IMF Approves $5.3bn Stand-By Arrangement for Iraq

ANNEX

Recent Economic Developments

Iraq has been hit hard by the conflict with ISIS and the precipitous fall in oil prices. The ongoing armed conflict with ISIS continues to strain the country’s resources and is resulting in new waves of internally displaced people, now reaching over 4 million. Around 10 million people, comprising some 27 percent of the population, are in need of humanitarian assistance.

The steep fall in oil prices is causing a large external shock to the balance of payments and budget revenue, which depend predominantly on oil export receipts. Real GDP contracted by 2.4 percent in 2015, in spite of a 13 percent increase in oil production. The non-oil economy experienced broad-based economic contraction (-19 percent) as a result of the conflict with ISIS and the ongoing fiscal consolidation.

The authorities are responding to these challenges with a mix of fiscal adjustment and financing, while maintaining their commitment to the exchange rate peg and protecting social spending such as health, education, food and agricultural subsidies, and transfer to internally displaced people and refugees.

Program Summary

The economic program aims to stabilize the Iraqi economy which has been hit by the double shock of a steep decline in oil prices and ongoing ISIS conflict. The program is centered around four pillars:

Managing external pressures. Key measures include maintaining the exchange rate peg as the key nominal anchor; gradually removing the remaining exchange restrictions; and strengthening the anti-money laundering and combatting of financing of terrorism (AML-CFT) framework to stem illegal and speculative demand on foreign exchange.