The International Monetary Fund issues a pessimistic statement about the Iraqi economy
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Economy News _ Baghdad
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Added 06/01/2023 - 9:22 AM
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Economy News _ Baghdad
The International Monetary Fund issued a pessimistic statement for the Iraqi economy after the post-pandemic recovery last year, including reasons related to the interruption of the Kirkuk-Ceyhan oil pipeline and OPEC cuts.
A number of fund experts who met with Iraq in Jordan from May 24 to 31 last to discuss with the Iraqi authorities about recent economic developments and expectations as well as policy plans in the coming period, said that "the growth momentum of the Iraqi economy has slowed in recent months, after recovering to a level before Pandemic last year, oil production is set to contract by 5 percent in 2023 due to OPEC+ production cuts, Kirkuk-Ceyhan oil pipeline outage, foreign exchange market volatility in the wake of tightening AML/CFT controls by The Central Bank of Iraq on foreign currency sales negatively.
And they indicated, "It is estimated that the non-oil real GDP contracted by 9 percent (on an annual basis) in the last quarter of the year 2022, which cancels its growth during the previous three quarters, with the continued stability of the foreign exchange market, with the help of the measures of the Central Bank." In Iraq, non-oil real GDP growth is expected to resume and reach 3.7 percent in 2023, after rising to 7 percent in January,” and inflation has begun to moderate — reflecting a decline in international goods as well as a revaluation of 10 percent to the dinar - and it is expected that the average inflation will reach 5.6 percent in 2023.
The experts also pointed out that "favorable conditions in the oil market supported Iraq's financial and external situation, but the structural imbalances continued to widen. In the year 2022, current account surpluses in public and external finances reached 7.6 and 17.3 percent of GDP, respectively, on the back of revenues record high oil,” and the CBI’s foreign exchange reserves rose to US$97 billion (11 months of imports), including US$16.3 billion (6 percent of GDP) in fiscal savings accumulated by the government. At the same time, a significant fiscal expansion widened the non-oil primary deficit from 52% to more than 68% of non-oil GDP during the year 2022.
They pointed out that "the largest fiscal easing envisaged in the draft budget law of 2023 would widen the primary non-oil fiscal deficit to 75% of non-oil GDP and bring the total fiscal balance to a deficit of 6.5% of GDP, and the combined effects will lead to Increased government spending, a revaluation of the exchange rate, and lower oil production have pushed the fiscal breakeven price of oil to $96 a barrel.
Experts said, "In the short term, the implementation of the authorities' financial plans could lead to a re-ignition of inflation and fluctuations in the foreign exchange market, and in the medium term, the continuation of current policies in the presence of a great deal of uncertainty about the future course of oil prices poses critical risks to the stability of the economy." Aggregate, if there is no significant increase in oil prices, the current fiscal situation may lead to widening deficits and intensifying financing pressures in the coming years.
And they stressed that "a tougher fiscal policy is needed to enhance flexibility and reduce the government's dependence on oil revenues while protecting critical social spending needs." Government plan to increase social assistance, the mission recommends stronger targeting to ensure it is directed at the most vulnerable people.
They noted that "improving public financial management remains of paramount importance, and in this context, the mission warns against the planned creation of new extra-budgetary funds, which raises concerns about governance and efficiency, and strongly recommends adherence to budgeted government expenditures. Moreover, the mission urges "Full implementation of the Government Guarantees Management Framework, including Parliamentary Guarantees. Endorsement and publication of an annual cap and list of Government Guarantees as part of the Budget Law. Accelerated efforts are also needed to establish the Treasury Single Account to strengthen public financial management."
At the same time, the mission welcomed "the progress made by the Central Bank of Iraq in improving liquidity management and frameworks for combating money laundering and terrorist financing, and stresses the importance of close alignment of the position of fiscal and monetary policies in managing the economy."
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Added 06/01/2023 - 9:22 AM
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