Dinar Daddy: News
March 2011 IMF Country Report: Iraq
www.imf.org/external/pubs/ft/scr/2011/cr1175.pdf© 2011 International Monetary Fund March 2011
IMF Country Report No. 11/75
March 4, 2011 March 18, 2011
January 21, 2011
Iraq: Second Review Under the Stand-By Arrangement, Requests for Waiver of
Applicability, Extension of the Arrangement, and Rephasing of Access—Staff Report;
Press Release on the Executive Board Discussion; and Statement by the Executive
Director for Iraq.
In the context of the second review under the stand-by arrangement, requests for waiver of
applicability, extension of the arrangement, and rephasing of access, the following documents have
been released and are included in this package:
The staff report for the Second Review Under the Stand-By Arrangement, Requests for
Waiver of Applicability, Extension of the Arrangement, and Rephasing of Access, prepared
by a staff team of the IMF, following discussions that ended on January 21, 2011, with the
officials of Iraq on economic developments and policies. Based on information available at
the time of these discussions, the staff report was completed on March 4, 2011. The views
expressed in the staff report are those of the staff team and do not necessarily reflect the
views of the Executive Board of the IMF.
An informational annex.
A Press Release summarizing the views of the Executive Board as expressed during its
March 18, 2011 discussion of the staff report that completed the review.
A statement by the Executive Director for Iraq.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Iraq*
Memorandum of Economic and Financial Policies by the authorities of Iraq*
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive
information.
Copies of this report are available to the public from
International Monetary Fund Publication Services
700 19th Street, N.W. Washington, D.C. 20431
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E-mail: publications@imf.org Internet:
www.imf.orgInternational Monetary Fund
Washington, D.C.
INTERNATIONAL MONETARY FUND
IRAQ
Second Review Under the Stand-By Arrangement, Requests for Waiver of
Applicability, Extension of the Arrangement, and Rephasing of Access
Prepared by Middle East and Central Asia Department
(In consultation with other departments)
Approved by Alfred Kammer and David Marston
March 4, 2011
EXECUTIVE SUMMARY
Stand-By Arrangement: A two-year SBA in the amount of SDR 2,376.8 million ($3.7 billion),
equivalent to 200 percent of Iraq’s quota, was approved by the Executive Board on
February 24, 2010. A first purchase of SDR 297.1 million (25 percent of quota) was made
following Board approval and a second purchase of SDR 475.36 million (40 percent of quota)
following completion of the first program review.
Program objectives: In addition to providing temporary budget support, the program aims to
ensure macroeconomic stability during a period of political transition and ongoing reconstruction
of the country, and to provide a framework for advancing structural reforms. The Iraqi economy
was severely affected in 2009 by the decline in oil prices, which caused the external current
account and the fiscal balance to shift into large deficits. Both are estimated to have remained in
deficit in 2010 and are projected to remain in deficit in 2011 and 2012.
Program status: The second review was delayed to allow for discussions with the new
government and until a 2011 government budget had been adopted by parliament that was
consistent with medium-term fiscal sustainability and available financing. Macroeconomic
performance under the program has been satisfactory. Full-year fiscal data are not yet available,
and the authorities are requesting waivers of applicability of the end-2010 fiscal performance
criteria, but all other end-2010 performance criteria were met. Progress in advancing structural
reforms has been uneven, however, reflecting to a large extent the severe capacity constraints.
The authorities remain committed to continue to move forward with the implementation of the
reforms and therefore also request an extension of the SBA to mid-2012 to allow for more time
for their completion, as well as to underscore their commitment to maintain sound economic
policies while ramping up investment in public services and infrastructure. They furthermore
request a rephasing of remaining disbursements as financing needs have shifted from 2010 to
2011. Against this background, staff supports the authorities’ request for completion of the
second review and the release of a disbursement of SDR 297.1 million (25 percent of quota).
This report is based on discussions held during November 15–20, 2010 and January 20–21, 2011
in Amman. Staff met with Deputy Prime Minister for Energy Al-Shahristani, Ministers of
Finance Al-Zubaidy and Al-Essawi, Minister of Oil Luaibi, Governor of the Central Bank of Iraq
(CBI) Al-Shabibi, other senior government officials, and staff of Rafidain and Rasheed banks.
The staff team comprised Mr. van Rooden (head); Ms. George, Ms. Oliva (all MCD),
Mr. Bakhache (SPR), and Mr. Shbaikat (Resident Representative).
2
Contents Page
Executive Summary .................................................................................................................. 1
I.Political and Security Situation .............................................................................................. 3
II. Recent Economic Developments .......................................................................................... 3
III. Policy Discussions .............................................................................................................. 5
A. Fiscal Policy ............................................................................................................. 7
B. Monetary and Exchange Rate Policy ....................................................................... 9
C. Structural Reforms ................................................................................................. 10
IV. Staff Appraisal .................................................................................................................. 13
Tables
1. Selected Economic and Financial Indicators, 2008–12 ...................................................... 16
2. Fiscal Accounts, 2008–12 ................................................................................................... 17
3. Fiscal Accounts, 2008–12 ................................................................................................... 18
4. Summary of Oil Company Operational Accounts .............................................................. 19
5. Central Bank Balance Sheet 2008–11 ................................................................................. 20
6. Monetary Survey, 2008–11 ................................................................................................. 21
7. Balance of Payments, 2008–15 ........................................................................................... 22
8. Reviews and Disbursements under the Proposed Arrangement ......................................... 23
9. Indicators of Fund Credit, 2009–16 .................................................................................... 24
10. External Debt Sustainability Framework, 2006–15 .......................................................... 25
11. Public Sector Debt Sustainability Framework, 2005–2015 .............................................. 26
Figures
1. Violence Indicators; April 2007-January 2011 ..................................................................... 3
2. Macroeconomic Indicators .................................................................................................... 4
3. Average Petroleum Spot Price, January 1, 2008–March 2, 2011 ......................................... 8
Boxes
1. Medium-Term Outlook in Iraq’s Oil Sector ......................................................................... 6
Attachments
I. Iraq: Letter of Intent ............................................................................................................. 27
II. Iraq: Memorandum of Economic and Financial Policies for 2011 .................................... 30
III. Iraq: Technical Memorandum of Understanding .............................................................. 43
3
I. POLITICAL AND SECURITY SITUATION
1. A new government was formed in late December 2010, more than nine months
after the general elections. The March elections had not resulted in a clear majority for any
of the main political blocs, and only after a long process of negotiations was incumbent Prime
Minister Nouri Al-Maliki able to put together a new coalition government. The parties also
agreed on the establishment of a new supreme council that will focus on strategic issues, but
discussions on its precise composition and functions have yet to be finalized.
2. The general trend of a gradually improving security situation continues to be
interrupted by episodes of sectarian violence. The recent events across the Middle East also
sparked demonstrations in Iraq, with people mainly protesting the still prevailing weaknesses
in the delivery of key public services, including electricity, water, health, and education, and
the high rate of unemployment. Although reliable data are lacking, unemployment was
estimated at about 12 percent in 2008. Actual unemployment, particularly among the younger
generation, is likely to be higher, however, as a large part of the adult population has not
entered the labor force.
