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08-07-2015, 11:39 PM
The international credit rating agency: Iraq economic policy can not cope with the volatility of oil prices

2015/8/7 16:00

"B-" [/rtl]Fitch credit rating began to Iraq to cover the classification of "B-" with a stable outlook, pointing out that political instability and security risks in the country's levels of the highest levels among the country classified by the agency.
She added, "Fitch" it expects double-digit deficit in the budget of Iraq in 2015 because of falling oil prices and rising military expenditures and the costs associated with the conflict.

She pointed out that Iraq's dependence on the initial of the highest levels among the countries covered by the ratings agency goods level.
She said the "economic policy in Iraq Limited tools are difficult to face the volatility of oil prices."
Iraqi state and relies on building the annual financial budget by about 90% on imports of oil source, The decline in crude prices since the middle of last year to a significant decline in Iraq's resources as its budget in 2015 amounted to about $ 100 billion with a deficit expected up to 25% .

08-07-2015, 11:40 PM
07 Aug 2015 9:05 AM GMT/UTC
Fitch Assigns Iraq's First Rating at 'B-'/Stable
Link to Fitch Ratings' Report: Iraq - Rating Action Report

Fitch Ratings-London-07 August 2015: Fitch Ratings has assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of 'B-' with a Stable Outlook. The agency has also assigned a Country Ceiling of 'B-' and a Short-term IDR of 'B'.

The ratings reflect the following factors:

Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.

Iraq holds the world's fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world's second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014.

Iraq's fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July. Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014.

Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the 'B' range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016. Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime).

Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.

Fitch estimates Iraq's net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median.

Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015.

The banking sector is under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.

Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.

Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.

The main factors that could, individually or collectively, lead to a positive rating action are:

- A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq's public and external finances.
- A fundamental improvement in the country's security that allows for stronger non-oil economic development.

The main factors that could, individually or collectively, lead to a negative rating action are:

- Further deterioration in the country's security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.
- A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit.

Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017.

Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.

Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government's control.


Primary Analyst
Paul Gamble
Senior Director
+44 20 3530 1623
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Secondary Analyst
Ed Parker
Managing Director
+44 20 3530 1176

Committee Chairperson
James McCormack
Managing Director
+44 20 3530 1286

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

Date of Relevant Rating Committee: 10 July 2015

08-07-2015, 11:41 PM
Iraq is more creditworthy than Greece, says Fitch

08/07/15 15:16 - Updated at 15:19

The US rating agency Fitch has first Iraq assessed. Iraq appears more creditworthy than Greece.

Iraq is more creditworthy than Greece, says Fitch

Iraq has or one of the grimmest economic profiles of all countries that Fitch has rated yet it gets a higher rating than Greece.

Iraq, plagued by sectarian violence and constant attacks by the armed group Islamic State (IS), gets Fitch B- on the report.

That's not a good score, but one that is two steps higher than the CC which Greece is assigned. Due to the uncertainty over the debt obligations to lenders CCC Fitch lowered the credit assessment of Greece by the end of June to CC.

According to Fitch brings to invest in Iraq a 'high risk' it. For Greece, there is a 'very high risk'. Iraq and Greece should it ask to Fitch standards with the 'junk'- or rommel' status.

Fitch makes what Iraq is concerned first and foremost concerned about the political uncertainty and the fiscal position, which has deteriorated significantly since 2013. The banking sector is underdeveloped and fundamentally weak. Moreover, the country suffers from the Middle East with corruption and an inefficient government.