Underpinned by rising oil production, war-ravaged Iraq’s economy is widely tipped to be one of the best performers in the Middle East this year. But amid the growing optimism, the International Monetary Fund reckons there’s still a few economic wrinkles that need to be ironed out. That was the conclusion of a staff visit to Amman earlier this week where an IMF team met with an Iraqi delegation that included the country’s acting minister of finance and acting central bank governor. The IMF predicts Iraq’s economy to grow by over 6% this year thanks largely to oil production of 3.2 million barrels per day (mbpd) and oil exports of 2.6 mbpd. That forecast looks modest given economists at Dubai-based EmiratesNBD are penciling economic expansion of well over 8% for 2014. But such rapid levels of growth can’t paper over the other economic challenges Iraq is facing. “In 2013, lower than expected oil revenues and increased spending pressures—largely arising from the difficult security situation—weighed on the overall fiscal performance,” said Carlo Sdralevich, the IMF’s mission chief for Iraq. “As a result, the budget deficit rose to 6 percent of GDP for 2013, financed though the Development Fund for Iraq, which declined from over $18 billion to $6.5 billion in the course of the year.” Mr. Sdralevich went on to note that Iraq’s draft 2014 budget envisages large spending outlays reflecting new commitments for security, social assistance and pensions, and transfers to the provinces. “To preserve macroeconomic stability, planned expenditure commitments should be scaled down, while preserving key social spending. In the longer run, Iraq should strive to manage well its large, and rising, oil revenues by containing current spending and building up fiscal and external buffers,” he added. Also discussed during the IMF visit was the progress being made in reforming Iraq’s financial sector. The central bank is pressing ahead with the overhaul of the financial sector by preparing new central bank, commercial bank, and anti-money laundering/combating the financing of terrorism legislation, and introducing a new payment system. Mr. Sdralevich said more needs to be done by the government and the central bank to restructure the large state-owned banks, and leveling the playing field for the private banking sector, gradually increasing their access to government business.
