PLEASE READ: IMF Executive Board Concludes 2013 Article IV Consultation with Iraq
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IMF Executive Board Concludes 2013 Article IV Consultation with Iraq
Public Information Notice (PIN) No. 13/58 May 21, 2013
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On May 13, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Iraq.1
Background
Iraq is exceptionally rich in oil, butits economy suffers from severe structural weaknesses, such as a small non-oil sector, a dominating role of the government in all areas of the economy, and a poor business environment. Nevertheless, partly thanks to the increase in oil production since 2003, Iraq has achieved a rise in GDP per capita from $1,300 in 2004 to $6,300 in 2012 in a very difficult security and political context. During this period, Fund program engagement with Iraq was instrumental in maintaining macroeconomic stability—even though progress on structural reforms and job creation was mixed.
REMEMBER THAT A COUNTRY"S CURRENCY RATE OF EXCHANGE IS BASED ON A COUNTRY'S GDP.. WE SEE HERE THAT IRAQ'S GDP HAS INCREASED GREATLY!! THIS IS GOOD NEWS FOR US.. HOWEVER, THEY MUST BE ABLE TO "MAINTAIN" THIS. WE CAN ONLY WATCH THIS PLAY OUT. IF IRAQ'S POLITICAL STABILITY DOES NOT IMPROVE, THEN IT GOES TO FOLLOW THEIR ECONOMY WILL NOT STRIVE THE WAY IT NEEDS TO. NOTICE THE NUMBER OF YEARS ABOVE, 2004 to 2012.. MOST OF THAT TIME, THE US WAS STILL OCUPPYING IRAQ AND SHABIBI WAS STILL GOVERNOR OF THE CBI... ~ RED LILY ~
Recent macroeconomic developments have been broadly positive. Economic growth has reached 8.4 percent in 2012 and is expected to rise to 9 percent in 2013 as oil production increases to 3.3 million barrels per day (mbpd). Inflation has declined from about 6 percent at end-2011 to 3.6 percent at the end of last year, and should increase only slightly in 2013. International reserves of the Central Bank of Iraq (CBI) rose from $61 billion at end-2011 to $70 billion at end-2012, and fiscal reserves held at the Development Fund for Iraq (DFI) have increased from $16.5 billion to $18 billion.
THE MONEY IRAQ IS USING TO REBUILD THEIR COUNTRY'S INFRASTRUCTURE ~ RED LILY ~
Thanks to higher-than-expected oil revenues and the under-execution of the investment budget, fiscal surpluses reached almost 5 percent of GDP in 2011 and 4 percent in 2012. However, with a break-even oil price of about $100, fiscal performance is very vulnerable to oil revenue shocks—either from oil price declines or export shortfalls. Furthermore, fiscal discipline weakened over the past two years, with poor budget planning and execution,large off-budget spending, and low investment execution rates. The 2013 budget includes large unfunded commitments, increasing fiscal risks, including the possible depletion of fiscal reserves, if the budget were to be fully executed.
AFTER READING AS MUCH AS I CAN ABOUT THE IMF AND WORLD BANK, IT IS MY OPINION THEY WILL NOT GIVE IRAQ THE GREEN LIGHT TO RV UNLESS THEY PROVE THEY CAN PROPERLY RUN THEIR COUNTRY AND BECOME RELATIVELY STABLE POLITICALLY.. WITH PIPELINES BEING SABOTAGED OR SHUT DOWN DUE TO EXPLOSIVE DEVICES OR BECAUSE THE CENTRAL GOVERNMENT WILL NOT PAY OIL DUES, WHY SHOULD THEY? This is only my opinion. I AM NO EXPERT. DO NOT LOSE HOPE. ~ RED LILY ~
The policy of a de facto peg to the U.S. dollar provides a key nominal anchor to the economy, and the nominal exchange rate in the official market has remained stable since 2010. However, since late 2011, the authorities enforced existing exchange restrictions and introduced new restrictions in response to concerns about money laundering and illegal foreign exchange outflows related to the increased demand for foreign exchange. As a result, the spread between the official rate and the parallel market rate—which had been up to that point below 2 percent—started to climb, passing 9 percent in May 2013.
WE WANT TO SEE THIS GO IN THE OTHER DIRECTION!!! THIS IS WHAT SHABIBI WAS TALKING ABOUT IN THE ARTICLE I POSTED THE OTHER DAY.. ~ RED LILY ~
Over the medium term, Iraq’s macroeconomic outlook will continue to be driven by developments in the oil sector. Staff projects that oil production will rise gradually by about 400-500 thousand barrels per day per year, reaching 5.7 mbpd by 2018. Overall, growth is projected to remain above 8 percent and inflation at 5–6 percent over the medium term.
