Custom Search

From Rudaw. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Iraq seeks to buy Khor Mor gas for electricity

The Iraqi electricity ministry is seeking to purchase gas from Sulaimani's Khor Mor gas field to cover its needs and avoid power shortages in the coming summer season, the ministry's spokesperson told Rudaw.

Click here to read the full article.

By John Lee.

Ziad Ali Fadel, Iraq's Minister of Electricity, announced the signing of an agreement with Siemens of Germany to convert associated gas into electricity within six months.

The minister signed the agreement in Berlin, Germany, aiming to convert associated gas into electrical energy to sustainably and securely meet citizens' needs.

The minister emphasized that this agreement is part of the Iraqi government's efforts, led by Prime Minister Mohammed Shia' Al-Sudani, to end gas flaring and effectively invest it in electricity generation. This initiative aligns with the government's commitment to the Paris Climate Conference agreements to preserve the environment and provide renewable energy sources.

The agreement is notable for its rapid implementation, involving the investment of around 120 million standard cubic feet of gas within a short period of six months, along with an additional 120 million within one year. The produced gas will be utilized in the establishment of a 2000-megawatt power station to enhance the electricity network's capabilities and ensure supply stability.

The CEO of Siemens Energy praised the Iraqi government's efforts to overcome challenges faced by the energy sector over the years, affirming that Iraq has succeeded in recent years in establishing numerous infrastructure projects that will contribute to building genuine capacities in the country's energy sector.

(Source: Ministry of Electricity)

By John Lee.

Iraq's Minister of Electricity, Ziad Ali Fadel, recently hosted the Finnish Ambassador to Iraq, Ms. Anu Saarela, along with a delegation from Wärtsilä, a company specializing in the installation and maintenance of engines.

During the meeting, the minister emphasized the government and ministry's commitment to fostering common prospects, job opportunities, and partnerships, capitalizing on the significant openness and security stability in Iraq, aiming to create an attractive environment for global investments.

According to a statement, the minister focused on two main points during the meeting:

1. The importance of reviving stalled projects and addressing their obstacles. This included discussions on rehabilitating the Samarra diesel power generation station with 11 generating units, each with a capacity of 340 megawatts.
2. Preparation of a comprehensive vision by the company's experts regarding the maintenance needs of power generation units, the possibility of their expansion, and increasing their design capacities. He instructed the technical and production department of the Northern Electricity Production to provide the necessary requirements for the company's experts to perform their tasks, subject to meeting deadlines and presenting them to the ministry for approval after discussion, with continuous follow-up through regular meetings.

The visiting ambassador expressed her gratitude for the minister's keen interest, acknowledging the success of Iraq in establishing and implementing significant and qualitative projects contributing to the development of the energy sector in Iraq. She particularly highlighted Iraq's shift towards renewable energy sources and diversification of its energy sources.

(Source: Ministry of Electricity)

By John Lee.

The Iraqi Cabinet has approved recommendations from a consultative meeting aimed at addressing traffic congestion and regulating working hours for state departments.

The key measures are:

