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Iraq’s Economic Situation and Policy Priorities: A Policy Briefing from the International Monetary Fund (IMF)

Economic Situation

Iraq’s economy faces significant challenges, including high debt, limited fiscal buffers, and dependence on oil exports. To stabilize its debt in the medium term, the country needs an ambitious fiscal adjustment.

Key Challenges:

  • High debt
  • Limited fiscal buffers
  • Dependence on oil exports

Policy Priorities

The IMF has identified key policy priorities for Iraq to address its economic challenges.

1. Fiscal Policy

To reduce current expenditure and stabilize its debt in the medium term, Iraq needs to:

  • Control the wage bill
  • Increase non-oil revenues
  • Improve revenue and customs administration efficiency

2. Public Financial Management

To strengthen public financial management, Iraq should:

  • Establish a Treasury Single Account (TSA)
  • Limit fiscal risks
  • Improve debt management

3. Monetary Policy

To reduce excess liquidity and stabilize the economy, Iraq should:

  • Consolidate idle government deposits in a TSA
  • Refrain from procyclical fiscal policy
  • Improve public debt management

Structural Reforms

Iraq needs to implement structural reforms to address its economic challenges.

1. Employment Strategy

A comprehensive employment strategy is needed to phase out mandatory hiring, level the playing field between public and private jobs, and address mismatches between educational curricula and skills needed in the private sector.

2. Financial Sector Reform

To improve access to credit and increase financial inclusion, Iraq should:

  • Consolidate small private banks
  • Restructure state-owned banks
  • Enhance corporate governance

3. Pension Reform

A comprehensive pension reform is needed to reduce fiscal costs, align benefits and rules across public and private schemes, ensure adequacy of pensions, and increase participation in the private pension scheme.

4. Combating Corruption

To combat corruption, Iraq should:

  • Strengthen institutional and legal frameworks
  • Enhance publication of assets and conflicts of interests declarations for top-level officials
  • Adopt an updated anticorruption strategy

Support from IMF

The IMF staff team stands ready to support the authorities in their reform efforts and appreciates constructive discussions during this mission.