II. RECENT ECONOMIC DEVELOPMENTS
3. Macroeconomic stability was maintained in 2010, despite a highly uncertain
domestic and external environment. Inflation has continued to be in the low single digits
and the exchange rate has remained stable. The Central Bank of Iraq (CBI) kept its policy
interest rate unchanged at 6 percent, after having lowered it from 7 percent in early 2010,
and the volume of foreign exchange sold by the CBI in the foreign exchange auctions
remained broadly stable at about $3 billion on average per month during the year. With some
increase in export revenues, the CBI’s international reserves rose to just over $50 billion by
end-2010, up from $44 billion at end-2009 and exceeding the target under the SBA.
4
0
1
2
3
4
5
6
7
8
0
20
40
60
80
100
120
140
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
Oil Price and Revenues
Oil Revenues (in
billions USD; RHS)
APSP
(USD/barrel,LHS)
Iraq Oil Export Price
(USD/barrel,LHS)
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8
3
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
Montly Average Oil Production and Exports
(in millions of barrels per day)
Oil Production
Oil Exports
Figure 2. Iraq: Macroeconomic Indicators
-10
-5
0
5
10
15
20
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
Inflation
(in percent, y-o-y)
CPI Headline CPI Core
-25
-20
-15
-10
-5
0
5
10
15
2007 2008 2009 2010
Est.
2011
Proj.
2012
Proj.
2013
Proj.
2014
Proj.
2015
Proj.
Overall Fiscal Balance
(percent of GDP)
1140
1150
1160
1170
1180
1190
1200
1210
1220
0
0.5
1
1.5
2
2.5
3
3.5
4
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
Foreign Exchange Market
CBI Net Forex Sales (in billions USD)
Exchange Rate (Iraqi dinar per USD; RHS)
0
10
20
30
40
50
60
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
International Reserves and DFI
Total DFI (in billions USD)
Gross International Reserves
(in billions USD)
Oil revenues have recovered ... ... although volumes have not increased as targeted.
Underspending led to a smalller deficit in 2010 but
financing needs shift to 2011.
Inflation has remained in low single digits ...
... the exchange rate has stabilized ... ... and overall reserves have increased slightly.
Sources: Iraqi Authorities, and Fund Staff estimates and projections.
5
4. Oil export revenues exceeded projections in 2010, with higher prices offsetting
lower export volumes. Exports averaged 1.85 million barrels per day (mbpd), well below the
authorities’ target of 2.10 mbpd. The shortfall reflected periods of bad weather and attacks on
pipelines, as well as the lack of an agreement with the Kurdish region to secure additional
exports. Export prices were substantially higher, however, averaging just over $74 per barrel
during the year, compared to a budgeted price of $62.50 per barrel. Thus, oil export revenues
reached $50 billion in 2010, compared to a budget forecast of $48 billion, and up from
$39 billion in 2009, but still well below the peak level of $63 billion in 2008.
5. Although full-year data are not yet available, the 2010 government budget deficit
is estimated to have remained well below the original forecast. Notwithstanding the
somewhat higher oil revenues, this is believed to mainly reflect a large under-execution of the
capital budget. Preliminary estimates suggest a 2010 deficit of about ID 10 trillion (equivalent
to 10 percent of GDP), instead of the ID 18 trillion that had been projected in the 2010 budget
(19 percent of GDP). While some under-execution of the capital budget had been expected
given the prevailing constraints in administrative capacity, the long delay in the formation of a
new government appears to have contributed to a much larger degree of under-execution. In
line with this, the balance in the Development Fund for Iraq (DFI) at end-2010 exceeded the
(adjusted) target under the SBA by almost $4 billion.
6. The end-December 2010 performance criteria for which data are available were
met. The authorities are requesting waivers of applicability of the end-December 2010
performance criteria for the central government budget deficit and the central government
current spending bill, for which data is still pending, but for which there is no evidence that
these were not observed. All but one of the end-June performance criteria were observed.
III. POLICY DISCUSSIONS
7. The discussions for the second review focused on speeding up Iraq’s
reconstruction, including the rebuilding of key economic institutions, while maintaining
macroeconomic stability. The authorities stressed that the new government will maintain the
same direction of economic policies as its predecessor and that they will continue to press
ahead with the policies agreed under the SBA. To underline their commitment to sound fiscal
and monetary policies, and recognizing that the implementation of many of the structural
reform measures will require more time given the still large capacity constraints, the
authorities request an extension of the SBA through mid-2012.
8. Policy discussions were framed by Iraq’s medium-term prospects, especially with
regard to the development of its vast hydrocarbon resources. Oil production is set
to increase substantially over the coming years, as the international oil companies that were
awarded development contracts have started their operations. Even so, in the near term, the
increase in exports will be constrained by existing oil infrastructure bottlenecks, including
aging pipelines and export terminals, and limited storage capacity. Several projects are
already underway or planned to increase Iraq’s export capacity in the coming years, and Iraq’s
medium- to long-term prospects therefore continue to look strong.
6
Box 1. Medium-Term Outlook in Iraq’s Oil Sector
In late 2010, the government announced an increase in Iraq’s proven oil reserves from 115 billion barrels to
143 billion barrels, based on new geological studies. This brings Iraq to second place behind Saudi Arabia in
terms of size of proven reserves.
Oil production is projected to increase considerably over the medium- to long-term, following the successful bid
rounds in June and December of 2009 that resulted in eleven development contracts with international oil
companies. Based on the production plans presented by the companies, oil production could increase from
2½ mbpd to close to 13 mbpd in the next seven years.
While these production goals could be feasible in the longer term, the main risks in the coming years will be
bottlenecks in the export infrastructure that will need to be addressed. The authorities are working to upgrade
and expand the country’s oil infrastructure. Additional single point moorings are planned at the Basra oil
terminal, as well as additional pipelines to the terminal, which is Iraq’s largest point of export. Plans also
include the construction of new domestic pipelines to connect the southern fields to the northern pipeline to
Turkey, and a new pipeline to Syria. In addition, large investments in supporting activities are also underway
and planned, including the construction of desalination plants to produce water for injection in the fields, and
storage facilities. These investments will require time to implement, and suggest a more gradual increase in
Iraq’s oil production. Based on more conservative assumptions for the time it will take to expand Iraq’s export
capacity, oil production could still increase to over 5 mbpd by 2017.
2.29 2.38 2.35 3.15
3.55
3.95
4.35
4.85 5.35
2.75
4.45
6.20
8.32
10.49
12.20
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Crude Oil Production Scenarios (in Mbpd)
Conservative Best Case
Sources: Iraqi Authorities; and Fund Staff estimates and projections.