1. Adjusted Office Hours:
   1. Official working hours for government departments in Baghdad will be trialed for three months after Eid al-Fitr, with reevaluation afterward.
   2. Different start and end times will be implemented for various ministries and affiliated entities:
      • Morning: 7:00 AM - 2:00 PM for ministries and bureaus in the Green Zone and select others. These include the Ministries of Foreign Affairs, Planning, Agriculture, Water Resources, Environment, Migration and Displacement, Communications, Youth and Sports, Culture, and Industry and Minerals; the Central Bank of Iraq (CBI), Federal Financial Supervision Bureau, Baghdad Municipality, and the Civil Aviation Authority;
      • Mid-morning: 8:00 AM - 3:00 PM for other ministries, including the Ministries of the Interior, Defense, Health, Finance, Electricity, Justice, Labor and Social Affairs), and Education,  and all associated schools and institutes;
      • Late morning: 9:00 AM - 4:00 PM for remaining ministries and institutions, including the Ministries of Higher Education and Scientific Research, Transport, Trade, Construction, Housing, Municipalities, Public Works, and Oil, and the Shiite and Sunni Endowment Offices, the Martyrs and Political Prisoners Institutions, the Aliyaj Authority for Hajj and Umrah, and the State Council.
      • Universities and colleges will start at 10:00 AM, with weekly holiday adjustments.
2. Public Transport Mandate:
   • Ministries and non-ministerial entities must ensure at least 30% of their staff utilize public transportation, offering incentives for participation.
3. Pedestrian Bridges and Street Vendor Control:
   • Construction of pedestrian bridges near educational and healthcare institutions, with fencing to deter jaywalking.
   • Crackdown on sidewalk vendors, especially in congested areas like Shorja and New Baghdad.
4. Vehicle Registration Fees and Customs Duties:
   • Reviewing vehicle registration fees and customs duties, potentially increasing them in line with previous government decisions.
   • Kurdistan Region must adhere to any fee increases.
5. Road Openings:
   • Certain roads in Baghdad, including the Karguliya Road towards Al-Amin area, will be reopened.
   • Reinstallation of departure gate near Al-Shaab Stadium.
6. Fuel Price Adjustment:
   • Prices for premium and regular gasoline will rise to 1250 and 850 Iraqi dinars per liter, respectively, starting May 1, 2024.

These measures aim to alleviate traffic congestion, promote public transport usage, enhance pedestrian safety, and manage urban infrastructure effectively. Further evaluations will determine their long-term implementation.

(Source: PMO)

By John Lee.

Ziad Ali Fadel, Iraq's Minister of Electricity, has signed a five-year gas supply agreement with the Iranian National Gas Company (INGC).

The contract involves daily gas delivery rates of up to 50 million cubic meters, adjustable based on system requirements.

This initiative aims to sustain the momentum of power generation stations, ensuring they meet peak loads and the growing demand for electricity.

Iraq's Ministry of Electricity said the agreement will serve as a temporary solution until Iraq's national gas fields are fully rehabilitated to meet the country's electricity needs.

(Source: Ministry of Electricity)

By John Lee.

The Iraqi Oil Ministry has responded to criticism from the trade body representing international oil companies (IOCs) operating in Iraqi Kurdistan, as they mark the one-year anniversary of the closure of the Iraq-Turkey Pipeline (ITP) connecting northern Iraq with the Mediterranean port of Ceyhan.

Highlighting the economic cost of the pipeline closure, the Association of the Petroleum Industry of Kurdistan (APIKUR) accused Baghdad of, "economic strangling of the KRI ... through blocking oil exports and non-implementation of budget transfers."

It added that there has been "no real progress" to reopen the line, and that debts of over $1 billion from the KRG to APIKUR member companies remain unpaid.

In response, Baghdad's Ministry of Oil said that it is the federal government that is the most affected by the cessation of exports, and blamed Turkiye for the closure of the pipeline.

The Ministry also pointed to the Supreme Court ruling that says those oil contracts are not valid, and that the Ministry of Oil in Baghdad is responsible for oil exports.

Full statement from APIKUR:

Key Points:

• • The Iraq-Türkiye pipeline (ITP) has now been closed for one year

  • The ITP closure impacts International Oil Companies (IOCs) in the Kurdistan Region of Iraq (KRI), blocking 450,000 barrels per day of crude oil exports

  • Continued closure costs the Government of Iraq (GoI), Kurdistan Regional Government (KRG), IOCs, and the people of Iraq billions of dollars

As the 1-year mark for the halt of oil exports through ITP approaches, the Association of the Petroleum Industry of Kurdistan (APIKUR) provides an update on the reported status of the discussions around reopening the ITP, its efforts to restore full production and exports from Kurdistan, and the financial impacts on the Iraqi people and International Oil Companies (IOCs).

On March 25, 2023, oil exports through ITP were halted.

To date, neither APIKUR nor its members have seen any proposal from the GoI or KRG that would lead to a resumption of exports.

All eight APIKUR member companies remain committed to their contracts with the KRG and have been repeatedly assured by the KRG that the KRG, for its part, is fully committed to these contracts as well.

APIKUR continues to seek to engage with all relevant stakeholders to reach an agreement to resume exports via ITP.

