WASHINGTON – Despite the insurgency and slow pace of reconstruction, Iraqi authorities have achieved some economic stability and started some reforms but need to do more, the International Monetary Fund (search) said Tuesday. It was its first formal report on the nation's economy in 25 years.
"The outlook for the medium term is reasonably optimistic, but the security situation has to improve," said Lorenzo Perez (search), a senior official in the IMF's Middle East and Central Asia department.
The IMF provides annual economic report cards to its 184 members. The last such consultation for Iraq was in 1980.
The IMF's 24-member board said resumption of formal economic contacts with Iraq "represents a further important milestone in Iraq's relations with the fund and in its reintegration into the global economy."
The report said the pace of reconstruction and recovery in Iraq will depend to a large extent on how the political and security situation evolves.
The main author of the report, Adam Bennett, said the oil sector, which accounts for more than three-quarters of Iraq's economy, has recovered strongly and production is approaching prewar levels of 2.5 million barrels a day.
He said oil production "was not at the level we had hoped, but this is not surprising, given the insurgency. We expect production to grow."
The report said non-oil gross domestic product "is estimated to have expanded more moderately in 2004 as lack of security, electricity shortages and poor communications hampered the recovery in private sector activity. Some state-owned enterprises, mainly in construction and petrochemicals, have reactivated production."
The report said inflationary pressures have subsided since the beginning of 2005, "but the 12-month inflation rate through June of 37 percent still exceeds by a wide margin original projections of 15 percent by the end of 2005."
Both Perez and Bennett said one problem in assessing Iraq's economy was the lack of good statistical data for the non-oil sector.
They said IMF officials have not visited Baghdad (search) for discussions with Iraqi government officials because of the security situation, but there were regular contacts in neighboring capitals, video conferences and e-mail exchanges.
The report said the exchange rate of the Iraqi dinar has come under some pressure in recent months.
"The authorities have responded to this by rationing the supply of dollars on a few occasions," the report said. "The (IMF) staff have urged them to satisfy the demand for dollars in full, in view of the comfortable level of reserves" in the central bank "and to raise interest rates as needed."
Perez said the IMF recommended that Iraq significantly reduce domestic petroleum subsidies, among the highest in the world. He said the subsidies encourage corruption and smuggling.