Iraq has secured a new stand-by arrangement with the International Monetary Fund (IMF) to support its economic programme for the next year, thanks in part to the financial power of its oil.
The arrangement will see about US $744 million made available to Iraqi authorities until March 2009. Approval for this came following the relative success of previous funding arrangements.
“Iraq’s performance under the first stand-by arrangement that covered 2006 and 2007 was very impressive,” said Mohsin Khan, director of the IMF’s Middle East and Central Asia Department, in a conference call with journalists.
“In fact, it is quite remarkable that the programme has held together in light of the very difficult security circumstances on the ground. A major accomplishment was the sharp reduction in inflation, which had jumped to 65% in 2006, in large part because of security-related fuel shortages.
“While the government successfully contained current expenditures, the implementation of the ambitious public investment programme fell short of expectations. This, together with the difficult security situation, prevented oil output and economic activity generally from expanding as much as we had hoped. Our growth estimate of 1.3% for 2007 is therefore quite low.” The rise in oil export prices over the period served to offset some of the production shortfall. This is coupled with the conservative working estimates of the oil price used in IMF budgets, which for 2008 is estimated at a very low US $57 per barrel.
“With the favorable oil price outlook and a gradual increase in oil production and exports, the overall fiscal position should be sustainable,” said Khan. “I think for 2008 we are expecting a significant jump in growth, to be a little over 7%. And I think the big change of course is going to be in oil production. Beyond that, for 2009 we also expect growth to be within the 7-8% range. Of course, all this is conditional on expansion in oil production, and most importantly, on the security situation improving – continuing to improve,” he added.
This higher expectation of growth comes from the fact that oil production is expected to significantly increase.
“Oil is 70% of GDP and we expect oil production to go up by at least 200,000 barrels per day,” said Khan.
“We also think that the government will be – if the security situation continues to improve – able to fulfill its major investment plan in the oil and the non-oil sectors, so we expect a significant jump in the growth rate in 2008, up to over 7% from the low number that we had projected for 2007,” he added.
