The UN envoy to Iraq expressed "cautious optimism" about economic and governmental improvements in Iraq in a briefing to the Security Council Tuesday.

"'Are you optimistic or are you pessimistic?' has been the question I have been asked by many. In most I have witnessed in Iraq, there is ground for cautious optimism, provided there is determined leadership within the country and strong cooperation in the region with Iraq," said UN envoy Ad Melkert.

Melkert stressed that political stability was on track in Iraq.

"In departure from decades of authoritarian regime, negotiations between all parties have been now the predominant feature of life," he said.

"Parliament is taking an increasingly important role in decision making -- the time of the one-party system is over."

The envoy also underlined a strong improvement in Iraq's economy, with a reported annual growth of 10 percent with increasing oil revenues.

Direct foreign investments grew by 10 percent from 2009 to 2010 with $42 billion poured into a number of key sectors including construction, electricity, health, agriculture and oil.

Still, Melkert warned of continued threats to the country's stability.

"Reconstruction takes time. There is a need of decisive action against the perpetrators of violence," he added.

Major political, social and economic challenges "that could significantly contribute to reducing the space for extremism including by distributing Iraq's wealth more fairly," need to be addressed, he said.

Melkert concluded by insisting that Iraq's "sustainable engagement by the international community" is needed to help the country reach its "vast potential."

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