"APIKUR remains focused on working with all stakeholders to restore full oil production and exports through the Iraq-Türkiye Pipeline," said Myles B. Caggins III, spokesman for APIKUR. "Each day the pipeline is closed, losses continue to mount and the people, economy, and investment reputation of Iraq suffers."

APIKUR's Assessment:

The GoI has not taken the required actions to reopen the ITP and enable oil exports from the Kurdistan Region of Iraq, despite Türkiye's announcement in October 2023 that the pipeline is operational and ready to export oil.

APIKUR notes that meetings were held in Baghdad on January 7-9, 2024, between representatives of the GoI, KRG, and IOCs - including representatives of several APIKUR member companies. Despite those meetings and the subsequent press on positive discussions between GoI and KRG, there has been no real progress to reopen the ITP.

APIKUR's efforts to resolve the impasse:

• • Holding multiple meetings with the KRG and GoI officials in Baghdad, Erbil, and Dubai

  • Consistently and openly communicating APIKUR members' conditions for restoring export production:

    • Any addendums must be agreed between the GoI, KRG, and APIKUR member companies

    • There must be payment surety for past and future oil exports

    • Prospective oil sale payments to APIKUR member companies must be remitted directly to those companies

    • The APIKUR member companies' current commercial terms and economic model must be maintained

  • Launching a public awareness campaign across Arabic, Kurdish, and Western media outlets

  • Independent of APIKUR, several individual IOCs have proposed solutions to the GoI and KRG

In addition, APIKUR has engaged home governments of member companies-with a particular focus on the United States government (USG)-due to its unique bilateral relationships with the GoI and KRG, including the $300 million direct investment by USG in the Kurdistan Region's energy sector.

APIKUR has conveyed to senior members of President Biden's administration and members of the U.S. Congress that the White House should not proceed with the planned visit of Iraqi Prime Minister Mohammad Shia Al-Sudani, on April 15, 2024, to Washington, DC unless:

• • ITP is reopened and allows oil produced in the KRI to be exported to international markets

  • IOCs (including APIKUR members) get surety of payment for past and future oil exports

  • The GoI fully implements the Iraqi federal budget for the KRG

APIKUR summary of the ongoing impact of the ITP closure:

Financial Impact:

• • Estimated revenue loss to Iraq of more than $11 billion, approximately $1 billion each month

  • APIKUR understands that while ITP remains unused, Iraq accrues more than $800,000 in daily penalties for failure to meet contractual throughput quotas in the ITP agreement

  • Debts of over $1 billion from the KRG to APIKUR member companies for oil produced between September 2022 and March 2023 remain unpaid

  • More than $400 million in annual investments paused by APIKUR members

  • IOC annual revenues reduced by nearly 60% as local sales have replaced exports to international markets

  • Economic strangling of the KRI by GoI through blocking oil exports and non-implementation of budget transfers

Impact on Global Oil and Energy Markets:

• • The halt of ITP exports puts pressure on a precariously balanced global energy market currently affected by Russian sanctions and shipping disruptions through the Red Sea

  • Iraq continues to receive sanctions waivers to import electricity from Iran, instead of funding its own energy infrastructure through additional oil exports

  • Since ITP closed, the U.S. has imported upwards of 250,000 bpd of oil and products from Southern Iraq, while the GoI prevents oil produced by U.S. companies in Kurdistan Region from being exported

Impact on Employment in Iraq's Kurdistan Region:

• • APIKUR member companies have laid off hundreds of directly-hired personnel, including both expats and locally-hired staff

  • The collapse in IOC investment has caused even greater staff reductions in oilfield-related service and products industries, including lodging and catering, maintenance, security, transportation, and construction companies

  • The lack of oil revenue and budget transfers from the GoI to KRG has led to severe delays in payment of civil servant salaries, including teachers and health service workers

Reputational Impact:

• • Placing the respect for contract sanctity in question risks a significant downturn in the desire for the global business community to invest in Iraq

  • Budget law and oil export impasse has exposed intra-Iraq political rifts

Full statement from the Ministry of Oil (translated):

