IMF OKs Iraq Econnomic reform Program

Easy Bourse, August 4 – The International Monetary Fund said Thursday it approved two reviews of Iraq’s economic reform program, keeping open a precautionary credit line to the government.

The IMF also said Iraq had taken some key reform measures in a tough environment and urged Iraq to continue to keep control of consumer price inflation.

The 15-month program, signed in December, is worth about $706 million in credit from the IMF. The Iraqi government has said it doesn’t plan to draw down the credit. In granting the approval, it waived some end-June 2006 performance criteria, including one covering the handling of revenue of state-owned enterprises, budget accounting and a final audit of the central bank’s 2005 operations.

"The Iraqi authorities have taken important and decisive measures to bring their economic program back on track, although continued progress in the authorities’ reform efforts will remain critically dependent on an improvement in the security situation," the IMF said in a statement.

"Substantial efforts have been made to maintain fiscal discipline and control recurrent spending, despite the difficult environment, and the Central Bank of Iraq’s tightening of monetary conditions constitutes an important step in the right direction."

Ongoing violence and supply disruptions in the economy will continue to put pressure on prices, the IMF said.

"In this context, it is commendable that the Central Bank of Iraq stands ready to further tighten monetary and exchange rate policy to prevent high inflation from becoming entrenched," the IMF said. "Fiscal policy should be supportive by keeping public sector wages and pensions in check."

The government has a long agenda of needed reforms, including those to make the the pension system more affordable, the IMF said. Other priorities are improvements in transparency in the government’s payroll, improvements in managing public spending and working toward a successor to the government’s program for distributing food rations.

"There has been a welcome increase in targeted support for the poor, and reforms in this area will continue to be of central importance, including the development of a better targeted social safety net that will go hand in hand with the reduction in general subsidies," the IMF said.

The IMF called for "good faith" efforts to resolve the remaining debt claims of governments that weren’t part of the Paris Club debt settlement reached in 2004. About two-thirds of Iraq’s $120 billion worth of debt accumulated under Saddam Hussein is held by mostly Gulf countries outside the Paris Club. The Fund noted "excellent" progress in settling Iraq’s private commercial claims.