The IMF forecast Thursday that Iraq's economy would grow around nine percent this year helped by surging oil production, but said Baghdad needs to do more to support private, non-oil business.
Ten years after the launch of the US war on Iraq, the International Monetary Fund said the country had been successful at maintaining macroeconomic stability despite a difficult political and security environment.
The economy grew around 8 percent last year underpinned by rising oil production and "robust" non-oil activity.
Growth should pick up again this year as oil output was predicted to gain about 10 percent to 3.3 million barrels a day.
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Inflation was held down to six percent in 2012 and should fall this year, and the central bank's reserves mounted to $70 billion by the end of last year, the IMF said after a mission to the country.
But the IMF said Baghdad needed better controls of state spending, including ending off-budget disbursements, and it urged the Central Bank of Iraq to step up bank monitoring and slowly liberalize the foreign exchange market.
Moreover, the IMF said, "Iraq will need to address serious medium-term challenges in order to be able to create the conditions for high and sustainable growth that is necessary to improve the living standards of its people."
The economy "continues to suffer from severe structural weaknesses such as a small non-oil sector, high unemployment, public sector dominance, and a weak business environment."
It said the government needs to formulate a long-term strategy to foster the growth of the non-oil sector, opening more opportunities to private business and providing more room for private banks, which it said operate at a disadvantage to weak state-owned banks.