Iraq: Staff Concluding Statement of the 2024 IMF Article IV Mission

[RJG]

Iraq: Staff Concluding Statement of the 2024 IMF Article IV Mission

March 7, 20240

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. 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 Executive Board for discussion and decision.

March 3, 2024: An International Monetary Fund (IMF) mission, led by Mr. Jean-Guillaume Poulain, met with the Iraqi authorities in Amman during February 20–29 to conduct the 2024 Article IV consultation. The following statement was issued at the end of the mission:

Economic growth is projected to continue amid fiscal expansion. Meanwhile, medium-term vulnerabilities to oil price volatility have increased significantly. Reducing oil dependence and ensuring fiscal sustainability while protecting critical social and investment spending will require a significant fiscal adjustment, focused on controlling the public wage bill and increasing non-oil tax revenues. In parallel, higher economic growth will be needed to absorb the rapidly expanding labor force, boost non-oil exports and broaden the tax base. The authorities should therefore seek to enable private sector development, including through labor market reforms, modernization of the financial sector and restructuring of state-owned banks, pension and electricity sector reforms, and continued efforts to improve governance and reduce corruption.     

REPORT THIS AD

Economic Outlook and Risks

Growth in the non-oil sector has rebounded strongly in 2023 while inflation receded. Supported by increases in public expenditure and solid agricultural output, real non-oil GDP is estimated to have grown by 6 percent in 2023 after stalling in 2022. Headline inflation declined from a high of 7.5 percent in January 2023 to 4 percent by year-end, reflecting lower international food and energy prices, and the impact of the February 2023 currency revaluation. The current account is expected to have recorded a surplus of 2.6 percent of GDP and international reserves increased to US$ 112 billion.

These positive developments were supported by the normalization of trade finance and the stabilization of FX market. After some initial disruptions following the introduction of new anti-money laundering and combating financing of terrorism (AML/CFT) controls on cross-border payments in November 2022, the improved compliance with the new system and the Central Bank of Iraq (CBI)’s initiatives to cut processing time led to a recovery in trade finance in the second half of 2023. This ensured private sector access to foreign exchange at the official rate for imports and travel purposes.

In the meantime, the fiscal position worsened. Although the expansionary budget was under-executed due to delayed Parliamentary approval, the fiscal balance still declined from a surplus of 10.8 percent of GDP in 2022 to a deficit of 1.3 percent in 2023, due to lower oil revenues and an increase in expenditures by 8 percentage points of GDP, of which salaries and pensions contributed 5 percentage points as the authorities started hiring in line with the budget law.

Overall growth is projected to rebound in 2024 and risks are tilted downwards amid heightened uncertainty. Non-oil growth momentum will continue in 2024. Larger declines in oil prices or extended OPEC+ cuts could weigh on fiscal and external accounts. If regional tensions escalate, a disruption of shipping routes or damage to the oil infrastructure could result in oil production losses that could outweigh the potential positive impact of higher oil prices. In case of a deterioration in domestic security conditions, this could lead to a decline in business sentiment and suspension of investment projects. Over the medium term, non-oil growth is projected to stabilize around 2.5 percent given existing hurdles to private sector development. Furthermore, vulnerability to oil price declines has increased as higher expenditures are projected to push the fiscal break-even oil price above $90 in 2024. Absent new policy measures, the fiscal deficit is expected to reach 7.6 percent in 2024 and widen further thereafter as oil prices are projected to gradually decline over the medium term. As a consequence, public debt would almost double from 44 percent in 2023 to 86 percent by 2029.

REPORT THIS AD

Policy Priorities

An ambitious fiscal adjustment would be required to help stabilize debt in the medium term and rebuild fiscal buffers, while protecting critical capital spending. Most of the fiscal adjustment would have to come from reducing current expenditure, especially controlling the wage bill by limiting mandatory hiring and gradually introducing an attrition rule. The authorities should also seek to increase non-oil revenues by broadening the personal income tax base and making it more progressive, reviewing the customs tariff structure, and considering new taxes on luxury items. In parallel, efforts to make revenue and customs administration more efficient should continue. Further savings could be obtained through better targeting social support and increasing cost recovery within the electricity sector. These adjustment measures should provide room for the expansion of the targeted social safety net.

