BAGHDAD, IRAQ – Economic growth of the country is projected to continue amid fiscal expansion, an International Monetary Fund (IMF) team said.
The team said that medium-term vulnerabilities to oil price volatility have increased significantly.
Growth in the non-oil sector has rebounded strongly in 2023 while inflation receded.
Supported by increases in public expenditure and solid agricultural output, real non-oil GDP is estimated to have grown by 6 percent in 2023 after stalling in 2022, the IMF team said.
Headline inflation declined from a high of 7.5 percent in January 2023 to 4 percent by year-end, reflecting lower international food and energy prices, and the impact of the February 2023 currency revaluation.
The current account is expected to have recorded a surplus of 2.6 percent of GDP and international reserves increased to US$112 billion.
These positive developments were supported by the normalization of trade finance and the stabilization of FX market.
After some initial disruptions following the introduction of new anti-money laundering and combating financing of terrorism (AML/CFT) controls on cross-border payments in November 2022, the improved compliance with the new system and the Central Bank of Iraq (CBI)’s initiatives to cut processing time led to a recovery in trade finance in the second half of 2023.
This ensured private sector access to foreign exchange at the official rate for imports and travel purposes.
Overall growth is projected to rebound in 2024 and risks are tilted downwards amid heightened uncertainty.
Non-oil growth momentum will continue in 2024. Larger declines in oil prices or extended OPEC+ cuts could weigh on fiscal and external accounts.
If regional tensions escalate, a disruption of shipping routes or damage to the oil infrastructure could result in oil production losses that could outweigh the potential positive impact of higher oil prices.