7
A. Fiscal Policy
9. The 2011 budget aims to accelerate investment in public services and in oil
infrastructure, as well as to accommodate additional social safety net and security
outlays, while remaining consistent with medium-term fiscal sustainability and available
financing. Iraq’s rehabilitation needs remain large, particularly to improve public service
delivery and rebuild essential infrastructure, which are critical also to help create a private
sector that can provide sufficient employment opportunities to the country’s large labor force.
The authorities therefore aim to accelerate the pace of investment in 2011 to make up for the
delays in 2010, while recognizing the constraints posed by the limited implementation
capacity. Large investment outlays are also envisaged for the oil sector, including payments to
the international oil companies for recovery of their costs and investments.1
10. Besides a sharp increase in investment, the 2011 budget also envisages an
increase in current spending. While current spending has been nearly constant in nominal
terms over the last three years, the increase in 2011 is largely stemming from higher security
outlays, as Iraq becomes increasingly responsible for its own internal security as U.S. forces
continue to be withdrawn, plus the higher costs of the in-kind Public Distribution System
(PDS)—which is still the main social safety net—as a result of the higher world food prices.2
The authorities also needed to implement an increase in teachers’ salaries that had been
previously approved, but the implementation of which had been postponed due to the difficult
fiscal situation.
11. As in previous years, the 2011 budget is based on a conservative assumption for
oil revenues. While the budget is based on an oil export volume assumption of 2.2 mbpd that
is ambitious in light of Iraq’s current export capacity, the risk of export volumes falling below
this level, as well as the risks posed by the large volatility in world oil prices, are balanced by
a conservative export price assumption of $76.50 per barrel for Iraq oil.3 Based on these two
assumptions, the 2011 budget projects an increase in oil export revenues to about $61 billion.
1 In line with international best practices and to ensure transparency, the authorities decided to present the budget
on a gross basis, with oil paid in-kind to the international oil companies for cost recovery and remuneration
added to both revenues and expenditures.
2 Under the PDS every Iraqi household receives in-kind support (including rice, flour, sugar, milk, and cooking
oil). The World Bank is assisting the authorities in reforming the PDS and strengthening the cash-transfer-based
Social Safety Net administered by the Ministry of Labor and Social Affairs.
3 The budget price of $76.50 per barrel was derived from the early-2011 WEO oil price forecast of $89.50 per
barrel, discounted by a 10 percent uncertainty margin and the quality differential between Iraqi oil and the oil
basket underlying the WEO price.
8
Iraq: Government Finances 2008–14 1/
2008 2012 2013 2014
Est. Est. EBS/10/28 EBS/10/182 Proj. EBS/10/182 Proj. Proj. Proj. Proj.
Total revenues and grants 82.0 54.7 65.3 69.4 66.4 76.0 81.3 93.7 109.1 122.6
Crude oil export revenues 73.9 45.6 56.1 60.0 58.6 65.3 71.9 84.9 100.8 112.7
Other revenues 8.0 9.1 9.3 9.4 7.8 10.7 9.4 8.9 8.3 9.9
Total expenditures 2/ 83.7 68.9 83.2 83.4 76.6 84.9 97.0 101.4 104.6 107.6
Current expenditures 55.9 57.5 57.4 57.6 57.2 58.4 64.0 65.5 68.2 70.6
Capital expenditures 27.3 16.7 25.8 25.8 19.5 26.5 33.1 36.0 36.4 37.0
Statistical discrepancy/returned LCs 0.5 -5.3 … … 0.0 … … … …
Balance -1.7 -14.2 -17.9 -14.0 -10.2 -8.9 -15.7 -7.7 4.5 15.0
In percent of GDP -1.6 -18.7 -19.1 -14.2 -10.6 -8.2 -13.7 -5.8 2.9 8.7
Financing … 14.3 14.0 14.0 10.2 8.9 15.7 7.7 -4.5 -15.0
Use of DFI … 0.4 8.7 6.7 3.0 2.0 5.3 0.5 -2.9 -6.3
Net external (incl. SDR allocation) 3/ … 0.0 3.0 3.6 1.7 2.9 5.4 1.0 … …
MoF deposits with CBI … 12.3 0.0 1.2 -0.7 0.0 1.3 0.0 … …
Other domestic bank financing … -2.4 -1.2 2.0 5.9 1.9 0.0 2.3 … …
Treasury bills … 4.0 3.5 0.4 0.4 2.1 3.7 3.9 … …
Financing gap … 0.0 3.9 0.0 0.0 0.0 0.0 0.0 … …
Memorandum items:
Balance in DFI (excl. FMS) 12.3 11.7 3.0 5.0 8.7 3.0 3.4 2.9 5.8 12.1
MoF deposits with CBI (end of period) 13.5 1.2 1.0 0.0 1.9 0.0 0.6 0.6 … …
Iraqi oil export price ($pb) 91.5 55.6 62.5 73.1 74.2 68.0 76.5 78.0 80.0 80.0
Crude oil exports (mbpd) 1.82 1.88 2.10 1.92 1.85 2.25 2.20 2.55 2.95 3.30
Nominal GDP 103.2 76.3 93.9 98.4 96.1 108.6 114.7 133.8 155.7 172.9
Sources: Iraqi authorities; and IMF staff estimates and projections.
1/ Oil-related public enterprises included on net basis.
2/ Includes statistical discrepancy.
3/ 2010-12 projections include IMF SBA and World Bank DPL disbursements.
2009 2010 2011
(In trillions of Iraqi dinars)
9
12. The projected 2011 budget deficit can be financed. Financial resources, including
from the Fund, that the authorities had expected to use in 2010 are still available and can be
used to finance the larger 2011 deficit. In this context, as financing needs shifted from 2010 to
2011, the authorities request a rephasing of remaining disbursements under the SBA, with the
bulk of the financing to become available in late 2011, if and when needed. As in the first
year of the SBA, in the event that actual oil revenues significantly exceed projections, or if the
capital budget is expected to be considerably under-executed—both to be assessed at the time
of the fourth program review—the authorities would at that time treat the SBA as
precautionary.4
13. The budget deficit is projected to narrow substantially in 2012 and to move back
into surplus in the following years. Over the medium-term, and even with more cautious
assumptions regarding the increase in oil production than those presented in the oil
companies’ production plans, Iraq’s government finances would reach a sustainable position.
Fund staff will provide assistance to the authorities to help model the implications of the
agreements with the international oil companies on government finances, as a key input for
developing a medium-term fiscal framework. The authorities plan to meet with line ministries
in the spring of 2011 and, with the assistance of the Bank and the Fund, build a medium-term
budget strategy aligning policy priorities and expenditure envelopes. This would translate into
budget ceilings for line ministries that will be included in the budget circular for the
preparation of the 2012 budget.
B. Monetary and Exchange Rate Policy
14. The authorities remain committed to ensuring the independence of the CBI. A
ruling by Iraq’s Federal Supreme Court also noted that while the CBI is part of the country’s
executive apparatus, it is by law independent in its decisions and operations.
