IMF Executive Board Approves US$5.34 billion Stand-By Arrangement for Iraq
Press Release No. 16/321
July 7, 2016
The Executive Board of the International Monetary Fund (IMF) today approved a three-year Stand-By Arrangement (SBA) for Iraq for SDR 3.831 billion (about US$5.34 billion, or 230 percent of quota) to support the government’s economic reform program. The Board’s approval enables the disbursement of SDR 455 million (about US$634 million). In July 2015, Iraq received disbursement under the Rapid Financing Instrument equivalent to SDR 891.3 million (about US$1.24 billion at the time of approval).
Iraq’s economic reform program supported by the SBA aims to address the urgent balance of payments need, bring spending in line with lower global oil prices, and ensure debt sustainability. The program also includes measures to protect the poor, strengthen public financial management, enhance financial sector stability, and curb corruption. Iraq will require the support of the international community to implement these policies.
The IMF’s Management today also completed the first and second reviews of the Staff-Monitored Program (SMP) with Iraq that was approved by the Managing Director on January 12, 2016. (See Press Release No. 16/04).
Following the Executive Board’s decision, Mr. Min Zhu, Deputy Managing Director and Acting Chair of the Board, issued the following statement:
“The policies put in place by the authorities to deal with this double shock are appropriate. In the fiscal area, the authorities are implementing sizable fiscal adjustment, mostly through inefficient capital expenditure retrenchment while protecting social spending, and financing. In the external area, the authorities are maintaining the peg to the U.S. dollar, which provides a key anchor to the economy.
“The fiscal adjustment envisaged in 2016–19 is appropriate to address the pressure from lower oil revenue and higher humanitarian and security spending. But the composition of the fiscal adjustment should be improved over time, in order to make room for increased but more efficient investment expenditure. Overhaul of the public financial management system is necessary to improve fiscal discipline and the quality of spending. Implementation of the budget-sharing agreement with the Kurdistan Regional Government will put both the federal government and the Kurdistan Regional Government in a better position to address the ISIS attacks and the oil-price shock.
“The accumulation of large external arrears to international oil companies and domestic arrears in 2015 was unfortunate. Existing arrears should be paid down, following a due process of checking their validity, and the implementation of controls to prevent further accumulation of arrears to international oil companies and domestic suppliers. The prevention of future external arrears would ensure that the envisaged oil revenue stream—needed to finance public expenditure and imports—is achieved; the prevention of future domestic arrears would preserve financial sector stability.
“To strengthen growth and financial sector stability, the legal framework of the Central Bank of Iraq needs to be strengthened, state-owned banks need to be restructured, and exchange restrictions need to be gradually removed. Additionally, measures need to be implemented to prevent money-laundering, counter the financing of terrorism, and strengthen the anti-corruption legislation.”
Recent Economic Developments
Iraq has been hit hard by the conflict with ISIS and the precipitous fall in oil prices. The ongoing armed conflict with ISIS continues to strain the country’s resources and is resulting in new waves of internally displaced people, now reaching over 4 million. Around 10 million people, comprising some 27 percent of the population, are in need of humanitarian assistance. The steep fall in oil prices is causing a large external shock to the balance of payments and budget revenue, which depend predominantly on oil export receipts. Real GDP contracted by 2.4 percent in 2015, in spite of a 13 percent increase in oil production. The non-oil economy experienced broad-based economic contraction (-19 percent) as a result of the conflict with ISIS and the ongoing fiscal consolidation.
The authorities are responding to these challenges with a mix of fiscal adjustment and financing, while maintaining their commitment to the exchange rate peg and protecting social spending such as health, education, food and agricultural subsidies, and transfer to internally displaced people and refugees.
The economic program aims to stabilize the Iraqi economy which has been hit by the double shock of a steep decline in oil prices and ongoing ISIS conflict. The program is centered around four pillars:
Managing external pressures. Key measures include maintaining the exchange rate peg as the key nominal anchor; gradually removing the remaining exchange restrictions; and strengthening the anti-money laundering and combatting of financing of terrorism (AML-CFT) framework to stem illegal and speculative demand on foreign exchange.
