Iraq Economy to Surge on a Wave of Oil

Rising oil production in Iraq will help its economy outperform its neighbours this year.

In an optimistic report, the International Monetary Fund predicted that the economy would grow by 6% in 2014, despite the ongoing security challenges in the country.

Deadly sectarian violence has re-emerged in the Arab state over the last year, with hundreds of Iraqis killed each month. Terrorist attacks against civilians have become commonplace in the cities and are likely to rise in the runup to the April elections.

The IMF team met an Iraqi delegation in the Jordanian capital of Amman where they predicted that oil production would hit 3.2 million barrels per day (mbpd) this year, while oil exports could peak at 2.6mbpd.

"In 2013, lower-than-expected oil revenues and increased spending pressures — largely arising from the difficult security situation — weighed on the overall fiscal performance," said Carlo Sdralevich, the IMF's mission chief for Iraq.

"As a result, the budget deficit rose to 6% of GDP for 2013, financed though the Development Fund for Iraq, which declined from over $18bn to $6.5bn in the course of the year."

Sdralevich stressed that Iraq's draft 2014 budget has pencilled in big spending projects on security, social assistance, and transfers to the provinces.

"To preserve macroeconomic stability, planned expenditure commitments should be scaled down, while preserving key social spending. In the longer run, Iraq should strive to manage well its large, and rising, oil revenues by containing current spending and building up fiscal and external buffers," he added.

Sdralevich said the country needed to make reforms to its financial sector and restructure state-owned banks, allowing the private sector a fair opportunity to compete for government business.

Meanwhile, Iraq's central bank continues its drive to reform the financial sector, with a new central bank, commercial bank and payment system in the pipeline.