IMF urges Iraq to build fiscal buffers

WASHINGTON - Agence France-Presse

The International Monetary Fund has urged Iraq to build up its weak fiscal buffers as the oil producer’s economy remains highly vulnerable to the oil market.

Iraq has maintained macroeconomic stability “in a difficult security and political environment,” the IMF executive board said on May 21.

The board, summing up a review of the Iraqi economy, urged the government to strengthen fiscal buffers and its institutions, citing still-high risks, “including from oil price volatility.” And the board urged a faster pace of reforms for the private, non-oil sector to generate jobs and more inclusive growth.

“Risks to the macroeconomic outlook remain high,” the board said, also pointing to delays in oil developments and further deterioration of the security situation. The assessment came amid a wave of violence in Iraq that has killed 374 people so far this month, according to an official tally.

The IMF assessment followed a recent on-the-ground evaluation of Iraq’s economy, known as an Article IV Consultation. The board called for curbs on current spending -- including public employment, energy subsidies and transfers to state-owned enterprises -- to increase leeway for priority social spending and public investment, and to build up buffers.

Oil sector driver of economy

Over the medium term, the IMF said, Iraq’s outlook will continue to be driven by developments in the oil sector.

Economic growth reached 8.4 percent in 2012 and was expected to rise to 9.0 percent in 2013 as oil production increases to 3.3 million barrels per day.

Higher-than-expected oil revenues contributed to fiscal surpluses of almost 5.0 percent of gross domestic product in 2011 and 4 percent in 2012.