The Federal Ministry of Oil has reviewed a statement issued by an entity calling itself the "Association of the Petroleum Industry of Kurdistan (APIKUR)" dated March 23, 2024, which contained distortions of facts and several inaccuracies. In this regard, the ministry would like to clarify the following points:

1. The halt of oil exports through the Iraqi-Turkish pipeline in March 2023 was due to a Turkish decision following an international arbitration ruling by the Paris Chamber of Commerce in favor of Iraq. The export did not stop - not even for a day - due to a federal Iraqi decision. After more than six months and significant negotiations led by this ministry with the Turkish side, the parties agreed to reopen the pipeline and address the technical issues resulting from its closure in the shortest possible time. The federal government is the biggest loser from the export halt for reasons related to sovereign oil policy and others.

2. One of the main reasons for the current export halt is the refusal of foreign companies operating in the Kurdistan Region of Iraq to officially hand over their production to the regional government for export in accordance with the effective federal budget law. This includes companies affiliated with the mentioned association. Export can be resumed shortly if these companies deliver the produced oil from the fields located in the region in accordance with the law.

3. The federal government and this ministry have made diligent efforts to overcome all obstacles to resume exports, as evidenced by the content of numerous official letters, meetings, and relevant decisions over the past year. The latest of these efforts was our letter numbered (480) dated March 18, 2024, which emphasized the necessity of delivering the produced oil in the region for export purposes. This ministry continues to insist on resuming exports through the Iraqi-Turkish pipeline as soon as possible, while adhering to the provisions of the constitution and the law.

4. Official correspondences issued by this ministry, including our aforementioned letter, referred to reports from OPEC and internationally recognized secondary sources confirming oil production in the region ranging from 200,000 to 225,000 barrels per day, without the knowledge or approval of this ministry. Non-compliance with the adopted federal oil policy puts Iraq's reputation and international obligations at risk, and the responsible parties for violations will face all legal consequences.

5. Contracts purportedly concluded between oil companies operating in the region and the Ministry of Natural Resources in the region have not been approved by the federal government or the federal Ministry of Oil at all, as they lack a sound constitutional and legal basis. This has been the stance of successive federal governments and the Ministry of Oil for over a decade, consistent with the Supreme Federal Court decision numbered (59/federal/2012 and its unified decision 110/federal/2019) dated February 15, 2022. There is no room for debate after the Supreme Federal Court issued its definitive and binding decision, except to comply with it.

6. This ministry has previously requested the Kurdistan Regional Government and the oil companies operating therein to provide full copies of all the mentioned contracts for the purpose of studying them and reaching new contracts in line with the constitution, the law, and the best practices followed by this ministry with major international companies. However, these contracts have not been submitted so far. Therefore, it is unreasonable for this ministry to demand compliance with contracts it has not seen or recognized, which is fundamentally inconsistent with binding judicial decisions.

7. The Federal General Budget Law No. 13 of 2023, which came into effect on January 1, 2023, included in Article 12/Second/B a provision to calculate production and transportation costs at a rate equal to what this ministry pays in its contracts, with the production cost averaging $6.9 per barrel. However, the companies operating in the region demand three times this amount (excluding transportation fees) as one of the conditions for resuming oil delivery. The parliament's call to adopt the Ministry of Oil's rate was due to the lack of access by the parliament and other federal authorities to the contracts, as mentioned earlier. Moreover, the costs demanded by the companies include what they call payment of previous debts worth billions of dollars, amounts that are unknown to the federal government and do not align with borrowing frameworks under the constitution and the prevailing laws.

8. It has been clarified repeatedly that this ministry cannot violate the General Budget Law and other applicable laws, in addition to highlighting a significant exaggeration in the mentioned costs in the previous paragraph. This ministry has officially reiterated its commitment to immediately resume exports in accordance with the law through the Iraqi-Turkish pipeline, while negotiating in parallel to reach a comprehensive and mutually acceptable settlement that serves the public interest. However, the companies continue to refrain from complying unless their illegal conditions are met, which is unacceptable under any circumstances.

9. The Iraqi government has received representatives of the oil companies operating in the region at the highest levels as a goodwill gesture to find acceptable legal solutions. This ministry has previously invited these companies to negotiation meetings to find fair solutions and has taken continuous legal actions against the mentioned companies to allow room for amicable settlements. However, the companies' stance remains inflexible and unchanged.