The authorities should also strengthen public financial management and limit fiscal risks. The mission welcomes initial steps towards the establishment of a Treasury Single Account (TSA), which is crucial to improve cash management. Further progress is needed and close cooperation between the CBI and Ministry of Finance will be essential. The next steps are to define TSA design options and complete the bank account census. In future years, overall ceilings on the issuance of guarantees should be specified in the budget law and be enforced. The mission advise against the use of extrabudgetary funds and highlights potential fiscal risks associated with their use. As a second best, it would be important to ensure the Iraq Fund for Development has appropriate governance arrangements, including governing board independence while ensuring transparency of the Fund’s activities including by publishing its investment plans in the annual budget documentation and restricting its ability to borrow.

The mission encourages the authorities to build on the CBI welcomed efforts to reduce excess liquidity. The CBI appropriately raised the policy interest rate and reserve requirements, introduced a 14-day CBI bill facility last summer, and scaled back its subsidized lending to the real estate sector. However, monetary policy pass-through has been muted, hampered by large excess liquidity and lack of market incentives in financial intermediaries, especially at state-owned banks. The CBI’s ongoing efforts should be supported by consolidating idle government deposits in a TSA, refraining from procyclical fiscal policy, reducing the reliance on monetary finance, and improving public debt management. In parallel, efforts to develop an interbank market with the help of IMF technical assistance should continue. The mission also welcomes the authorities’ steps to speed up the digitalization of the economy, reduce the reliance on cash and enhance financial inclusion.

REPORT THIS AD

Wide-ranging structural reforms are needed to foster private sector development and economic diversification. Iraq needs higher and more sustainable non-oil growth to absorb the rapidly growing labor force, increase non-oil exports and government revenue, and reduce the economy’s vulnerability to oil price shocks. Key reform priorities include:

• Adopting a comprehensive employment strategy aimed at phasing-out mandatory hiring in the public sector, leveling the playing field between public and private jobs, addressing mismatches between educational curricula and the skills needed in the private sector, and strengthening labor market institutions. The strategy should also aim at reducing informality and addressing legal, social, and cultural impediments to women’s participation in the workforce.
• Accelerating financial sector reform to improve access to credit. The authorities are committed to modernizing the banking sector and supporting banks’ ability to secure correspondent banking relationships and have taken steps towards consolidation of small private banks. Efforts to restructure the two largest state-owned banks should intensify, including by expediting certification of past financial statements and implementation of core banking systems, and enhancing corporate governance in line with best practices.
• Implementing a comprehensive pension reform. This is urgently needed to reduce the overall projected fiscal costs of the public pension scheme, better align the benefits and rules across the public and private schemes, ensure adequacy of pensions and intergenerational equity, and increase the ratio of workers participating in the private pension scheme.
• Combating corruption and improving governance, particularly by strengthening the institutional and legal frameworks needed to ensure the independence of the Integrity Commission and the Board of Supreme Audit, enhancing the publication of assets and conflicts of interests declarations for top level officials, and adopting an updated anticorruption strategy. Further, public procurement and business regulations should also be enhanced. The authorities should also continue to strengthen the AML/CFT framework and its effectiveness, including in the banking sector, guided by the priority actions identified in the MENAFATF Mutual Evaluation that will be concluded in May 2024.
• Removing other hurdles to private sector development by reforming the electricity sector to improve efficiency, cost recovery, and reliable access; simplifying procedures for business registration; and upgrading critical infrastructure.

REPORT THIS AD

The IMF staff team stands ready to support the authorities in their reform efforts and would like to thank them for constructive and productive discussions during this mission.

www.Iraqieconomists.net

 

[Laid Back]

Article IV: Obligations Regarding Exchange Arrangements
1. General obligations of members
2. General exchange arrangements
3. Surveillance over exchange arrangements
4. Par values
5. Separate currencies within a member's territories

Section 1.  General obligations of members

Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall:

(i) endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances;

(ii) seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions;

(iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members; and

(iv) follow exchange policies compatible with the undertakings under this Section.

Section 2.  General exchange arrangements

(a) Each member shall notify the Fund, within thirty days after the date of the second amendment of this Agreement, of the exchange arrangements it intends to apply in fulfillment of its obligations under Section 1 of this Article, and shall notify the Fund promptly of any changes in its exchange arrangements.

(b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange arrangements may include (i) the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member, or (ii) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii) other exchange arrangements of a member's choice.

