These risks are mainly from oil price volatility, unstable security, political tensions and weak administrative capacity, the IMF found in an assessment of the country.

IMF directors urged Iraq to overhaul its public financial management, including by completing a regular inventory and paying down any arrears, and strengthening expenditure commitment and cash management to prevent the accumulation of new arrears.

They also stressed the importance of structural reforms to improve the investment climate, diversify the economy, and achieve sustainable growth.

The IMF country report said Iraq faced difficulties both from its conflict with the Islamic State group and the plunge in oil prices in recent years.

GDP rose in 2016 by 11% on the back of a 25% increase in oil production, which was little affected by the conflict as the industry is concentrated in other parts of the country.

This year, economic activity was expected to remain muted due to a 1.5% contraction in oil production following an agreement by the Organisation of Petroleum Exporting Countries to reduce oil production, while other industrial sectors showed only a modest recovery.

A combination of weaker oil prices and rising humanitarian and security spending saw the Iraqi government’s deficit increased from 12% of GDP in 2015 to 14% in 2016.

The IMF is supporting Iraq through a three-year stand-by arrangement worth $5.38bn.