Building fiscal buffers has been suggested by IMF to Iraq

On this Tuesday, the International Monetary Fund or IMF has suggested Iraq to build up its weak fiscal buffers as it is considered as the economy of Iraq is highly vulnerable to the oil market.

Iraq is considered as one of the largest oil producers in these days and the economy of the country mostly depends over the oil production. From its last financial budget, it has been cleared that major slash of the revenue of Iraq comes from oil exports.

Executive board of IMF stated that Iraq has been able to maintain a macroeconomic stability, despite having different issues, like – security concerns, political unrest, etc.  It also has been revealed that the board is summing up a report on the economy of Iraq. The organization has urged the government to strengthen fiscal buffers and its institutions, citing still-high risks, "including from oil price volatility."

The board has also suggested Iraq to develop faster paced reform policy for the private, non-oil and other sectors to generate remuneration from that sector. Over dependency on oil revenue is a major concern for the country.

The board said that risks to the macroeconomic outlook remain high. Also due to security problems, major oil output delays should be eradicated swiftly for the economic stability in the country. The assessment came amid a wave of violence in Iraq that has killed 374 people so far this month, according to an official tally.

A recent on the ground evaluation of Iraqi economy has been assessed by the IMF, which is also known as Article IV Consultation. The board has also looked into the current spending of the country, which include - employment, energy subsidies and transfers to state-owned enterprises.

However, the board has remarked that oil sector development is the key for Iraqi economy and there are no doubts on this. The growth of Iraq reached 8.4 percent by the year of 2012 and by the end of 2013, it is anticipated that growth will reach to 9 percent. Meanwhile oil production has increased by 3.3 million barrels per day.

Higher-than-expected oil revenues contributed to fiscal surpluses of almost 5.0 percent of gross domestic product in 2011 and 4.0 percent in 2012.
However, IMF warned, "With a break-even oil price of about $100 (a barrel), fiscal performance is very vulnerable to oil revenue shocks -- either from oil price declines or export shortfalls."

Further it has been concluded by IMF that fiscal discipline has become weakened in the past two years due to poor budget planning and even poorer execution. Large off-budget spending and low investment execution rates are pointed out as prominent problems.

According to the Global Lender, the country’s 2013 budget includes large unfunded commitments, which will lead to the fiscal risks. It concluded, "Including the possible depletion of fiscal reserves, if the budget were to be fully executed."