(c) To accord with the development of the international monetary system, the Fund, by an eighty-five percent majority of the total voting power, may make provision for general exchange arrangements without limiting the right of members to have exchange arrangements of their choice consistent with the purposes of the Fund and the obligations under Section 1 of this Article.

Section 3.  Surveillance over exchange arrangements

(a) The Fund shall oversee the international monetary system in order to ensure its effective operation, and shall oversee the compliance of each member with its obligations under Section 1 of this Article.

(b) In order to fulfill its functions under (a) above, the Fund shall exercise firm surveillance over the exchange rate policies of members, and shall adopt specific principles for the guidance of all members with respect to those policies. Each member shall provide the Fund with the information necessary for such surveillance, and, when requested by the Fund, shall consult with it on the member's exchange rate policies. The principles adopted by the Fund shall be consistent with cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, as well as with other exchange arrangements of a member's choice consistent with the purposes of the Fund and Section 1 of this Article. These principles shall respect the domestic social and political policies of members, and in applying these principles the Fund shall pay due regard to the circumstances of members.

Section 4.  Par values

The Fund may determine, by an eighty-five percent majority of the total voting power, that international economic conditions permit the introduction of a widespread system of exchange arrangements based on stable but adjustable par values. The Fund shall make the determination on the basis of the underlying stability of the world economy, and for this purpose shall take into account price movements and rates of expansion in the economies of members. The determination shall be made in light of the evolution of the international monetary system, with particular reference to sources of liquidity, and, in order to ensure the effective operation of a system of par values, to arrangements under which both members in surplus and members in deficit in their balances of payments take prompt, effective, and symmetrical action to achieve adjustment, as well as to arrangements for intervention and the treatment of imbalances. Upon making such determination, the Fund shall notify members that the provisions of Schedule C apply. 

Section 5.  Separate currencies within a member’s territories

(a) Action by a member with respect to its currency under this Article shall be deemed to apply to the separate currencies of all territories in respect of which the member has accepted this Agreement under Article XXXI, Section 2(g) unless the member declares that its action relates either to the metropolitan currency alone, or only to one or more specified separate currencies, or to the metropolitan currency and one or more specified separate currencies. 

(b) Action by the Fund under this Article shall be deemed to relate to all currencies of a member referred to in (a) above unless the Fund declares otherwise.

[Longtimelurker]

15 hours ago, RJG said:

Iraq: Staff Concluding Statement of the 2024 IMF Article IV Mission

March 7, 20240

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. 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 Executive Board for discussion and decision.

March 3, 2024: An International Monetary Fund (IMF) mission, led by Mr. Jean-Guillaume Poulain, met with the Iraqi authorities in Amman during February 20–29 to conduct the 2024 Article IV consultation. The following statement was issued at the end of the mission:

Economic growth is projected to continue amid fiscal expansion. Meanwhile, medium-term vulnerabilities to oil price volatility have increased significantly. Reducing oil dependence and ensuring fiscal sustainability while protecting critical social and investment spending will require a significant fiscal adjustment, focused on controlling the public wage bill and increasing non-oil tax revenues. In parallel, higher economic growth will be needed to absorb the rapidly expanding labor force, boost non-oil exports and broaden the tax base. The authorities should therefore seek to enable private sector development, including through labor market reforms, modernization of the financial sector and restructuring of state-owned banks, pension and electricity sector reforms, and continued efforts to improve governance and reduce corruption.     

REPORT THIS AD

Economic Outlook and Risks

Growth in the non-oil sector has rebounded strongly in 2023 while inflation receded. Supported by increases in public expenditure and solid agricultural output, real non-oil GDP is estimated to have grown by 6 percent in 2023 after stalling in 2022. Headline inflation declined from a high of 7.5 percent in January 2023 to 4 percent by year-end, reflecting lower international food and energy prices, and the impact of the February 2023 currency revaluation. The current account is expected to have recorded a surplus of 2.6 percent of GDP and international reserves increased to US$ 112 billion.

These positive developments were supported by the normalization of trade finance and the stabilization of FX market. After some initial disruptions following the introduction of new anti-money laundering and combating financing of terrorism (AML/CFT) controls on cross-border payments in November 2022, the improved compliance with the new system and the Central Bank of Iraq (CBI)’s initiatives to cut processing time led to a recovery in trade finance in the second half of 2023. This ensured private sector access to foreign exchange at the official rate for imports and travel purposes.

