"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," the IMF said in a review of the Iraqi economy.

Takatoshi Kato, deputy managing director and acting chair of the IMF board, said Iraq is in a fiscal position to rebuild its infrastructure and government institutions to the point that economic growth could be sustained.

The Iraqi government had approved a sizable spending increase in its budget, but the IMF warned fiscal management will require "vigilance" to ensure government funds are serving public needs.

Kato also called on the Iraqi government to secure structural reform to oversee fiscal management.

"Of particular urgency are the early adoption of a comprehensive reform plan for modernizing public financial management, (and) the finalization of the census of public service employees to eliminate ghost workers," Kato said.