Financial Crime World

Iraq’s Inflation Decline Expected to Continue with Further Moderation This Year

The International Monetary Fund (IMF) has released its latest assessment on Iraq’s economy, predicting a further moderation in inflation this year. According to the report, household debt remains relatively low at below 10 percent of GDP.

Factors Contributing to Inflation Decline

  • Normalization of the foreign exchange market
  • Tighter monetary policy
  • International reserves remaining adequate, providing a cushion against external shocks

Fiscal Adjustments Needed for Macroeconomic Stability and Sustainability

The authorities were advised to focus on controlling the wage bill and mobilizing non-oil tax revenues while protecting critical social and investment needs.

Vulnerability to Oil Prices

Iraq’s current policies are increasing its vulnerability to oil prices. To address this, a fiscal adjustment is urgently needed to restore the non-oil primary deficit to its 2021 level by 2029. This would require:

  • A gradual reduction in public spending
  • An increase in non-oil revenues

Structural Reforms for Private Sector Development

The IMF recommended accelerating structural reforms to stimulate private sector development, including:

  • Labor market reforms
  • Restructuring of state-owned banks
  • Continued efforts to combat corruption

Medium-Term Fiscal Accounts Projection

The overall balance is expected to deteriorate further this year, driven by a significant increase in current expenditures. However, the non-oil primary balance is expected to improve gradually over the medium term.

Recommendations for Achieving Fiscal Adjustment

To achieve fiscal adjustment, the authorities were advised to:

  • Seek savings on the wage bill through a combination of measures, including:
    • A gradual phase-out of mandatory hiring requirements
    • An attrition-based strategy to right-size public employment
  • Mobilize additional non-oil revenues through tax reforms and customs duty reviews

Conclusion

The IMF’s assessment provides a timely reminder of the need for fiscal discipline in Iraq as it navigates the challenges of low oil prices and high government spending. The report’s recommendations offer a roadmap for policymakers to restore macroeconomic stability and ensure sustainable growth.