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Economic prospects in Iraq are improving, the Executive Board of the International Monetary Fund said on Wednesday in its first review of Iraq`s Stand-By Arrangement to support the country`s economic program. The arrangement, worth approximately $746.3 million, was approved in December and is precautionary in nature.

IMF Deputy Managing Director and Acting Chair Takatoshi Kato said that future successes will depend on continued improvement - so the supplementary budget was receiving a significant spending increase.

`After several very difficult years, economic prospects for Iraq are improving and the authorities are persevering with the implementation of their economic program in 2008,` Kato said in a statement. `With the recent improvement in security, oil production and exports are increasing while inflation has been reduced. The strengthened fiscal and external positions offer Iraq a good opportunity to rebuild its institutions and infrastructure in order to achieve sustained higher economic growth. The success of these endeavors will hinge on continued improvements in security, sound management of oil revenues, and implementation of key structural reforms.`

He added that fiscal vigilance must be maintained, and that the Central Bank of Iraq was expected to keep its monetary policy tight in order to better control the currency and avoid overheating the economy. An increase in fuel prices also will subsidize the budget.

`It will be important to step up the pace of structural reform,` Kato added. `Of particular urgency are the early adoption of a comprehensive reform plan for modernizing public financial management, the finalization of the census of public service employees to eliminate ghost workers, and the streamlining of the in-kind Public Distribution System. In the financial sector, restructuring programs for two major commercial banks based on the completed financial and operational audits should be taken forward, and the set of prudential regulations for commercial banks completed. Establishment of a new legislative framework for the hydrocarbon sector will facilitate investments in the sector.`

Progress has been made, Kato added, in strengthening governance and fighting corruption through greater transparency in the oil sector - although the most important step is for the central bank to continue to implement IMF guidelines.