Implementing fiscal consolidation while protecting the poor. The government will continue to implement fiscal consolidation, mostly through inefficient capital expenditure retrenchment, while protecting social spending. This will help to bring spending to a sustainable level given the much lower level of oil revenue. The government will also design and implement deeper grounded revenue and expenditure reforms to hold the lid on the non-oil primary balance and achieve debt sustainability. Efforts are underway to implement the budget-sharing agreement with the Kurdistan Regional Government.
Strengthening public financial management and curbing corruption. To improve fiscal discipline and the quality of spending, the Ministry of Finance will strengthen public financial management legislation, report fiscal tables in compliance with international standards, enhance commitment controls and cash management, conduct regular surveys and audits to monitor and curb arrears, reform public investment management, and improve debt management with the help of technical assistance.
Monitor financial risks to preserve financial sector stability. Important steps are being taken to strengthen the legal framework of the Central Bank of Iraq following on the Fund’s recent safeguards assessment, as well as to restructure state-owned banks and strengthen prudential standards and bank supervision with the support of external consultants. Additionally, measures will need to be implemented to prevent money-laundering, counter the financing of terrorism, and strengthen the anti-corruption legislation to help improve the integration of Iraq’s financial system into the global economy.
Iraq became a member of the IMF on December 27, 1945 and has an IMF quota of SDR 1,663.80 million (about US$2.32 billion).
For additional background on the IMF and Iraq see:
|Table 1. Iraq: Selected Economic and Financial Indicators, 2013–21|
|(Quota: SDR 1,663.8 million)|
|(Population: 34.3 million; 2014)|
|(Poverty rate: 23 percent, 2014)|
|(Main export: Crude oil)|
|Economic growth and prices|
|Real GDP (percentage change)||7.6||-0.4||-2.4||10.3||0.5||0.7||2.0||1.9||2.0|
|Non-oil real GDP (percentage change)||12.4||-5.1||-18.7||-5.0||0.0||2.0||3.0||4.0||4.0|
|GDP deflator (percentage change)||0.0||-4.7||-27.0||-13.2||7.8||5.3||5.0||5.2||4.7|
|GDP per capita (US$)||7,021||6,492||4,514||4,161||4,395||4,542||4,745||4,962||5,164|
|GDP (in ID trillion)||273.6||259.5||185.1||177.1||191.8||203.4||217.9||233.8||249.6|
|Non-oil GDP (in ID trillion)||148.0||142.6||123.4||122.3||127.5||135.7||145.7||158.0||171.4|
|GDP (in US$ billion)||234.6||222.5||158.7||150.1||162.6||172.4||184.7||198.1||211.5|
|Oil production (mbpd) 1/||3.0||3.1||3.5||4.2||4.2||4.2||4.3||4.3||4.4|
|Oil exports (mbpd) 2/||2.4||2.5||3.0||3.6||3.6||3.6||3.6||3.6||3.6|
|Iraq oil export prices (US$ pb)||102.9||97.0||47.5||34.5||40.3||42.5||44.6||46.4||47.5|
|Consumer price inflation (percentage change; end of period)||3.1||1.6||2.3||2.0||2.0||2.0||2.0||2.0||2.0|
|Consumer price inflation (percentage change; average)||1.9||2.2||1.4||2.0||2.0||2.0||2.0||2.0||2.0|
|(In percent of GDP)|
|Gross domestic investment||26.9||27.0||27.5||21.9||20.8||20.2||19.7||19.3||18.9|
|Gross domestic consumption||69.5||72.1||79.0||88.8||85.0||85.0||84.3||83.6||82.3|
|Gross national savings||28.3||26.2||21.0||10.9||11.5||14.3||15.2||16.0||17.7|
