IMF: Favorable Medium-Term Outlook For Iraqi Economy 03-01-2010 5:19PM
WASHINGTON -(Dow Jones)- The International Monetary Fund announced Monday that it has concluded its annual review of Iraq’s economy, finding it has a favorable outlook in the medium term but faces major challenges over the longer haul.
Lower oil prices are weighing on Iraq, and are estimated to have slowed growth to 4% in 2009, down from about 9.5% in 2008, according to an IMF staff assessment provided to the IMF board of directors last week and issued Monday.
“Iraq’s longer-term economic outlook is strong as oil prices and production are projected to increase markedly in the coming years,” the IMF said. However, based on conservative assumptions regarding oil prices, it projects Iraq will continue to run deficits this year and next before returning to a budget surplus in 2012.
Iraqi authorities have received about $3.6 billion from the IMF along with additional funding from the World Bank and other donors to cover the near-term funding gap. Going forward, IMF directors highlighted the need for Iraq to contain government spending on wages, allowing it to bolster spending in other areas, including improving the oil-sector infrastructure. They also encouraged Iraq to broaden its tax base by introducing a general sales tax.
On monetary policy, the IMF supported Iraq’s central bank for seeking to keep core inflation at single-digit rates and called on authorities to remove remaining exchange-rate restrictions.
IMF officials praised Iraq for making substantial progress in reducing inflation, eliminating direct government subsidies for fuel consumption and putting its pension system on a more sustainable footing. It also applauded Iraq for making important advances in addressing its long-term debt load, while noting the process of bilateral debt negotiations hasn’t been completed as yet.