The International Monetary Fund said economic growth in Iraq has been slower than expected as the violence-wracked country struggles to ramp up oil production above the current 2 million barrels a day.

"Economic growth has been slower than expected at the time of the last (IMF economic review) mainly because the expected expansion of oil production has not materialized," the IMF said in its annual review of Iraq's economy.

Iraq's economic prospects hinged critically on an improvement in the security situation, the fund added.

The IMF estimated that Iraq's gross domestic product growth would reach 6.3 per cent in 2007, slightly up from 6.2 per cent in 2006.

The US has added 30,000 troops to its forces in Iraq to try and stem sectarian violence, which has pushed the country to the brink of civil war.

 The US hopes that the troop increase will quell the daily bloodshed in Iraq as the government tries to kick-start the economy and lure investment especially in the oil sector.

The country sits on the third largest oil reserves in the world and depends on oil sales for almost all of its foreign currency earnings. Its oil profits are key to rebuilding the country after years of international sanctions and conflict.

The IMF said that while inflation had come down in Iraq, it remained high, in part because of shortages of fuel products.

It said annual consumer price inflation increased to almost 65 per cent at end-2006 from 31.5 per cent at end-2005 mainly due to supply bottlenecks, in particular of fuel products.

Core inflation, excluding fuel and transportation, was also high at about 32 per cent, it added. Policy efforts to bring inflation under control and ease the fuel shortages have since lowered inflation to about 46 per cent in June 2007, while core inflation decreased to 19 per cent.

"Key to fighting inflation would be to continue restraining public spending pressures and stepping up efforts to reduce shortages, especially by actively supporting private sector fuel imports," the IMF said.

It praised efforts by the authorities to keep current spending in 2007 within the budget's limits and said it supported the government's decision to contain the wage and pension bill.

The IMF said it generally supported the Iraqi central bank's policy of allowing a gradual appreciation of its currency through to the end of 2007, which would help reduce inflation and ease the use of dollars in the economy. Reuters