In the meantime, the fiscal position worsened. Although the expansionary budget was under-executed due to delayed Parliamentary approval, the fiscal balance still declined from a surplus of 10.8 percent of GDP in 2022 to a deficit of 1.3 percent in 2023, due to lower oil revenues and an increase in expenditures by 8 percentage points of GDP, of which salaries and pensions contributed 5 percentage points as the authorities started hiring in line with the budget law.

Overall growth is projected to rebound in 2024 and risks are tilted downwards amid heightened uncertainty. Non-oil growth momentum will continue in 2024. Larger declines in oil prices or extended OPEC+ cuts could weigh on fiscal and external accounts. If regional tensions escalate, a disruption of shipping routes or damage to the oil infrastructure could result in oil production losses that could outweigh the potential positive impact of higher oil prices. In case of a deterioration in domestic security conditions, this could lead to a decline in business sentiment and suspension of investment projects. Over the medium term, non-oil growth is projected to stabilize around 2.5 percent given existing hurdles to private sector development. Furthermore, vulnerability to oil price declines has increased as higher expenditures are projected to push the fiscal break-even oil price above $90 in 2024. Absent new policy measures, the fiscal deficit is expected to reach 7.6 percent in 2024 and widen further thereafter as oil prices are projected to gradually decline over the medium term. As a consequence, public debt would almost double from 44 percent in 2023 to 86 percent by 2029.

REPORT THIS AD

Policy Priorities

An ambitious fiscal adjustment would be required to help stabilize debt in the medium term and rebuild fiscal buffers, while protecting critical capital spending. Most of the fiscal adjustment would have to come from reducing current expenditure, especially controlling the wage bill by limiting mandatory hiring and gradually introducing an attrition rule. The authorities should also seek to increase non-oil revenues by broadening the personal income tax base and making it more progressive, reviewing the customs tariff structure, and considering new taxes on luxury items. In parallel, efforts to make revenue and customs administration more efficient should continue. Further savings could be obtained through better targeting social support system" rel="">support and increasing cost recovery within the electricity sector. These adjustment measures should provide room for the expansion of the targeted social safety net.

The authorities should also strengthen public financial management and limit fiscal risks. The mission welcomes initial steps towards the establishment of a Treasury Single Account (TSA), which is crucial to improve cash management. Further progress is needed and close cooperation between the CBI and Ministry of Finance will be essential. The next steps are to define TSA design options and complete the bank account census. In future years, overall ceilings on the issuance of guarantees should be specified in the budget law and be enforced. The mission advise against the use of extrabudgetary funds and highlights potential fiscal risks associated with their use. As a second best, it would be important to ensure the Iraq Fund for Development has appropriate governance arrangements, including governing board independence while ensuring transparency of the Fund’s activities including by publishing its investment plans in the annual budget documentation and restricting its ability to borrow.

The mission encourages the authorities to build on the CBI welcomed efforts to reduce excess liquidity. The CBI appropriately raised the policy interest rate and reserve requirements, introduced a 14-day CBI bill facility last summer, and scaled back its subsidized lending to the real estate sector. However, monetary policy pass-through has been muted, hampered by large excess liquidity and lack of market incentives in financial intermediaries, especially at state-owned banks. The CBI’s ongoing efforts should be supported by consolidating idle government deposits in a TSA, refraining from procyclical fiscal policy, reducing the reliance on monetary finance, and improving public debt management. In parallel, efforts to develop an interbank market with the help of IMF technical assistance should continue. The mission also welcomes the authorities’ steps to speed up the digitalization of the economy, reduce the reliance on cash and enhance financial inclusion.

