IMF urges Iraq to build fiscal buffers

The International Monetary Fund on Tuesday urged Iraq to build up its weak fiscal buffers as the oil producer's economy remains highly vulnerable to the oil market.

Iraq has maintained macroeconomic stability "in a difficult security and political environment," the IMF executive board said.

The board, summing up a review of the Iraqi economy, urged the government to strengthen fiscal buffers and its institutions, citing still-high risks, "including from oil price volatility."

And the board urged a faster pace of reforms for the private, non-oil sector to generate jobs and more inclusive growth.

"Risks to the macroeconomic outlook remain high," the board said, also pointing to delays in oil developments and further deterioration of the security situation.

The assessment came amid a wave of violence in Iraq that has killed 374 people so far this month, according to an official tally.

The IMF assessment followed a recent on-the-ground evaluation of Iraq's economy, known as an Article IV Consultation.

The board called for curbs on current spending -- including public employment, energy subsidies and transfers to state-owned enterprises -- to increase leeway for priority social spending and public investment, and to build up buffers.

Over the medium term, the IMF said, Iraq's outlook will continue to be driven by developments in the oil sector.

Economic growth reached 8.4 percent in 2012 and was expected to rise to 9.0 percent in 2013 as oil production increases to 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, it said, "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," the IMF warned.

"Furthermore, fiscal discipline weakened over the past two years, with poor budget planning and execution, large off-budget spending, and low investment execution rates."

The global lender said the country's 2013 budget includes large unfunded commitments that increase fiscal risks, "including the possible depletion of fiscal reserves, if the budget were to be fully executed."