4 Compared to the oil revenue trigger in the 2010 program, the 2011 trigger does not include a floor under the
export volume below which the trigger would not apply. The authorities intend to treat the SBA as precautionary
if oil revenues, irrespective of the combination of volumes and prices, in the first three quarters of 2011 exceed
the projection of $46 billion by more than $3 billion, or if at the time of the fourth review, the rate of execution
of the capital budget is expected to remain below 90 percent.
Total
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Original program 297.10 475.36 1,069.56 297.10 237.68 2,376.80
Revised 297.10 475.36 297.10 297.10 891.30 118.84 2,376.80
2010 2011 2012
Disbursement Profile (in millions of SDRs)
10
15. The CBI will continue to aim at keeping inflation low, predominantly by
maintaining a stable exchange rate. The low level and the relative stability of inflation do
not suggest any significant over- or undervaluation of the Iraqi dinar. Also, a stable exchange
rate continues to provide a solid anchor for the public’s expectations in an otherwise highly
uncertain environment and in an economy with a very low level of financial intermediation.
Meanwhile, the CBI will continue to keep its policy interest rate positive in real terms. To
enhance mobilization of domestic financing, limitations on state-owned banks’ use of
government deposits for investing in Treasury bills have been reduced, while the pension fund
has also been allowed to invest in Treasury bills and to participate in auctions directly.
C. Structural Reforms
16. Structural reforms under the program aim at improving public financial
management, strengthening governance in the oil sector, and developing the financial
sector. Improving public financial management remains critical to ensure the effectiveness
of government spending, including the delivery of social services. Priority areas include
improving budget preparation, the accounting and reporting framework, and cash
management. Enhancing oil sector governance is key to maximizing resources devoted to
reconstruction and social areas, and aims at maintaining a transparent single oil revenue
account once the DFI ends, completing oil sector metering, and reconciling physical oil flows
with financial flows. Financial sector reforms are important to provide basic financial services
to Iraqi citizens, including private sector lending, and aim at developing a revitalized and
competitive banking sector, including by restructuring the two main state-owned banks.
17. Progress in the last six months in implementing structural reforms has been
uneven. This largely reflects the still severe capacity and security constraints, which also
hamper the effective delivery of technical assistance, but also insufficient coordination and
cooperation between government entities that was aggravated by the political transition
process. Progress has been strongest in those areas that only involve a single institution and
where external assistance has been provided. Progress has been much weaker in areas that
require several institutions to work together or where external assistance has been lacking.
18. Progress is strongest in the area of strengthening program safeguards:
In January 2011, an external auditor completed special audits of the CBI’s net
international reserves (NIR) and net domestic assets (NDA) for end-June 2010, which
included a review of the operations of the Memorandum of Understanding between
the CBI and the Ministry of Finance with regard to IMF disbursements and debt
service obligations and the operational controls over government accounts held at the
CBI (a benchmark for end-October 2010). These audits found only marginal variances
in the numbers, but also that the Ministry of Finance did not have documented
procedures for its accounts with the CBI. The Ministry of Finance and the CBI are
now working to establish protocols for accessing government accounts at the CBI.
11
Total government and public sector deposits 29.2
Central government deposits 11.0
Public sector deposits 16.1
State-owned enterprises 6.7
Pension fund 3.4
Other agencies and local governments 6.1
To be clarified 2.1
Sources: Iraqi Ministry of Finance and Central Bank of Iraq.
Commercial Bank Deposits
of the Central Government and Public Institutions
(June 30, 2010; in trillions of Iraqi dinars)
The CBI has appointed an international audit firm to conduct the audit of its
2010 financial statements. The CBI will provide staff with the draft 2010 audited CBI
financial statements and draft management letter (a new benchmark for end-May
2011). The auditor will also conduct special audits of the CBI’s NIR and NDA as
of December 31, 2010 (also a new benchmark for end-May 2011).
To address remaining safeguards risks that were identified in the safeguards
assessment update the CBI’s internal audit committee now has a majority nonexecutive
membership and operates with a terms of reference in line with Fund
recommendations (a benchmark for end-October 2010). In addition, the CBI is
currently in the process of selecting a reputable accounting firm to review and assist
with strengthening its internal audit function (a benchmark for end-December 2010).
The CBI and the Ministry of Finance amended the Memorandum of Understanding
governing financial relations with the Fund to delegate to the CBI the authority to
appoint its external auditors and to include a provision that requires the Ministry of
Finance to issue promissory notes payable on demand to the Fund promptly following
each disbursement under the program.
19. Strengthening public financial management is proceeding, albeit slowly:
The review of all bank accounts in the banking system that were classified as central
government accounts is nearly completed (a benchmark for end-March 2010). The
ownership of almost 90 percent of these accounts (which totaled almost ID 30 trillion
at end-June 2010) has been clarified. Accounts totaling close to ID 11 trillion
belonging to the central government have been largely reconciled with Ministry of
Finance records. Of the accounts identified as belonging to public entities outside the
immediate central government sector, only a handful were sizable, belonging to the
pension fund and a number of state-owned enterprises and trading companies. The
remainder includes a very large number of relatively small accounts belonging to
agencies and institutions
that are (partially) selffunded
and work at
arm’s length from the
government. Similarly,
the accounts yet to be
clarified also appear to
comprise a large number
of small accounts, of
which many are held at
regional branches of the
two state-owned banks
with whom
12
communication has proven difficult. The authorities are continuing to evaluate these
accounts to determine whether any funds can be returned to the main treasury account.
The Ministry of Finance has been gathering information on the outstanding stock
of advances (a benchmark for end-September 2010). While some progress has been
made, a number of line ministries have yet to report. The authorities aim to complete
the inventory by end-May 2011. In the meantime, the Ministry of Finance will request
the Board of Supreme Audit (BSA) to review the outstanding advances to determine
whether these should be closed with the funds returned to the budget.
The reviews of government bank accounts and the stock of advances clearly show the
need to move toward introducing a single treasury account (STA). The authorities
share this view. As a first step of moving ahead with what will be a lengthy process,
staff of the Fund and the Bank will assist the authorities with advancing the process
for establishing a Financial Management and Information System (FMIS), an
important step in the process of moving toward a STA, by helping to determine a set
of core functionality requirements (a new benchmark for end-May 2011). As a
transition to a STA, the authorities also plan, with the assistance of Fund technical
assistance, to streamline cash management in the short run already by granting a larger
role to the CBI in the Treasury’s banking arrangements and thus to reduce outstanding
cash balances (a new benchmark for end-June 2011).
The Ministry of Finance has completed the new accounting manual, but its distribution
to all spending units (a benchmark for end-December 2010) is pending the completion
of a review of the manual by the BSA. The authorities will distribute the manual as
soon as it has been approved by the BSA.
A review of a number of large 2008 investment projects has yet to be started (a
benchmark for end-September 2010). The authorities noted that the review, which
would aim to distill lessons on how to enhance the quality of future investment
projects, will need to be carried out by the BSA. The review will be conducted during
2011, with the World Bank providing assistance to the BSA to enhance its capacity,
aiming for completion by end-October 2011.
