The IMF data only covers the period up to the end of the previous fiscal year, ending in March 2003, during which time gross domestic product (GDP) is estimated to have contracted by 0.4 per cent due to reduced oil output. On the positive side, non-oil GDP expanded by 5 per cent and the government posted a 25 per cent budget surplus.

Looking at the remainder of 2003, the IMF estimates that non-oil growth accelerated to 6.5 per cent on the back of the fallout from events in Iraq, and that the external current account surplus improved to 19 per cent of GDP as oil receipts soared. The surplus is projected to decline as oil prices finally fall back from their bumper year in 2003. However, GDP growth will benefit from the reconstruction effort in Iraq, the IMF report says.

While the government's fiscal and macroeconomic management was generally commended, the IMF is critical of the pace of structural reform, especially the slow progress of the privatisation law.

The report urges the authorities to move ahead in the meantime with the sale of public sector enterprises which fall outside the law's purview. Urgency is added to the process by labour market pressures created by a rapidly rising population, the IMF says, recommending civil service reforms to link wages to productivity in the public sector.

Banking reforms were singled out for approval, with 2003 seeing the passage of legislation allowing foreign banks to enter the market and regulating the Islamic banking sector (MEED 19:12:03).

The authorities were encouraged to strengthen regulation of capital markets, particularly by the establishment of a strong independent regulator.