According to a report in the Financial Times, investors are turning their attention to Iraq’s debt.
In 2004, after the US invasion of Iraq, the ‘Paris Club‘ of 19 western creditors agreed to forgive roughly 80% of the $37.2bn owed to them.
This deal was used as a template for resolutions with other creditors and prevented the Iraqi government from favouring other countries outside the group.
The paper quotes Gabriel Sterne, senior economist a illiquid debt specialists Exotix, as saying that Iraq’s public and external debt is heading towards a “firmly sustainable footing”, and he forecasts that Iraq’s debt-to-GDP ratio will be less than 40 per cent by the end of 2011, compared with 552 per cent before the Paris Club agreement.
“With oil revenues buoyant and production volumes set to increase, we still think the risk-reward trade-off is acceptable on the eurobonds,” Mr Sterne wrote in a recent note.
Waleed Eedi, a director-general at the central bank of Iraq, put Iraq’s total debt at about $40bn compared with $135bn eight years ago, and said Iraq may sell its first bonds since 2006 next year.
However, Daniel Broby, chief investment officer at London-based Silk Invest, said the yield of about 6.7% just isn’t attractive enough.
There is also the vexed issue of bilateral Arab debt, owed mainly to Kuwait and Saudi Arabia. Mr Sterne says this debt is not being serviced but, equally, neither is it being enforced by the two Arab neighbours.
The economic outlook is based on plans to increase oil production to 12m barrels a day within six years, from the present 2.6m bpd, but many analysts are sceptical that this will be achieved.
The IMF estimates Iraq’s economy will grow 9.6 per cent this year and 12.6 per cent in 2012 as oil production rises. Inflation is forecast at 5 per cent for the next two years.
“It’s a matter of security and once that is solved, really the sky’s the limit in terms of the growth potential for Iraq, in terms of the demographics and the supply-demand issue,” says Sherif Salem, portfolio manager at Invest AD. “It’s going to be a bumpy road in the short term but in the longer term, given Iraq’s importance, it is in people’s interests that Iraq gets through this.”
(Source: Financial Times)