The final fiscal accounts for 2009 are expected to be submitted shortly to the BSA,
after errors in some ministries’ data submissions have been corrected (a benchmark for
end-September 2010). The publication of the 2005–07 audited fiscal accounts (a
benchmark for end-March 2010) is awaiting approval by parliament.
The census of civil servants is still not completed, suffering from a lack of cooperation
from a number of line ministries (a benchmark for end-September 2010). The
authorities are considering options to ensure full cooperation from line ministries.
13
20. Progress continues to be made in improving transparency in the oil sector:
The authorities continue to move ahead with the installation and calibration of oil
metering systems, both at the export terminals and at key transfer points in the
domestic network. All exports via the Basra oil terminal and the Ceyhan pipeline are
metered, accounting for over 95 percent of Iraq’s oil exports. Completing the
installation of domestic metering systems (a benchmark for end-December 2010) will
require more time, given the large number of transfer points. The process is nearly
half-way completed and is expected to be fully completed by end-2011.
The DFI and associated immunities were extended by the UN Security Council to end-
June 2011. The authorities remain committed to establishing a successor mechanism
that includes a single oil revenue account that would be subject to the same principles
of accountability and transparency as currently apply to the DFI. In the meantime, the
authorities continue to make progress in addressing remaining claims and liabilities
from the Saddam-era and will ensure that they maintain appropriate legal counsel to
handle any further claims that may emerge (a new continuous structural benchmark).
As noted above, the authorities are working with staff to model the implications of the
agreements with the international oil companies on government finances.
21. Efforts are also underway to clean up the balance sheets of the two largest stateowned
banks:
The Bank Reconciliation Unit (BRU), with assistance from an external audit firm and
Fund staff, is moving ahead with removing Saddam-era external liabilities from the
balance sheets of Rafidain and Rasheed that were recognized by the government as
external debt in the context of Iraq’s external debt restructuring. The BRU will also
propose a course of action for the remaining external liabilities and non-performing
loans to defunct state-owned enterprises.
22. Data weaknesses remain. While the authorities continue with their efforts to improve
data standards, data become available only with long lags, due to capacity constraints and
security issues. This complicates effective monitoring and analysis.
IV. STAFF APPRAISAL
23. The authorities have been successful at maintaining macroeconomic stability
under very difficulties circumstances. Although fiscal end-year performance criteria cannot
yet be assessed due to the long data lags, macroeconomic policies appear to have been on
track. Macroeconomic stability is one of the key conditions for the development of a vibrant
economy that can provide sufficient employment opportunities for Iraq’s large labor force.
14
Thus, the authorities’ continued commitment to maintaining sound fiscal and monetary
policies is to be welcomed
24. Staff supports the CBI’s policy of managing the exchange rate of the Iraqi dinar
to keep inflation low. A stable exchange rate continues to provide a solid anchor for the
public’s expectations in an otherwise highly uncertain environment. Over time, rising oil
revenues could put upward pressure on the real exchange rate, which would warrant allowing
greater exchange rate flexibility. Staff also welcomes the authorities’ continued commitment
to safeguard the independence of the CBI, which is critical for maintaining confidence in the
Iraqi dinar.
25. The 2011 budget appropriately balances the need to accelerate Iraq’s
reconstruction with the need to return to a sustainable fiscal position in the coming
years. Much remains to be done to improve public service delivery and rebuild and expand
essential infrastructure, including in the oil sector. The authorities, however, will also need to
ensure the quality of the capital spending, and the investment review would help in this
regard. The 2011 budget deficit can be financed and, with the projected increase in oil
production, the budget is projected to gradually shift back to a surplus position—especially if
oil prices remain around current levels—in the coming years. This will allow the authorities to
rebuild financial buffers. In this regard, the authorities will need to start work on creating a
sound institutional framework for managing Iraq’s sovereign wealth in the longer run.
26. Efforts to rebuild key economic institutions, including those needed for private
sector development, and to improve governance will need to be accelerated, however.
Progress is hampered by the severe capacity constraints, and complicated further by the
fragile, albeit gradually improving, security situation, which also hampers the effective
delivery of technical assistance. Concerted strong efforts by the authorities and the
international community are needed to speed up the reform process, including improved
coordination and cooperation between the various government entities. Efforts are also
needed to improve the quality and timeliness of economic data, as weaknesses hamper
analysis and policy formulation.
27. While Iraq’s prospects are positive, risks remain large. Risks and uncertainties
continue to cover a broad range, from political instability and a deteriorating security
situation, to delays in the development of Iraq’s oil fields and volatility in oil prices.
28. Staff recommends that the second review under the SBA and the financing
assurances review be completed. Staff believes that the program remains on track,
particularly given the strong macroeconomic performance and despite the uneven progress in
the implementation of structural reforms. The authorities remain strongly committed to the
program, as demonstrated by the policies and measures described in the attached Letter of
Intent. In this regard, staff recommends the approval of the requested waivers of applicability.
Staff also supports the authorities’ request for an extension of the arrangement, as the longer
15
time frame would allow for the implementation of the large structural reform agenda, as well
as their request for a rephasing of the remaining disbursements as they would be better
attuned to Iraq’s financing needs and contribute to an improved capacity to repay. Staff
furthermore believes that Iraq continues to make best efforts to reach bilateral agreements on
its arrears to non-Paris Club creditors and that the authorities have been negotiating in good
faith to resolve the remaining arrears to private creditors, consistent with the Fund’s policy on
lending into arrears.
16
Table 1. Iraq: Selected Economic and Financial Indicators, 2008–12
2011 2012
Est. EBS/10/182 Proj. EBS/10/182 Proj. Proj.