Risks to the macroeconomic outlook remain high. They include (a) weak policy implementation, particularly in the fiscal area;
SO PLEASE UNDERSTAND THIS, THE IMF NOT ONLY LOOKS AT THE "ECONOMY"... They look at ALL THINGS THAT MAY EFFECT THE ECONOMY AS WELL~~ "WEAK POLICY IMPLEMENTATION" could be implementing ,UCH NEEDED BANKING LAWS AND TARIFF LAWS... THE POLICY OF POWER SHARING... THE POLICY OF THE DEMOCRATIC PROCESS ETC... ~ RED LILY ~
(b) further deterioration of the political and security situation;
IT IS DANGEROUS OVER THERE. NOT MANY PEOPLE OR COMPANIES WANT TO RISK THEIR LIVES TO MAKE MONEY... NOT MANY COMPANIES WANT TO INVEST IN A COUNTRY THAT IS CONSTANTLY BLOWING THINGS UP.. I realize that is a way of life for them over there BUT there is NO DOUBT things have gotten worse since we pulled out INSTEAD OF remaining relatively stable. COMMON SENSE. ~ RED LILY ~
(c) a larger-than-projected decline in global oil prices; and (d) delays in developing Iraq’s oil fields and oil export capacity, possibly due to security issues but also insufficient investment in oil infrastructure. These risks can translate into lower oil revenues, deterioration in the fiscal position, pressures to use CBI reserves for fiscal purposes, and higher inflation.
"INSUFFICIENT INVESTMENT": ASK YOURSELF THIS QUESTION.... Would you want to set up shop in a country, INVESTING YOURSELF/COMPANY, in a country, where you may get bombed? AND, if your company did get bombed, would you not want LAWS IN PLACE that, AT THE VERY LEAST, WOULD OFFER SOME SORT OF COMPENSATION TO YOU IF THAT HAPPENED??
"EXPORT CAPACITY": IM SURE THEY NEED TO PUT UP MORE OIL WELLS AND PIPELINES ETC... HOWEVER, think about the IMPORTS AND EXPORTS..... THEY HAVE YET TO AMEND THEIR TARIFF LAWS AND THIS HAS BEEN A REQUIREMENT FROM THE BEGINNING. YET THEY HAVE NOT MOVED ON THIS ISSUE. THERE HAS BEEN LOTS OF TALK, BUT NOTHING SOLID PASSED AS LAW TO MEET THE REQUIREMENTS AS PUT FORTH BY THE IMF, WTO, WB, & UN. ~ RED LILY ~
Executive Board Assessment
Executive Directors commended the authorities for maintaining macroeconomic stability in a difficult security and political environment. With risks remaining high, including from oil price volatility, they stressed the need to build fiscal buffers and further strengthen the institutional framework. They urged the authorities to step up reforms to develop the private non oil sector to help generate employment and inclusive growth.
Directors emphasized the need to implement sustainable fiscal policies and address risks from oil revenue volatility. Rationalizing current spending—including public employment, energy subsidies, the Public Distribution System, and transfers to state owned enterprises—is needed to create space for priority social spending and public investment and to accumulate buffers. Enhancing public financial management and avoiding quasi fiscal operations by the state owned banks are also crucial. Directors noted that fiscal rules could provide a framework for fiscal policy over the medium term.
FISCAL RULES... WHO IS GOING TO MAKE SURE THEY FOLLOW THE RULES? They need a constant presence acting as a mediator and educator to the government IMO. They do not UNDERSTAND THE RULES. THEY ARE STILL TOO BUSY ARGUING, FUSSIN, FIGHTING, POINTING FINGERS, THROWING SHOES ETC... ~ RED LILY ~
Directors supported the objective of the Central Bank of Iraq (CBI) to liberalize the foreign exchange market and the recent steps to simplify market regulations. Further measures are needed to liberalize fully the supply of foreign currency, with the objective of lowering the exchange rate spread, removing distortions, and complying with Article VIII of the Fund’s Articles of Agreement.
Directors considered that strengthening the Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework, in line with the Middle East and North Africa Financial Action Task Force (MENA FATF) recommendations and FATF standards, would be more effective than restricting foreign exchange in curbing money laundering and terrorist financing.
Directors agreed that a stable exchange rate, supported by a high level of international reserves, provides a valuable anchor in an uncertain environment. They agreed that the two tier architecture of prudent management of CBI reserves and use of the Development Fund for Iraq (DFI) as a de facto oil stabilization fund is appropriate. They urged the authorities to continue to rely on the DFI to help stabilize government spending and ensure oil revenue transparency.
Directors highlighted the importance of a stable financial sector in developing the private sector and diversifying the economy, and were encouraged by recent progress in strengthening banking supervision and restructuring the Rasheed and Rafidain banks. They encouraged the authorities to ensure a level playing field for public and private banks by opening to private banks access to government business.
More broadly, Directors emphasized that fostering growth in the private non oil sector requires improving the business environment, investing in infrastructure and social capital, reforming state owned enterprises, and enhancing public service delivery. Judicious use of the country’s oil wealth can help address these pressing challenges.
Improving the authorities’ capacity to implement reforms will also be critical.
PLEASE READ: IMF Executive Board Concludes 2013 Article IV Consultation with Iraq
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