10. The mentioned association's statement included blatant interference in Iraq's internal and external sovereign affairs, which have no relation to the companies' operations. This constitutes an additional violation by the mentioned association and the represented companies and does not align with the principles of goodwill and the fundamentals of foreign investment.

11. The federal Ministry of Oil, under the government's directives, is committed to making every possible effort to resolve the disputes and resume exports through the Iraqi-Turkish pipeline in line with the constitution and the law. Foreign companies wishing to operate in Iraq must respect the country's sovereignty, laws

(Sources: APIKUR; Ministry of Oil)

By John Lee.

Iraq's Ministry of Oil has announced that the Oil Pipelines Company has completed the first phase of rehabilitating the 12-inch dry gas pipeline from the East Baghdad field to Taji power station.

Mr. Ali Abdul Kareem Al-Moussawi, the Director General of the Oil Pipelines Company, stated that the company's technical and engineering teams successfully completed maintenance and rehabilitation works along a 13-kilometer stretch of the pipeline.

This achievement contributes to the government's and the Ministry of Oil's plans to invest in flared gas from the East Baghdad field using Carbon Credit financing, marking the first such experiment in Iraq, in accordance with international standards, agreements, and frameworks.

Mr. Al-Moussawi also highlighted the upcoming discharge of the dry gas produced from the East Baghdad field, as well as the enhancement of electricity production by delivering gas to the Taji power station.

He noted that the maintenance and rehabilitation works were completed within an exceptional timeframe of no more than one month, involving the rehabilitation of the pipeline and the maintenance of associated parts.

(Source: Ministry of Oil)

By John Lee.

At a press briefing on Thursday, US State Department spokesperson Matthew Miller (pictured) said the United States has issued another 120-day waiver to allow Iraq to continue importing electricity from Iran.

Addressing a question from the floor, Miller said:

"... these are waivers that have been regularly issued to Iraq going back to 2018 under a previous administration. This is now the 21st time that this particular waiver has been issued. And it's important to realize how this money has been used.

"Number one, that no money is permitted to enter Iran under the terms of this waiver. All of these funds are held in restricted accounts and they can only be used for transactions for the purchase of food, medicine, medical devices, agricultural products, and other non-sanctionable transactions. And that it is part of our broader goal to wean Iraq off of dependence on Iran for the provision of electricity, because that's what these waivers - as I know you know - what these waivers relate to, which is that Iraq continues to have to get its electricity from Iran.

"Iraq has been making real progress on its path towards energy sufficiency since 2020. It has cut its imports of Iranian energy by more than half. Over the last decade, it has doubled its own electricity generation. And we will continue to work with them and support them as they try to become energy independent."

He further clarified:

"Iraq has been importing electricity from Iran. It doesn't pay it - Iran - directly for that electricity. It deposits money into these restricted accounts, and then we issue these waivers. It allows the money in that - those accounts to be used for humanitarian and other non-sanctionable purposes, but the money itself doesn't actually move from Iraq to Iran."

(Source: US State Dept)

By John Lee.

The Iraqi National Investment Commission (NIC) has announced that it has received 17 proposals from foreign, Arab, and local companies for a waste management and electricity generation project (waste-to-energy) in Baghdad.

This announcement followed a meeting of the commission tasked with assessing the proposals.

Dr. Mona Al-Jabri, the commission's renewable energy consultant, emphasized the commission's genuine interest in high-quality investment opportunities, particularly in vital projects like electricity generation initiatives.

(Source: NIC)

By John Lee.

An International Monetary Fund (IMF) mission met with the Iraqi authorities in Amman during February 20-29 to conduct the 2024 Article IV consultation.

