The Executive Board of the International Monetary Fund (IMF) has approved a credit for Iraq for an amount of US$744 million. The credit is designed to support Iraq's economic program over the next 15 months through March 2009.
Following the Executive Board's discussion of Iraq, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated: "The Iraqi authorities have succeeded in keeping their economic program on track in 2006-07, despite the difficult security and political situation. The tightening of monetary policy and the appreciation of the dinar—along with the maintenance of fiscal discipline and the measures to reduce fuel shortages—have led to a sharp reduction in inflation. Direct budgetary fuel subsidies have been eliminated, except on kerosene, and private fuel imports have been liberalized. The recently enacted amendments to the pension law have made the pension system fiscally sustainable. A new chart of accounts and budget classification have been adopted and the payments system has been modernized.
"Although the security situation has showed signs of improvement in recent months, it remains a major obstacle for investment and reconstruction, hampering oil production and economic growth. Also, much remains to be done to modernize financial management of the government and the central bank, and to reform the banking system.
"The authorities' program for 2008 aims to allocate resources towards investment, including in the oil sector, and to improve the provision of public services, while containing current government spending, notably on the wage and pension bill. The program—which envisages an increase in economic growth, a further reduction in inflation, and an increase in net international reserves—will also encompass priority structural reforms, including actions to strengthen administrative capacity and governance.
"The authorities intend to press ahead with structural reforms, including measures to modernize public financial management, complete the census of public service employees, and restructure the two largest public banks. They are determined to avoid the re-emergence of direct fuel subsidies, and plan to develop a rule-based mechanism of adjusting domestic fuel prices. To strengthen governance in the oil sector, the implementation of a comprehensive oil metering system should be finalized as soon as possible. In addition, a new hydrocarbon law needs to be put in place to facilitate investments in the oil sector.
"The Central Bank of Iraq (CBI) will continue to strengthen its accounting and reporting framework by implementing the recommendations of the Fund's Interim Safeguards Assessment Report and the Ernst & Young audit of its 2006 financial statements. The central bank also aims to expand the coverage of the payments system, strengthen the supervisory framework for commercial banks, and adopt reserves management guidelines.
"The authorities' efforts to settle arrears and conclude debt agreements with private and official creditors are commendable. However, further progress is needed to resolve the remaining non-Paris Club claims," Mr. Kato said.