REPORT THIS AD

Wide-ranging structural reforms are needed to foster private sector development and economic diversification. Iraq needs higher and more sustainable non-oil growth to absorb the rapidly growing labor force, increase non-oil exports and government revenue, and reduce the economy’s vulnerability to oil price shocks. Key reform priorities include:

• Adopting a comprehensive employment strategy aimed at phasing-out mandatory hiring in the public sector, leveling the playing field between public and private jobs, addressing mismatches between educational curricula and the skills needed in the private sector, and strengthening labor market institutions. The strategy should also aim at reducing informality and addressing legal, social, and cultural impediments to women’s participation in the workforce.
• Accelerating financial sector reform to improve access to credit. The authorities are committed to modernizing the banking sector and supporting banks’ ability to secure correspondent banking relationships and have taken steps towards consolidation of small private banks. Efforts to restructure the two largest state-owned banks should intensify, including by expediting certification of past financial statements and implementation of core banking systems, and enhancing corporate governance in line with best practices.
• Implementing a comprehensive pension reform. This is urgently needed to reduce the overall projected fiscal costs of the public pension scheme, better align the benefits and rules across the public and private schemes, ensure adequacy of pensions and intergenerational equity, and increase the ratio of workers participating in the private pension scheme.
• Combating corruption and improving governance, particularly by strengthening the institutional and legal frameworks needed to ensure the independence of the Integrity Commission and the Board of Supreme Audit, enhancing the publication of assets and conflicts of interests declarations for top level officials, and adopting an updated anticorruption strategy. Further, public procurement and business regulations should also be enhanced. The authorities should also continue to strengthen the AML/CFT framework and its effectiveness, including in the banking sector, guided by the priority actions identified in the MENAFATF Mutual Evaluation that will be concluded in May 2024.
• Removing other hurdles to private sector development by reforming the electricity sector to improve efficiency, cost recovery, and reliable access; simplifying procedures for business registration; and upgrading critical infrastructure.

REPORT THIS AD

The IMF staff team stands ready to support system" rel="">support the authorities in their reform efforts and would like to thank them for constructive and productive discussions during this mission.

www.Iraqieconomists.net

 

March 7, 20240?

Soon 😂

 

[screwball]

20 hours ago, RJG said:

Reducing oil dependence and ensuring fiscal sustainability while protecting critical social and investment spending will require a significant fiscal adjustment,

And there it is again! Significant fiscal adjustment! 

[screwball]

Social security and investment, this is referring specifically to budgets! Rememebr how I said they were two, then one! When there was two the second being for social security, welfare and reconstruction was based on a new rate as per articles! Well here you go! 💯🎯⏰💣🎉

[rvmydinar]

6 hours ago, Longtimelurker said:

March 7, 20240?

20240? Are all of us still alive by 20240?

[southbeach]

Bump

[horsesoldier]

6 hours ago, rvmydinar said:

20240? Are all of us still alive by 20240?

Piece of cake with all my Home Depot parts for my Time Machine.

[3n1]

8 hours ago, rvmydinar said:

20240? Are all of us still alive by 20240?

 

i will be , gonna start taking what joe biden does to get all jacked up showing vigor and a youthful vitality minus the yelling , he has found the fountain of youth somehow .........cheers rvmydinar

[rvmydinar]

14 minutes ago, 3n1 said:

 he has found the fountain of youth somehow 

Young sexy blonde playmates 1987 from playboy magazine??

[gregp]

20 hours ago, Longtimelurker said:

March 7, 20240?

Soon 😂

 

[Longtimelurker]

5 hours ago, 3n1 said:

 

i will be , gonna start taking what joe biden does to get all jacked up showing vigor and a youthful vitality minus the yelling , he has found the fountain of youth somehow .........cheers rvmydinar

Or he stumbled upon Hunters white stash

[Dinar4Dinner]

7 hours ago, horsesoldier said:

Piece of cake with all my Home Depot parts for my Time Machine.

You can still get parts for your DeLorean Time Machine! Go to the O’Reilly Auto Parts website - https://www.oreillyauto.com/ 11 and enter 121G in the search box.

[3n1]

1 hour ago, Longtimelurker said:

Or he stumbled upon Hunters white stash

 

not so sure now it was hunters , going by how jacked up the big guy was at the state of the union address , next day back to stumbling and bumbling 🤣.... we wait 

[horsesoldier]

3 hours ago, Dinar4Dinner said:

You can still get parts for your DeLorean Time Machine! Go to the O’Reilly Auto Parts website - https://www.oreillyauto.com/ 11 and enter 121G in the search box.

I'm on it like Blue Bonnet !!

[horsesoldier]

9 hours ago, 3n1 said:

 

i will be , gonna start taking what joe biden does to get all jacked up showing vigor and a youthful vitality minus the yelling , he has found the fountain of youth somehow .........cheers rvmydinar

Adderall with a Mega B-12, magic mushrooms 💉