments of salaries, rent, utilities etc. until the budget is passed for the next 5 years. There should be an extreme vetting process in anyone running for a parliamentary seat an strict guidelines to qualify, this should disqualify about 10,000 applicants....

[3n1]

1 hour ago, Laid Back said:

Same story... Different year.

 

Same Circus ... Different Tent 

[horsesoldier]

51 minutes ago, 3n1 said:

 

Same Circus ... Different Tent 

No shortage of Clowns either-

 

[horsesoldier]

It’s not that they can’t hammer out a deal ... they WONT..... each side plays victim pointing to the other as the villan. All the while keeping the the waters muddy, laying a thick carpet of  down: underneath it all, remaining intractable as always, the powerful remain firmly where they “ need “ to be. 
 

This isn’t just happening in Iraq, look around. Governments like this are all over the planet.