Washington, DC – May 16, 2024: On May 13, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Iraq and considered and endorsed the staff appraisal. Domestic stability has improved since the new government took office in October 2022, facilitating the passage of Iraq’s first three-year budget, which entailed a large fiscal expansion starting in 2023. This supported the strong recovery in Iraq’s non-oil economy after a contraction in 2022, while Iraq was largely unaffected by the ongoing conflict in the region. Domestic inflation declined to 4 percent by end-2023, reflecting lower international food prices, the currency revaluation as of February 2023, and the normalization in trade finance. However, imbalances have worsened due to the large fiscal expansion and lower oil prices. The ongoing fiscal expansion is expected to boost growth in 2024, at the expense of a further deterioration of fiscal and external accounts and Iraq’s vulnerability to oil price fluctuations. Without policy adjustment, the risk of medium-term sovereign debt stress is high and external stability risks could emerge. Key downside risks include much lower oil prices or a spread of the conflict in Gaza and Israel.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They welcomed the strong economic rebound, declining inflation, and the improved domestic conditions which have resulted in the implementation of the first-ever three-year budget. Noting that
risks are tilted to the downside, given regional conflicts and large dependence on volatile oil prices, and that the large fiscal expansion could result in fiscal and external imbalances,
Directors underscored the need for sound macroeconomic policies and structural reforms to secure fiscal and debt sustainability, advance economic diversification, and achieve sustainable, inclusive, and private sector-led growth.
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