The Iraqi economy has not been growing as fast as expected, according to the International Monetary Fund (IMF).
Foreign investment is needed to grow the oil sector, the IMF says.
It blames an expected expansion in oil production that failed to materialise.
The IMF praised the work of the Central Bank of Iraq (CBI) in bringing consumer price inflation down to 46% in June from 65% at the end of 2006.
The CBI has allowed the Iraqi dinar to appreciate by 15% and has raised its key interest rate twice so it currently stands at 20%.
"Despite an unsettled political situation, capacity constraints, and the deterioration in security in 2006, progress has been made in implementing structural reforms, although much remains to be done," the report says.
It calls for a new legislative framework for the oil sector to help encourage foreign investment and bring about the growth in oil production that the IMF had been expecting in 2006.