'A number of important policy reforms have been implemented in Iraq to facilitate progress toward a more market-oriented economy,' said the report. 'The authorities' policies have succeeded in promoting overall macroeconomic stability despite the difficult security environment.'

GDP per capita is expected to almost double to $1,343 by 2009 up from $780. Oil output will increase to 3.3 million barrels a day (b/d), up from the current figure of about 2.1 million b/d. On the back of the oil hike, government revenues are also expected to almost double to $32,696 million.

State spending will rise to $42,657 million, resulting in a budget deficit of some $9,961 million, with loan interest payments providing the government's biggest financial burden, absorbing about 18 per cent of expenditure.

The report admitted that the security situation was precarious, but stated that it would not affect future growth. 'The authorities have already demonstrated a capacity to plan and implement policies, despite the institutional damage wrought by conflict and past mismanagement and despite the serious security problems,' it said.

In late September, the IMF approved a $436 million aid package to Baghdad to promote reconstruction, the first by an international body to the country since the end of the war (MEED 8:10:04).