Some key data from their report:

1. Economic Growth:
   • Non-oil GDP growth: 6% in 2023.
   • Overall growth projected to rebound in 2024.
2. Inflation:
   • Declined from 7.5% in January 2023 to 4% by year-end.
3. Fiscal Position:
   • Deficit: 1.3% of GDP in 2023, down from a surplus of 10.8% in 2022.
   • Projected deficit for 2024: 7.6% of GDP.
   • Public debt: Expected to nearly double from 44% in 2023 to 86% by 2029.
4. Policy Priorities:
   • Need for fiscal adjustment to stabilize debt and rebuild buffers.
   • Focus on reducing current expenditure, increasing non-oil revenues, and improving revenue administration.
5. Monetary Policy:
   • CBI raised policy interest rates and reserve requirements.
   • Efforts to reduce excess liquidity and improve monetary policy pass-through.
6. Structural Reforms:
   • Comprehensive employment strategy needed.
   • Financial sector reform to improve credit access.
   • Urgent pension reform required.
   • Combat corruption and improve governance.
   • Hurdles to private sector development need to be removed, including in the electricity sector and business registration procedures.
7. IMF Support: The IMF staff team stands ready to support reform efforts.

Full statement from IMF:

An International Monetary Fund (IMF) mission, led by Mr. Jean-Guillaume Poulain, met with the Iraqi authorities in Amman during February 20-29 to conduct the 2024 Article IV consultation. The following statement was issued at the end of the mission:

Economic growth is projected to continue amid fiscal expansion. Meanwhile, medium-term vulnerabilities to oil price volatility have increased significantly. Reducing oil dependence and ensuring fiscal sustainability while protecting critical social and investment spending will require a significant fiscal adjustment, focused on controlling the public wage bill and increasing non-oil tax revenues. In parallel, higher economic growth will be needed to absorb the rapidly expanding labor force, boost non-oil exports and broaden the tax base. The authorities should therefore seek to enable private sector development, including through labor market reforms, modernization of the financial sector and restructuring of state-owned banks, pension and electricity sector reforms, and continued efforts to improve governance and reduce corruption.     

Economic Outlook and Risks

Growth in the non-oil sector has rebounded strongly in 2023 while inflation receded. Supported by increases in public expenditure and solid agricultural output, real non-oil GDP is estimated to have grown by 6 percent in 2023 after stalling in 2022. Headline inflation declined from a high of 7.5 percent in January 2023 to 4 percent by year-end, reflecting lower international food and energy prices, and the impact of the February 2023 currency revaluation. The current account is expected to have recorded a surplus of 2.6 percent of GDP and international reserves increased to US$ 112 billion.

These positive developments were supported by the normalization of trade finance and the stabilization of FX market. After some initial disruptions following the introduction of new anti-money laundering and combating financing of terrorism (AML/CFT) controls on cross-border payments in November 2022, the improved compliance with the new system and the Central Bank of Iraq (CBI)'s initiatives to cut processing time led to a recovery in trade finance in the second half of 2023. This ensured private sector access to foreign exchange at the official rate for imports and travel purposes.

In the meantime, the fiscal position worsened. Although the expansionary budget was under-executed due to delayed Parliamentary approval, the fiscal balance still declined from a surplus of 10.8 percent of GDP in 2022 to a deficit of 1.3 percent in 2023, due to lower oil revenues and an increase in expenditures by 8 percentage points of GDP, of which salaries and pensions contributed 5 percentage points as the authorities started hiring in line with the budget law.

Overall growth is projected to rebound in 2024 and risks are tilted downwards amid heightened uncertainty. Non-oil growth momentum will continue in 2024. Larger declines in oil prices or extended OPEC+ cuts could weigh on fiscal and external accounts. If regional tensions escalate, a disruption of shipping routes or damage to the oil infrastructure could result in oil production losses that could outweigh the potential positive impact of higher oil prices. In case of a deterioration in domestic security conditions, this could lead to a decline in business sentiment and suspension of investment projects. Over the medium term, non-oil growth is projected to stabilize around 2.5 percent given existing hurdles to private sector development. Furthermore, vulnerability to oil price declines has increased as higher expenditures are projected to push the fiscal break-even oil price above $90 in 2024. Absent new policy measures, the fiscal deficit is expected to reach 7.6 percent in 2024 and widen further thereafter as oil prices are projected to gradually decline over the medium term. As a consequence, public debt would almost double from 44 percent in 2023 to 86 percent by 2029.

