Karachi, Following a recent staff visit, the International Monetary Fund (IMF) has provided an overview of Iraq’s current economic situation, highlighting a recovery in economic activity but cautioning against the risks of recent oil production cuts and a substantial fiscal expansion.

According to International Monetary Fund, an IMF staff team led by JeanGuillaume Poulain engaged in discussions with Iraqi authorities in Amman, Jordan, from December 12 to 17. The talks centered on recent economic developments, future prospects, and policy plans in Iraq.

The IMF staff observed that Iraq’s nonoil GDP is expected to grow by 5 percent in 2023, with continued budget execution potentially sustaining strong nonoil growth into 2024. However, challenges such as the closure of the IraqTurkey pipeline and OPEC+ production cuts are anticipated to dampen overall GDP growth in the coming years. Inflation, which peaked in January, is projected to stabilize, aided by the Central Bank of Iraq’s (CBI) tighter monetary policy, exchange rate revaluation, lower international food prices, and improved compliance with antimoney laundering/combating the financing of terrorism (AML/CFT) frameworks.

The IMF staff expressed concerns over the large fiscal expansion outlined in the threeyear budget law approved in June 2023. This expansion includes significant increases in public hiring and pensions, posing risks to Iraq’s fiscal and external sustainability over the medium term. The staff projects a widening fiscal deficit in 2024, emphasizing the need for fiscal prudence and structural reforms to safeguard macroeconomic stability and achieve sustainable, inclusive growth.

The IMF team recommended gradually tightening fiscal policy, focusing on additional nonoil revenue mobilization, containing the government wage bill, and reforming the pension system. They also emphasized the importance of moving towards a more targeted social safety net to better protect vulnerable populations.

The mission welcomed the government’s plans to strengthen public financial management, including steps towards establishing a Treasury Single Account and adhering to the framework for managing government guarantees. The CBI’s tighter monetary policy and efforts to strengthen domestic liquidity management and develop an interbank market were also commended.

The IMF staff highlighted the critical need for structural reforms to spur private sectorled economic diversification and job creation. Key priorities include banking and electricity sector reforms, reducing labor market distortions, and enhancing governance to reduce corruption.

The IMF team expressed readiness to support Iraq’s reform efforts and thanked the authorities for their candid and productive discussions during the mission.