Economic growth and prices
Real GDP (percentage change) 9.5 4.2 2.6 0.8 11.5 12.2 11.1
Non-oil real GDP (percentage change) 5.4 4.0 4.5 4.5 5.0 5.0 5.5
GDP per capita (US$) 2,845 2,087 2,626 2,564 2,827 2,983 3,400
GDP (in US$ billion) 86.5 65.2 84.1 82.2 92.9 98.0 114.4
Oil production (In mbpd) 2.29 2.38 2.40 2.35 2.80 2.75 3.15
Oil exports (In mbpd) 1.82 1.88 1.90 1.85 2.25 2.20 2.55
Iraq oil export prices (US$ pb) 91.5 55.6 73.1 74.2 68.0 76.5 78.0
Consumer price inflation (percentage change; end of period) 1/ 6.8 -4.4 6.0 3.3 5.0 5.0 5.0
Core price inflation (percentage change; end of period) 1/ 11.7 6.1 6.0 3.3 5.0 5.0 5.0
National Accounts
Gross domestic investment 28.4 25.7 30.2 24.4 29.6 33.5 32.4
Of which: public 26.4 21.9 26.2 20.3 24.4 28.7 27.3
Gross domestic consumption 54.4 95.3 79.5 77.3 79.7 76.3 71.4
Of which: public 34.6 55.3 47.8 42.8 44.5 38.6 34.7
Gross national savings 41.1 -1.0 15.8 18.2 21.0 22.5 26.8
Of which: public 25.2 -4.3 13.4 8.8 15.2 15.2 20.4
Saving - Investment balance 12.8 -26.6 -14.4 -6.1 -8.6 -10.9 -5.6
Public Finance
Government revenue and grants 79.4 71.7 70.6 69.1 69.7 70.9 70.0
Government oil revenue 72.8 61.5 62.4 62.4 61.5 64.3 64.8
Government non-oil revenue 3.9 7.2 6.5 4.9 6.9 5.5 4.0
Grants 2.7 3.1 1.7 1.7 1.3 1.2 1.3
Expenditure, Of which: 2/ 80.6 93.6 84.7 79.7 77.9 84.6 75.8
Current expenditure 54.2 75.3 58.5 59.6 53.6 55.8 48.9
Capital expenditure 26.4 21.9 26.2 20.3 24.4 28.8 26.9
Primary fiscal balance -0.7 -21.3 -13.1 -9.5 -6.8 -12.5 -4.1
Overall fiscal balance (including grants) -1.2 -21.8 -14.2 -10.6 -8.2 -13.7 -5.8
Memorandum items:
Tax revenue/non-oil GDP (In percent) 4.2 5.2 3.0 3.4 3.9 5.4 5.6
External assets held abroad (Ex. FMS, in US$ billions) 10.3 10.0 4.3 7.4 2.6 2.9 2.5
Total government debt (in US$ billions) 3/ 95.6 93.3 38.9 92.3 41.9 43.6 45.2
Monetary Indicators
Growth in reserve money 4/ 54.5 0.1 6.9 15.2 ... 10.7 ...
Growth in broad money 35.4 26.7 15.0 18.2 ... 22.1 ...
Policy interest rate (end of period) 15.0 7.0 ... 6.0 ... ... ...
External Sector
Current account 12.8 -26.6 -14.4 -6.1 -8.6 -10.9 -5.6
Trade balance 24.5 -11.2 2.0 6.7 2.4 1.3 6.3
Exports of goods 71.7 59.0 61.7 61.8 61.0 63.6 64.5
Imports of goods -47.2 -70.2 -59.8 -55.0 -58.6 -62.3 -58.2
Overall external balance 21.4 -9.8 -7.8 2.8 -4.4 -7.1 -0.7
Gross reserves (In US$ billion) 50.2 44.3 46.6 50.6 45.0 50.5 50.3
In months of imports of goods and services 11.1 9.7 8.3 8.2 7.4 7.5 6.9
Exchange rate (dinar per US$; period average) 1,193 1,170 ... 1,170 ... ... ...
Sources: Iraqi authorities; and Fund staff estimates and projections.
1/ A new CPI and core price index was introduced in 2010, based on the 2006/07 household survey. The new core price excludes
fruits and vegetables, and fuels.
2/ 2008 includes expenditures of 11.4 percent of GDP (ID 12.4 trillion) that are outstanding as advances and letters of credit and
that have been reclassified mostly as investment spending.
3/ Assumes a debt reduction in 2011 by non-Paris Club official creditors, comparable to the Paris Club agreement.
4/ Required reserve ratios were reduced to 25 percent in 2009 (from 75 pecent), and further reduced to 20 percent in April 2010.
2008
(In percent of GDP)
2009 2010
(In percent of GDP)
(In percent of GDP, unless otherwise indicated)
(In percent, unless otherwise indicated)
1 7
Table 2. Iraq: Fiscal Accounts, 2008–12
(In trillions of ID; unless otherwise indicated)
2012
Est. Est. EBS/10/28 EBS/10/182 Proj. EBS/10/182 Proj. Proj.
Revenues and Grants 82.0 54.7 65.3 69.5 66.4 76.0 81.3 93.7
Revenues 79.1 52.4 63.6 67.8 64.7 74.6 79.9 92.0
Crude oil export revenues 73.9 45.6 56.1 60.0 58.6 65.3 71.9 84.9
Transfers from oil-related public enterprises 1.2 1.3 1.4 1.4 1.4 1.8 1.8 1.8
Tax revenues 1.3 1.8 1.2 1.2 1.3 1.7 2.3 2.6
Non-tax revenues 2/ 2.7 3.6 5.0 5.2 3.5 5.8 4.0 2.7
Grants 2.8 2.3 1.7 1.6 1.6 1.4 1.4 1.7
Expenditures 83.2 71.4 83.2 83.4 76.6 84.9 97.0 101.4
Current expenditures 55.9 57.5 57.4 57.6 57.2 58.4 64.0 65.5
Salary and pension 21.1 27.8 28.4 28.5 30.0 30.1 32.2 33.9
Goods and Services 3/ 13.9 14.3 12.8 11.0 11.1 11.6 12.3 12.2
Transfers 16.0 12.7 11.9 13.4 12.1 11.2 14.2 12.5
Social safety net 8.4 5.6 4.3 5.7 5.6 4.1 7.3 6.1
Transfers to SOEs 3.0 3.4 3.0 3.0 2.9 2.6 1.8 1.5
Other transfers 4.6 3.6 4.5 4.8 3.5 4.5 5.1 4.9
Interest payments 0.5 0.4 1.1 1.1 1.1 1.5 1.4 2.3
War reparations 4/ 3.7 2.3 2.8 3.0 2.9 3.3 3.6 4.2
Contingency 0.7 0.0 0.5 0.6 0.0 0.6 0.3 0.4
Investment expenditures 27.3 16.7 25.8 25.8 19.5 26.5 33.1 36.0
Non-oil investment expenditures 23.4 14.1 21.8 21.9 15.7 21.8 25.7 26.3
Oil investment expenditures (including on refineries) 3.8 2.7 4.0 4.0 3.8 4.6 7.1 10.2
Change in outstanding Letters of Credit [+ increase] 5/ ... ... ... ... ... ... ... ...
Returned LCs ... -2.8 ... ... -0.2 ... ... ...
