International Monetary Policy: Iraq’s economic policies to deal with shocks are appropriate


International Monetary Policy: Iraq's economic policies to deal with shocks are appropriate
International Monetary Fund

BAGHDAD – The first deputy director general of the IMF said that the economic policies implemented by the Iraqi authorities to deal with the shocks facing Iraq – the armed conflict with Dahesh and the consequent humanitarian crisis and the collapse of oil prices – are appropriate.

David Lepton said in a statement Tuesday that the Iraqi authorities are implementing significant financial adjustments, mostly by reducing inefficient capital expenditures while protecting social spending.

He pointed out that the Iraqi government properly to link the Iraqi dinar to the US dollar, which provides a major anchor for the economy.

The Executive Board of the International Monetary Fund (IMF) concluded on Monday the second revision of Iraq’s three-year reserve arrangement, which aims to support Iraq’s economic reform program and restore the financial balance in the medium term.

The completion of the second audit allows the authorities to draw SDR 584.2 million (approximately US $ 824.8 million), bringing the total disbursement to SDR 1494.2 million to US $ 2109.7 million.

The arrangement of 3.831 billion (SDR) was approved at about 5.34 billion US dollars at the time of approval of the arrangement (in July 2016) and the first review was completed on 5 December 2016.

Lipton said performance under standby arrangements was weak in some key areas, but understandings were reached on adequate corrective actions to keep the program on track. The steady implementation of the authorities program, together with strong international financial support, was essential.

“More fiscal adjustment measures are needed in 2017-2018 to keep the program on track.”

“The composition of the fiscal adjustment should be improved over time by increasing non-oil revenues and reducing current expenditures. In addition, reforming the electricity sector and state-owned enterprises will provide room for greater and more efficient investment expenditures that support growth and job creation,” he said.

It was important to improve public financial management significantly, arrears should be assessed and paid after verification, enhanced expenditure commitment and cash management to prevent the accumulation of new arrears.

Measures to strengthen the stability of the financial sector include strengthening the legal framework of the CBI, restructuring state-owned banks, eliminating restrictions on exchange and exercising multiple currencies. Measures to prevent money-laundering, combating the financing of terrorism and strengthening anti-corruption legislation were also needed.

The implementation of a budget-sharing agreement with the KRG would put the federal government and KRG in a better position to address the shocks to the Iraqi economy, Lipton said.

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