Iraq Finance 2014 Iraq’s economy: recent developments and challenges
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Transcript of Iraq Finance 2014 Iraq’s economy: recent developments and challenges
IRAQ FINANCE 2014IRAQ’S ECONOMY:RECENT DEVELOPMENTS AND CHALLENGESCarlo Sdralevich - International Monetary Fund
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
Recent economic developments
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.
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.
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
… 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.
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.
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.
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.
Challenges
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.
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.
…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)
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)
…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
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)
…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.
Weakening policy implementation Deterioration of political and security situation Delays in ramping up oil production Oil market shocks
Risks
Role of policies
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)
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
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
IRAQ FINANCE 2014IRAQ’S ECONOMY:RECENT DEVELOPMENTS AND CHALLENGESCarlo Sdralevich - International Monetary Fund