iraq finance 2014 iraq’s economy: recent developments and challenges
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Iraq Finance 2014 Iraq’s economy: recent developments and challenges. Carlo Sdralevich - International Monetary Fund. Iraq’s relations with IMF. Emergency Post-Conflict Assistance (2004) Various Stand-By Arrangements (2005-2013) Latest SBA: February 2010 – February 2013, SDR 1.1 billion - PowerPoint PPT PresentationTRANSCRIPT
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IRAQ FINANCE 2014IRAQ’S ECONOMY:RECENT DEVELOPMENTS AND CHALLENGESCarlo Sdralevich - International Monetary Fund
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Emergency Post-Conflict Assistance (2004) Various Stand-By Arrangements (2005-2013) Latest SBA: February 2010 – February 2013, SDR 1.1 billion Now: Surveillance mode Latest Article IV: July 2013
English
Arabic
Iraq’s relations with IMF
http://www.imf.org/external/pubs/ft/scr/2013/cr13217.pdf
http://www.imf.org/external/arabic/pubs/ft/scr/2013/cr13217a.pdf
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Recent economic developments
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Growth has slowed down as oil production stabilized
2010 2011 2012 2013 20140
2
4
6
8
10
12
14
5.9
8.6 8.4
2.8
6.5
2.4 2.7 3.0 3.0 3.2
GDP growth (%)Crude oil produc-tion (mbpd)
Source: Iraqi authorities, and IMF staff calculations.
Economic Growth
Proj.
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Inflation has remained in the low single digits
Jan-08 Nov-08 Sep-09 Aug-10 Jun-11 May-12 Mar-13 Jan-14 Dec-1402468
1012141618
CPI HeadlineCPI Core
Inflation (In percent, y-o-y)
Sources: Central Statistical Organization of Iraq; and IMF staff calculations.
Proj.
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The exchange rate has been broadly stable…
0
50
100
150
200
250
300
350
400
1,1001,1201,1401,1601,1801,2001,2201,2401,2601,2801,3001,320
Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13
Average daily auction volume (In millions of US dollars, RHS)Average priceAverage parallel market price
Source: Central Bank of Iraq.
Foreign Exchange Developments, 2011–2013
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… and the real effective exchange rate has appreciated
Jan-10 Jul-10 Feb-11 Aug-11 Mar-12 Sep-12 Apr-13 Oct-13120
125
130
135
140 REER (based on headline infla-tion)REER (based on core inflation)
Real Effective Exchange Rate(Index, 2007=100)
Source: IMF staff calculations.
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Fiscal performance is weakening
2007 2008 2009 2010 2011 2012 2013 2014-15
-10
-5
0
5
10
0
20
40
60
80
100
120
140Overall Fiscal Balance
(In percent of GDP)
Overall fiscal balanceOil prices (US$ per barrel, RHS)
Sources: Iraqi authorities, and Fund staff estimates and pro-jections.
Proj.
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Medium term:Oil will continue to drive growth
2010 2011 2012 2013 2014 2015 2016 2017 20180
1
2
3
4
5
6
0
20
40
60
80
100
120
140Crude Oil Production (in millions of barrels per day)National Petroleum Export Price (in US$ per barrel)
Crude Oil Production and Export Price
Sources: Iraqi authorities, and Fund staff estimates and projections.
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Oil revenues will support reserves
2010 2011 2012 2013 2014 2015 2016 2017 2018-505
101520253035
0
20
40
60
80
100
120Current Account BalanceDevelopment Fund for Iraq Gross International Reserves (RHS)
Medium-Term Outlook for International Reserves and DFI (In billions of US$)
Sources: Iraqi authorities; and IMF staff calculations.
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Challenges
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A rising GDP has not fully benefitted the population20
04
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000IraqMiddle East and North AfricaMiddle East and North Africa: Oil Exporters
GDP per Capita, 2004–2013(In US Dollars)
Sources: Country authorities, and IMF staff calculations.
2005 2006 2007 2008 2009 2010 2011 20120.00.10.20.30.40.50.60.70.80.91.0
Algeria Bahrain IranIraq Kuwait Libya Oman Qatar Saudi ArabiaUAE Yemen
MENA Oil Exporters: HDI (Human Development Index, closer to 1 = higher development)
Source: UNDP Human Development Re-ports.
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Fiscal vulnerability to oil market shocks, with a high break-even price…
Qatar
Kuwait
Libya UAE
Saud
i Ar...
Oman Iraq
Bahrai
nAlge
ria Iran
Yemen
0
50
100
150
200
250
Break-Even Oil Prices for Selected Middle East Coun-tries, 2012(U.S. dollars per barrel)
Source: MCD REO database.
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…and a rigid spending structure
2010 2011 2012 2013 20140
10
20
30
40
50
60Investment ExpendituresOther Operating Expenditures
Source: IMF staff calculations.
Composition of Government Expendi-tures(In percent of GDP)
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Financial deepening is still low…
Iran Iraq Jordan Qatar Saudi Arabia
UAE Yemen0
20
40
60
80
100
120Bank Deposits Broad Money Credit to Private Sector
Source: IMF staff calculations.
Financial Deepening Indicators for Selected Countries, 2012(In percent of GDP)
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…and the financial sector is dominated by state-owned banks
Source: Central Bank of Iraq.
2010 2011 20120
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
02,0004,0006,0008,00010,00012,00014,00016,00018,00020,000
Total Assets (In billions of Iraqi Dinars)
State banksPrivate banks (RHS)
2010 2011 20120%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Credit to Private Sector / Total Assets
(In percent)State banksPrivate banks
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Foreign direct investment is limited…
KuwaitAlgeria
IraqLibya
OmanUAE
Saudi ArabiaYemen
BahrainSudanQatar
0 1 2 3 4 5 6 7
Sources: Iraqi authorities, and IMF staff calcula-tions.
Foreign Direct Investment, 2012(In percent of GDP)
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…reflecting a weak business environment
Iraq LIC Oil ex-porters
MENAP EM0
20
40
60
80DB-2012 rank5-year improvement
Ease of Doing Business (Percentile rank)
Sources: Doing Business (2006, 2011, 2012); and IMF staff calculations.
5 6 7 8 9 10 11 120
20
40
60
80
Higher GDP per capita →
High
er W
GI p
erce
ntile
→
WGI-4 1/ and GDP per Capita(log PPP)
Sources: Worldwide Governance Indicators (gov-ernment effectiveness, regulatory quality, rule of law and control of corruption).1/ Regulatory quality.
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Weakening policy implementation Deterioration of political and security situation Delays in ramping up oil production Oil market shocks
Risks
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Role of policies
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Fiscal policy Build fiscal buffers in the DFI Rationalize current spending (subsidies,
wages, transfers, PDS) Strengthen fiscal institutions and
processes (chart of account, single treasury account, information and reporting systems)
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Monetary and financial sector
Maintain stable exchange rate Continue liberalization of FX market,
simplify regulations, and strengthen AML/CFT regime
Maintain separate management of CBI and DFI assets
Pursue restructuring of public banks Support development of private banks
by strengthening supervision and ensuring a level playing field
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Conclusions Mixed performance in 2013 This year will be challenging - risks are
high Enormous oil potential can be maximized
through good policies: Sound fiscal management of oil revenues Independence of CBI Stable exchange rate
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IRAQ FINANCE 2014IRAQ’S ECONOMY:RECENT DEVELOPMENTS AND CHALLENGESCarlo Sdralevich - International Monetary Fund