Lack of parliamentary approval of Iraq’s 2014 budget is likely to result in a deficit, which will be about five per cent of the gross domestic product.
In a meeting with the International Monetary Fund officials in Jordan recently, the Iraqi government expressed its commitment to present a draft 2015 budget to parliament soon.
The draft 2014 budget was not approved by the Iraqi parliament, and it has triggered a fiscal rule that has partly limited spending this year. However, off-budget spending, particularly on security, has boosted the deficit, which will likely reach about five percent of GDP.
The IMF team discussed with the ministry of finance the challenges related to formulating the draft 2015 budget, which is intended to address the ongoing exceptional spending pressures and the strong decline in oil prices. “As projected financing in 2015 will be limited, we expect the government deficit to decline to less than two percent of GDP,” says a statement from IMF to TRENDS.
Also, the ongoing conflict with the extremist group ISIS is taking its toll on the Iraq’s economy. The IMF says: “Iraq’s GDP is expected to contract by about 0.5 percent this year largely because of the economic effects of the ISIS insurgency.
“We estimate non-oil growth to have deteriorated since the start of the conflict due to the destruction of infrastructure, impeded access to fuel and electricity, low business confidence, and disruption in trade.
“In contrast, as most of the oil infrastructure is in the south of the country and beyond the reach of ISIS, and taking into account the output of Kurdistan Regional Government (KRG), oil production should reach 3.3 million barrel per day (mbpd) in 2014, up from 3.1 mbpd in 2013, with exports remaining at 2013 levels of 2.5 mbpd.
“Next year, growth is projected to rebound to about two percent as oil production and exports increase further, helped by the recent agreement between the central government and the KRG on oil exports from KRG and the Kirkuk oil fields. End-October year-on-year inflation was 0.9 percent outside the conflict-affected provinces,” it says.
An IMF team led by Carlo Sdralevich visited Amman, Jordan to conduct discussions with Iraqi Minister of Finance Hoshyar Zebari, Central Bank of Iraq (CBI) Deputy Governor Zuhair Ali Akbair, and other officials from the ministries of finance and planning and the CBI to assess the country’s recent economic developments. Sdralevich says in a statement: “The central bank has maintained the peg with the U.S. dollar. The spread between the official and parallel exchange rates narrowed to 2.6 percent in September, thanks to steps taken by the CBI towards the liberalization of the foreign exchange market.
“Nevertheless, high imports, combined with declining oil revenues and lower government sales of foreign exchanges to the CBI to finance government spending, contributed to a decline in international reserves from over $77 billion at end-2013 to about $67 billion at end-November. The government also tapped the Development Fund for Iraq (DFI), the balances of which have now been transferred to the CBI; the DFI declined from $6.5 billion at end-2013 to about $4 billion in November.