The International Monetary Fund (IMF) said Iraq's economy remained open to risks stemming from the armed conflict with ISIS and sluggish oil prices, even though medium-term prospects are positive.
"While medium-term growth prospects are positive, the medium-term growth outlook remains exposed to significant risks, arising primarily from oil price volatility, unstable security, political tensions, and weak administrative capacity," the Washington-based organization said in a statement after concluding its second review of the country.
Declining oil prices have caused Iraq’s international reserves to plunge to $45 billion at end-2016 from $54 billion at end-2015, according to the IMF. Increased spending associated with volatile situation and lower oil prices has fueled a government deficit, which widened to 14 percent of gross domestic product (GDP) in 2016 from 12 percent in 2015 despite ongoing fiscal consolidation.
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The fund extended extended a $5.34 billion three year loan to Iraq last year and said that it would allow it to draw the equivalent of $824.8 million from that loan.
The IMF praised Iraqi authorities for maintaining the dinar's peg to the US dollar but said measures to prevent money-laundering, countering the financing of terrorism as well as strengthening anti-corruption legislation needed to be implemented.
The IMF is projecting that Iraq's economy will contract 0.4 per cent in 2017 before rebounding in 2018 when GDP is expected to expand 2.9 per cent.
The fund said that during the second review it had approved Iraq's request for waivers of non-observance and applicability of performance criteria. The IMF noted that the government had achieved further fiscal consolidation in 2016 but at a slower pace than planned because of weak control of investment spending and humanitarian needs.
