TLTP
WASHINGTON
Iraq’s government needs to implement a slew of structural reforms to foster inclusive growth and emerge stronger from the pandemic, as the economy is forecast to shrink 11 per cent this year, the worst contraction in 17 years, because of lower oil output, according to the International Monetary Fund.
The sharp decline in oil revenue is expected to widen the country’s fiscal and external account deficits to 20 per cent and 16 per cent of gross domestic product respectively, the Washington-based lender said on Sunday following a month-long series of talks with Iraqi authorities.
The IMF called on Iraqi authorities to implement wide-ranging structural reforms to strengthen public finances to meet critical health and social expenditure needs, reform the electricity sector, fight corruption and expand institutional capacity.
“The fallout of the Covid-19 pandemic and the sharp decline in oil prices and output have aggravated Iraq’s economic vulnerabilities,” Tokhir Mirzoev, the IMF official who led the mission, said. “A decisive recalibration of near-term economic policies will be critical to ensure macroeconomic stability and protect the vulnerable.”
Iraq, Opec’s second-largest producer, is highly reliant on oil revenue to meet 90 per cent of government expenditure, including $5 billion spent on monthly salaries for public servants. That leaves the government with difficult decisions that could raise the prospect of further civil strife.
The country has 573,622 Covid-19 cases, with the death toll reaching 12,565 as of Sunday, according to Worldometer, which tracks the spread of the virus globally. Some 505,669 have recovered.
The IMF called for a comprehensive package of economic policies to overcome the health crisis as a top priority and to reduce the fiscal and external deficits.
In the next phase of the pandemic, additional fiscal resources will be needed to address the crisis, including the ability to buy and distribute the vaccine widely.
Reducing the fiscal and external imbalances will also be critical in relieving financing constraints and ensuring debt sustainability, while safeguarding international reserves, the IMF said.
Iraq’s 2021 budget should target areas of “fiscal vulnerability”, mainly reversing the “unsustainable expansion of wage and pension bills, reducing inefficient energy subsidies, and raising non-oil revenues”, Mr Mirzoev said.
Protecting vulnerable segments of the population will be of “paramount importance” and requires significantly boosting targeted cash transfers and expanding their coverage, as well as improving other parts of the social safety net, he said.
“Uncertain medium-term oil market prospects and strong population growth further raise the urgency of advancing the reform agenda,” Mr Mirzoev said.
In the finance sector, a “decisive” strategy is needed to reform large state-owned banks and level the playing field, he said. This will allow private sector development and secure financial stability.
Stronger governance controls, better supervision and an international audit of these large state-owned banks are important to provide options for their restructuring, he said.
