WASHINGTON, Aug 15 (NNN-KUNA) -- For the first time in 25 years, the International Monetary Fund (IMF) has advised Iraq to increase the pace of reconstruction and investment, mainly in the oil sector.
"Directors commended the Iraqi authorities for keeping their economic programme on track by strengthening economic policies and making progress in structural reforms, despite an unsettled political situation and a very difficult security environment," said the IMF in a statement Tuesday summarizing its Executive Board assessment on Iraq's economic performance.
"The expansion of oil production is lagging, and that inflation, while on a downward path, remains high, reflecting in large part continued shortages, notably of fuel products," added the statement.
After a decline in oil production in 2005, economic growth was estimated at nearly 6 per cent in 2006, while maintaining an average annual crude oil production of two million barrels per day since 2004.
The IMF urged the Iraqi authorities to "strengthen the protection of oil installations" and welcomed Baghdad's decision to raise the fuel price to the regional level to avoid direct subsidies on fuel products.
Inflation in Iraq is at 46 per cent in June 2007, the Central Bank of Iraq (CBI) allowed the exchange rate of the Iraqi dinar to appreciate by 15 per cent and the CBI's gross domestic reserves increased to USD 18.7 billion by end of last year.
The Executive Board praised the Iraqi government's fiscal policy in 2007, calling on the CBI to "stand ready to accelerate the pace of appreciation and tighten monetary conditions further if inflation deviates from its downward path and dollarization is not reduced as expected".
"Key to fighting inflation would be to continue restraining public spending pressures and stepping up efforts to reduce shortages, especially by actively supporting private sector fuel imports," added the statement.
This consultation, taking over two years to culminate, advised the Iraqi government to "streamline the tax system with a view to expanding the tax base and improving incentives for economic activity", improve public transparency and accountability, and restructure the banking system.
The IMF linked economic improvement to security condition in Iraq and encouraged Iraq's effort to join the World Trade Organisation (WHO).