Policy Priorities

An ambitious fiscal adjustment would be required to help stabilize debt in the medium term and rebuild fiscal buffers, while protecting critical capital spending. Most of the fiscal adjustment would have to come from reducing current expenditure, especially controlling the wage bill by limiting mandatory hiring and gradually introducing an attrition rule. The authorities should also seek to increase non-oil revenues by broadening the personal income tax base and making it more progressive, reviewing the customs tariff structure, and considering new taxes on luxury items. In parallel, efforts to make revenue and customs administration more efficient should continue. Further savings could be obtained through better targeting social support and increasing cost recovery within the electricity sector. These adjustment measures should provide room for the expansion of the targeted social safety net.

The authorities should also strengthen public financial management and limit fiscal risks. The mission welcomes initial steps towards the establishment of a Treasury Single Account (TSA), which is crucial to improve cash management. Further progress is needed and close cooperation between the CBI and Ministry of Finance will be essential. The next steps are to define TSA design options and complete the bank account census. In future years, overall ceilings on the issuance of guarantees should be specified in the budget law and be enforced. The mission advise against the use of extrabudgetary funds and highlights potential fiscal risks associated with their use. As a second best, it would be important to ensure the Iraq Fund for Development has appropriate governance arrangements, including governing board independence while ensuring transparency of the Fund's activities including by publishing its investment plans in the annual budget documentation and restricting its ability to borrow.

The mission encourages the authorities to build on the CBI welcomed efforts to reduce excess liquidity. The CBI appropriately raised the policy interest rate and reserve requirements, introduced a 14-day CBI bill facility last summer, and scaled back its subsidized lending to the real estate sector. However, monetary policy pass-through has been muted, hampered by large excess liquidity and lack of market incentives in financial intermediaries, especially at state-owned banks. The CBI's ongoing efforts should be supported by consolidating idle government deposits in a TSA, refraining from procyclical fiscal policy, reducing the reliance on monetary finance, and improving public debt management. In parallel, efforts to develop an interbank market with the help of IMF technical assistance should continue. The mission also welcomes the authorities' steps to speed up the digitalization of the economy, reduce the reliance on cash and enhance financial inclusion.

Wide-ranging structural reforms are needed to foster private sector development and economic diversification. Iraq needs higher and more sustainable non-oil growth to absorb the rapidly growing labor force, increase non-oil exports and government revenue, and reduce the economy's vulnerability to oil price shocks. Key reform priorities include:

• Adopting a comprehensive employment strategy aimed at phasing-out mandatory hiring in the public sector, leveling the playing field between public and private jobs, addressing mismatches between educational curricula and the skills needed in the private sector, and strengthening labor market institutions. The strategy should also aim at reducing informality and addressing legal, social, and cultural impediments to women's participation in the workforce.

• Accelerating financial sector reform to improve access to credit. The authorities are committed to modernizing the banking sector and supporting banks' ability to secure correspondent banking relationships and have taken steps towards consolidation of small private banks. Efforts to restructure the two largest state-owned banks should intensify, including by expediting certification of past financial statements and implementation of core banking systems, and enhancing corporate governance in line with best practices.

• Implementing a comprehensive pension reform. This is urgently needed to reduce the overall projected fiscal costs of the public pension scheme, better align the benefits and rules across the public and private schemes, ensure adequacy of pensions and intergenerational equity, and increase the ratio of workers participating in the private pension scheme.

• Combating corruption and improving governance, particularly by strengthening the institutional and legal frameworks needed to ensure the independence of the Integrity Commission and the Board of Supreme Audit, enhancing the publication of assets and conflicts of interests declarations for top level officials, and adopting an updated anticorruption strategy. Further, public procurement and business regulations should also be enhanced. The authorities should also continue to strengthen the AML/CFT framework and its effectiveness, including in the banking sector, guided by the priority actions identified in the MENAFATF Mutual Evaluation that will be concluded in May 2024.

• Removing other hurdles to private sector development by reforming the electricity sector to improve efficiency, cost recovery, and reliable access; simplifying procedures for business registration; and upgrading critical infrastructure.

The IMF staff team stands ready to support the authorities in their reform efforts and would like to thank them for constructive and productive discussions during this mission.

(Source: IMF)