Balance (including grants) -1.2 -16.7 -17.9 -14.0 -10.2 -8.9 -15.7 -7.7
Balance (excluding grants) -4.0 -19.0 -19.6 -15.6 -11.8 -10.3 -17.1 -9.4
Statistical discrepancy 0.5 2.5 … ... 0.0 ... 0.0 0.0
Financing, of which: -1.7 14.2 14.0 14.0 10.2 8.9 15.7 7.7
External financing -0.5 0.4 11.7 10.3 4.7 4.9 10.7 1.5
Assets held abroad 0.3 0.4 8.7 6.7 3.0 2.0 5.3 0.5
Project financing 0.1 1.1 1.2 0.6 0.9 1.1 1.1 2.0
Other financing 6/ 0.0 0.0 3.4 4.5 2.2 2.7 5.0 0.2
Amortization 0.8 1.1 1.6 1.5 1.5 0.9 0.7 1.2
Domestic financing -1.2 13.8 2.3 3.7 5.5 4.0 5.0 6.2
Bank financing -1.2 9.1 0.0 5.0 -0.7 1.9 1.3 0.0
Other domestic bank financing ... 0.7 -1.2 -1.7 5.9 0.0 0.0 2.3
T-bills 0.0 4.0 3.5 0.4 0.4 2.1 3.7 3.9
Financing gap ... ... 3.9 0.0 0.0 0.0 0.0 0.0
Memorandum items:
Security-related expenditure 11.5 9.5 14.4 12.7 10.2 13.9 10.5 14.5
Primary fiscal balance -0.7 -16.3 -16.9 -12.9 -9.1 -7.4 -14.3 -5.5
Non-oil primary fiscal balance -69.3 -59.0 -69.7 -69.4 -64.6 -69.4 -80.1 -82.3
External assets held abroad (Ex. FMS) 12.1 11.7 3.0 5.0 8.7 3.0 3.4 2.9
Average Iraq oil export price (US$/bbl) 91.5 55.6 62.5 73.1 74.2 68.0 76.5 78.0
Crude oil exports 1.82 1.88 2.10 1.92 1.85 2.25 2.20 2.55
GDP Nominal 103.2 76.3 93.9 98.4 96.1 108.6 114.7 133.8
Sources: Iraqi authorities; and Fund staff estimates and projections.
1/ For the program columns (EBS/10/28 and EBS/10/182), revenues and expenditures of the oil-related enterprises have been subtracted from the total reveneue and
expenditure, leaving only the net transfer to the budget. This ensures comparability to the new presentation going forward.
4/ Calculated as 5 percent of oil exports as per U.N. Security Council Resolution 1483 to finance war reparations to Kuwait.
5/ LCs in the Trade Bank of Iraq, full down-payment is customarily required. 2008 LCs and advances to suppliers were re-classified.
2/ For 2010, includes $850m in oil bonuses and $200m in 2011.
2008 2009 2010 1/ 2011 1/
3/ Include goods and services financed by donors, including overhead costs for reconstruction projects.
6/ Includes the $500m in soft loans from oil companies obtaining licenses for 2010, the IMF 2010-11 SBA disbursements and a $500m WB loan under the DPL.
1 8
Table 3. Iraq: Fiscal Accounts, 2008–12
(In percent of GDP)
2012
Est. Est. EBS/10/28 EBS/10/182 Proj. EBS/10/182 Proj. Proj.
Revenues and Grants 79.4 71.7 69.6 70.6 69.1 69.7 70.9 70.0
Revenues 76.7 68.7 67.8 68.9 67.3 68.5 69.7 68.8
Crude oil export revenues 71.6 59.8 59.7 60.9 61.0 60.1 62.7 63.5
Revenues of oil-related public enterprises 1.2 1.7 1.5 1.5 1.5 1.4 1.6 1.3
Tax revenues 1.3 2.4 1.2 1.2 1.3 1.5 2.0 1.9
Non-tax revenues 2/ 2.6 4.8 5.3 5.3 3.6 5.4 3.5 2.0
Grants 2.7 3.1 1.8 1.7 1.7 1.3 1.2 1.3
Expenditures 80.6 93.6 88.7 84.7 79.7 77.9 84.6 75.8
Current expenditures 54.2 75.3 61.2 58.5 59.6 53.6 55.8 48.9
Salary and pension 20.5 36.5 30.2 28.9 31.3 27.7 28.1 25.3
Goods and services (non-oil sector) 3/ 13.5 18.8 13.6 11.1 11.6 10.7 10.2 9.1
Transfers 15.5 16.6 12.6 13.7 12.6 10.3 11.9 9.3
Social safety net 8.2 7.3 4.6 5.8 5.9 3.8 6.3 4.6
Transfers to SOEs 2.9 4.5 3.2 3.1 3.0 2.3 1.1 1.1
Other transfers 4.4 4.8 4.8 4.8 3.7 4.1 4.5 3.7
Interest payments 0.5 0.5 1.1 1.1 1.1 1.4 1.2 1.7
War reparations 4/ 3.6 3.0 3.0 3.0 3.0 3.0 3.1 3.2
Investment expenditures 26.4 21.9 27.5 26.2 20.3 24.4 28.8 26.9
Non-oil investment expenditures 22.7 18.4 23.2 22.2 16.4 20.1 22.4 19.6
Oil investment expenditures (including on refineries) 3.7 3.5 4.2 4.0 3.9 4.0 6.2 7.6
Contingency 0.7 0.0 0.0 0.6 0.0 0.5 0.2 0.3
Change in outstanding Letters of Credit [+ increase] 5/ 0.0 ... … ... ... ... ... ...
Returned LCs ... -3.7 … ... -0.2 ... ... ...
Balance (including grants) -1.2 -21.8 -19.1 -14.2 -10.6 -8.2 -13.7 -5.8
Balance (excluding grants) -3.9 -24.9 -20.9 -15.9 -12.3 -9.5 -14.9 -7.0
Statistical discrepancy 0.4 3.2 … ... 0.0 ... 0.0 0.0
Financing, Of which: -1.6 18.6 14.9 14.2 10.6 8.2 13.7 5.8
External financing -0.4 0.5 12.4 10.5 4.9 4.5 9.4 1.1
Assets held abroad 0.3 0.5 9.2 6.8 3.1 1.8 4.6 0.4
Project financing 0.1 1.5 1.3 0.6 0.9 1.0 1.0 1.5
Other financing 6/ 0.0 0.0 3.6 4.6 2.3 2.5 4.4 0.2
Amortization 0.8 1.5 1.7 1.5 1.5 0.8 0.6 0.9
Domestic financing -1.2 18.1 2.5 3.7 5.8 3.7 4.4 4.7
Bank financing -1.2 12.0 0.0 5.0 -0.7 1.8 1.1 0.0
Other domestic bank financing ... 0.9 -1.2 -1.7 6.1 0.0 0.0 1.7
T-bills 0.0 5.2 3.7 0.4 0.4 1.9 3.2 2.9
Financing gap ... ... 4.2 0.0 0.0 0.0 0.0 0.0
Memorandum items:
Security-related expenditure 11.1 12.5 15.3 12.9 10.6 12.8 9.2 10.9
Primary fiscal balance -0.7 -21.3 -18.0 -13.1 -9.5 -6.8 -12.5 -4.1
Current expenditures (percent of non-oil GDP) 174.7 162.7 160.8 160.8 150.1 149.1 152.2 140.6
Sources: Iraqi authorities; and Fund staff estimates and projections.
1/ For the program columns (EBS/10/28 and EBS/10/182), revenues and expenditures of the oil-related enterprises have been subtracted from the total reveneue and
expenditure, leaving only the net transfer to the budget. This ensures comparability to the new presentation going forward.
4/ Calculated as 5 percent of oil exports as per U.N. Security Council Resolution 1483 to finance war reparations to Kuwait.
5/ LCs in the Trade Bank of Iraq, full down-payment is customarily required. 2008 LCs and advances to suppliers were re-classified.
3/ Include goods and services financed by donors, including overhead costs for reconstruction projects.
