04 March 2010 (Tax News)
The World Bank, on February 25, 2010, approved a Development Policy Loan to the government of Iraq in support of the country’s efforts to mitigate the impact of the current fiscal crisis on the national economy, and support its medium-term economic reform program.
The Fiscal Sustainability Development Policy Loan is the first of two equal tranches of support, each worth USD250m. The support is designed to aid efforts to reduce the Iraq’s dependence on oil revenues, and to reduce Iraq’s fiscal and socio-economic vulnerability to external shocks emanating from sudden drops in oil revenues.
"Iraq's immediate needs are to manage this short-term financing gap in ways that soften the impact of this fiscal crisis on its citizens," said Hedi Larbi, World Bank Country Director for Iraq. "The Bank's loan today helps Iraq protect the key social and infrastructure expenditures that the country needs to rebound."
Iraq’s excessive dependence on oil revenues makes it highly vulnerable to abrupt changes in international oil prices. This became particularly evident during the sharp decline in oil prices in late 2008 when its fiscal position deteriorated significantly. After holding fiscal surpluses in the order of 9.7% of GDP in 2007 and 1.7% in 2008, Iraq is expected to end with an overall fiscal deficit of about 22.6% of GDP in 2009. A considerable financing gap – in the order of USD4.9bn – has emerged for the period 2009-2011, which needed to be addressed through external financing.
The World Bank budget support under the DPL will help sustain an adequate level of public expenditures to strengthen the delivery of key public services and rebuild infrastructure. It will also provide support in key reform areas critical to Iraq’s longer-term development: (i) strengthening budget management and prioritization; (ii) reforming the financial sector; and (iii) improving the efficiency of the social protection system.
“The World Bank’s role in Iraq goes beyond resource transfers. We are helping Iraq build the institutions and systems to better use its own resources for the benefit of its citizens,” said World Bank Vice President for the Middle East, Shamshad Akhtar. “Our engagement has helped lock in a commitment to reform for the future and the Bank will further support this with key knowledge on poverty reduction, oil revenue management and private sector development.”