Iraq: 2022 Article IV Consultation-Press Release; and Staff Report

The 2022 Article IV Consultation discusses that Iraq’s economy has been gradually recovering, supported by strong oil revenues and accommodative policies. Domestic inflation has been contained with the pass-through from high global commodity prices muted by domestic food and fuel subsidies. The near-term outlook is positive with high oil revenues expected to produce fiscal and current account surpluses and growth supported by accommodative fiscal and monetary policies. However, the underlying structural imbalances will likely continue to widen, and in the baseline of gradually declining oil prices, fiscal and external deficits are projected to re-emerge in the medium term. The central bank should closely monitor domestic inflationary pressures and, should they intensify, tighten domestic financial conditions by phasing out its lending initiatives and raising interest rates and reserve requirements. Accelerated efforts are needed to upgrade public financial management, mobilize non-oil revenues, reduce the oversized government payroll, enhance the social safety net, improve the electricity sector’s efficiency, and reduce corruption.