6/ Includes the $500m in soft loans from oil companies obtaining licenses for 2010, the IMF 2010-11 SBA disbursements and a $500m WB loan under the DPL.
2008 2010 1/
2/ For 2010, includes $850m in oil bonuses and $200m in 2011.
2009 2011 1/
1 9
Table 4. Summary of Oil Company Operational Accounts
(In trillions of Iraqi dinars)
Proj. Act. Proj. Act. Proj. Act.
Revenue 8.7 8.6 10.7 10.5 9.3 9.8
Expenditure 6.4 6.1 8.4 7.2 7.6 6.1
Net operating surplus 2.3 2.5 2.3 3.3 1.7 3.7
Of which: Net transfer to the budget ... 1.2 ... 1.3 1.4 ...
Source: Iraqi authorities
2/ Actual data is through October.
1/ There are 16 oil sector companies: Northern Oil Company, Maysan Oil Company, Southern Oil
Company, Oil Exploration Company, Iraq Oil Tanker Company, Iraq Excavation Company, Oil Products
Distribution Company, Oil Pipelines Company, Gas Bottling Company, Al Wasit Refineries Company,
Northern Refineries Company, Southern Refineries Company, Southern Gas Company, Northern Gas
Company, Oil Projects Company, Oil Marketing Company. Maysan Oil Company was a new company
set up in 2009.
2008 2009 2010 2/
2 0
Table 5. Iraq: Central Bank Balance Sheet 2008–11
(In billions of Iraqi dinars, unless otherwise indicated)
2010 2011
Dec. Dec. Mar. Jun. Sep Dec. Dec. Dec.
Prel. Prel. Prel. Prel. Prog. Proj.
Net foreign exchange assets 1/ 58,841 49,794 49,341 46,459 54,408 57,191 51,502 59,119
Foreign exchange assets 58,841 51,875 51,357 48,424 56,477 59,239 51,502 59,119
Gold 191 244 246 275 288 311 244 311
Other 58,650 51,631 51,111 48,150 56,188 58,928 51,259 58,808
Foreign exchange liabilities 0 -2,081 -2,016 -1,965 -2,069 -2,048 0 0
Net domestic assets -11,372 -2,283 -6,420 198 -6,555 -2,451 2,430 1,493
Domestic assets -9,532 2,744 2 344 1,953 2,049 2,744 2,630
Net claims on general government -9,536 2,740 -5 344 1,949 2,045 2,740 2,626
Holdings of treasury bills 3,236 3,236 3,236 3,236 3,236 3,236 3,236 2,517
Holdings of discounted treasury bills 719 719 719 721 719 733 719 733
Overdrafts 0 0 0 0 0 0 0 0
Domestic currency deposits -8,577 -1,090 -3,217 -1,472 -1,120 -1,384 -1,090 -384
Foreign currency deposits -4,915 -126 -744 -2,142 -887 -540 -126 -240
Claims on nonbank public institutions 0 0 0 0 0 0 0 0
Claims on commercial banks 4 4 7 0 4 4 4 4
Monetary policy instruments 2/ -4,995 -3,988 -4,119 -1,426 -2,241 -1,467 -1,424 -103
Of which: CBI bills -2,224 -1,184 -1,275 -457 -393 -396 ... ...
Other items net 3,155 -1,040 -2,303 1,283 -6,267 -3,033 1,110 -1,033
Reserve money 47,469 47,510 42,921 46,658 47,853 54,740 53,932 60,613
Currency issued 21,304 24,169 25,500 26,573 26,710 27,507 27,843 31,328
Banks reserves 26,165 23,341 17,421 20,084 21,143 27,232 26,089 29,284
Memorandum items
Reserve money (annual growth, in percent) 54.5 0.1 -2.6 5.8 9.7 15.2 13.5 10.7
Currency issued (annual growth, in percent) 36.3 13.4 10.4 15.1 10.5 13.8 15.2 13.9
Gross foreign exchange assets (in millions of U.S. dollars) 50,206 44,337 43,895 41,388 48,271 50,632 44,019 5 0,529
Foreign exchange liabilities (in millions of U.S. dollars) 0 -1,779 -1,723 -1,680 -1,768 -1,751 0 0
Net foreign exchange assets (in millions of U.S. dollars) 50,206 42,559 42,172 39,709 46,503 48,881 44,019 5 0,529
Gross foreign exchange assets/reserve money (in percent) 124.0 109.2 119.7 103.8 118.0 108.2 95.5 97.5
Exchange rate (end of period) 1172.0 1170.0 1170.0 1170.0 1170.0 1170.0 ... ...
Policy interest rate 15.0 7.0 7.0 6.0 6.0 6.0 ... ...
Sources: Iraqi authorities; and Fund staff estimates and projections.
1/ Valued at market exchange rates.
2/ This mainly represents the ID and US$ overnight standing deposit facilities and CBI bills.
2008 2009
2 1
Table 6. Iraq: Monetary Survey, 2008–11
(In billions of Iraqi dinars, unless otherwise indicated)
2009 2010 2011
Dec. Dec. Mar. Jun. Sept. Dec. Dec.
Prog. Proj. Proj.
Net foreign assets 59,113 55,173 54,004 46,459 59,787 51,773 62,570 64,499
Of which: CBI 58,841 49,794 49,341 46,459 54,408 51,502 57,191 59,119
Net domestic assets -22,238 -8,439 -3,465 4,222 -8,043 411 -7,331 2,943
Domestic claims -26,391 -13,230 -6,367 -9,577 -4,413 -2,699 -5,424 3,040
Net claims on general government -30,791 -18,367 -13,834 -17,189 -11,880 -11,140 -12,825 -7,822
Claims on general government 6,807 7,367 13,298 10,149 13,298 ... ... ...
less: Liabilities to general government -37,598 -25,734 -27,132 -27,338 -25,178 ... ... ...
Claims on other sectors 4,400 5,136 7,467 7,612 7,467 8,441 7,402 10,862
Other Item Net (OIN) 4,153 4,791 2,902 13,799 -3,629 3,111 -1,907 -97
Broad money 36,875 46,734 50,539 50,679 51,745 52,185 55,239 67,442
Currency outside banks 18,492 21,776 22,681 23,895 23,891 24,782 22,993 27,884
Transferable deposits 13,264 18,615 21,395 20,379 21,391 20,552 24,185 29,668
Other deposits 5,119 6,343 6,463 6,405 6,463 6,851 8,062 9,889
Memorandum items
Broad money (percentage growth) 35.4 26.7 32.2 32.3 19.1 21.9 18.2 22.1
M2 velocity (ratio) 2.8 1.6 ... ... ... 1.8 1.7 1.7
Credit to the economy (percentage growth) 54.8 16.7 53.5 51.3 52.4 34.6 44.1 46.8
Credit to the economy (as a percentage of non-oil GDP) 13.7 14.5 ... ... ... 21.6 19.4 25.8
Sources: Iraqi authorities; and Fund staff estimates and projections.
2008