|Saving – Investment balance||1.4||-0.8||-6.4||-11.0||-9.2||-5.9||-4.5||-3.3||-1.3|
|(In percent of GDP, unless otherwise indicated)|
|Government revenue and grants||42.2||40.2||34.3||36.2||38.7||38.5||38.2||37.3||36.1|
|Government oil revenue||38.6||38.0||31.2||32.0||34.4||34.2||33.9||32.9||31.5|
|Government non-oil revenue||3.5||2.3||3.1||4.2||4.3||4.3||4.3||4.4||4.5|
|Expenditure, of which:||48.0||45.8||48.5||50.8||49.8||44.5||41.8||39.1||36.7|
|Overall fiscal balance (including grants)||-5.8||-5.6||-14.3||-14.7||-11.1||-6.0||-3.6||-1.8||-0.6|
|Non-oil primary fiscal balance (percent of non-oil GDP)||-67.6||-58.7||-51.6||-53.3||-50.2||-46.4||-42.5||-38.5||-34.8|
|Adjusted non-oil primary fiscal balance (percent of non-oil GDP)3/||-67.6||-67.1||-53.6||-53.3||-50.2||-46.4||-42.5||-38.5||-34.8|
|Adjusted non-oil primary expenditure (percent of non-oil GDP)3/||74.1||71.3||58.3||59.4||56.6||52.8||48.9||45.0||41.3|
|Adjusted non-oil primary expenditure (annual real growth, percent) 3/||17.2||-9.4||-30.1||-1.2||-2.6||-2.6||-2.5||-2.2||-2.3|
|Development Fund of Iraq/MoF US$ account (in US$ billions) 4/||6.3||0.7||2.4||2.4||2.4||2.4||2.4||2.4||2.4|
|Total government debt (in percent of GDP) 5/||31.2||33.5||63.9||79.0||84.0||85.2||83.1||79.3||74.9|
|Total government debt (in US$ billion) 5/||73.1||74.6||100.2||118.5||136.5||146.9||153.5||157.1||158.4|
|External government debt (in percent of GDP)||25.3||25.9||42.3||47.7||49.6||49.1||44.8||39.2||33.1|
|External government debt (in US$ billion)||59.3||57.6||67.1||71.6||80.7||84.6||82.7||77.6||70.1|
|(In percent, unless otherwise indicated)|
|Growth in reserve money||12.6||-9.6||-12.6||-3.5||2.8||9.2||7.4||7.6||10.4|
|Growth in broad money||15.9||3.6||-9.0||8.6||6.8||9.2||7.4||7.6||10.4|
|Policy interest rate (end of period)||6.0||6.0||6.0||…||…||…||…||…||…|
|(In percent of GDP, unless otherwise indicated)|
|Exports of goods||38.3||37.7||31.1||30.4||32.8||32.6||32.1||31.1||30.8|
|Imports of goods||-28.7||-30.3||-31.2||-33.5||-31.7||-31.3||-30.0||-28.3||-26.6|
|Overall external balance||-1.3||-10.5||-9.3||-10.3||-7.4||-3.0||-2.4||-1.1||0.9|
|Gross reserves (in US$ billion)6/||77.8||66.7||53.4||42.7||40.1||39.3||35.4||31.5||31.6|
|In months of imports of goods and services||10.8||12.7||9.9||7.8||7.0||6.7||5.9||5.1||5.0|
|Exchange rate (dinar per US$; period average)||1,166||1,166||1,167||…||…||…||…||…||…|
|Real effective exchange rate (percent change, end of period) 7/||6.5||4.6||7.5||…||…||…||…||…||…|
|Sources: Iraqi authorities; and Fund staff estimates and projections.|
|1/ Does not reflect KRG production during 2013 and 2014.|
|2/ Reflects KRG exports through State Organization for Marketing Oil (SOMO).|
|3/ Adjusted to account for a full year estimate of federal government transfers to the Kurdistan Regional Government in 2014 and 2015, for which actual transfers were made for only 2 and 5 months, respectively.|
|4/ Reflects the balances of the Development Fund of Iraq which were moved from the Federal Reserve Bank of New York to the CBI as a US$ account (US$ balances from oil revenues) in May 2014.|
|5/ Includes arrears.|
|6/ Starting 2014 includes US$ account balances from oil revenues. Starting Q3 2015, SDRs and reserve position in the Fund are excluded from the definition per instruction from the Central Bank of Iraq.|
|7/ Positive means appreciation.|