Moody's Rates Iraqi Govt Bonds

Moody's Investors Service has today assigned a provisional rating of (P)Caa1 to Government of Iraq's planned USD-bond issuance, with a stable outlook.

The rating was initiated by Moody's Investors Service and was not requested by the rated entity. It is being assigned ahead of planned issuance of USD-denominated debt by the Iraqi government in the United States under Rule 144A. Moody's expects to remove the provisional status of the rating upon the closing of the proposed issuance and a review of its final terms.

The (P)Caa1 issuance rating reflects the following underlying key factors:

1. Iraq is a sizable economy with robust growth prospects, which are based on the country's large oil wealth, but are counterbalanced by a lack of economic diversification.
2. Very weak institutional strength as reflected in very weak governance indicators and issues regarding the availability of fiscal and economic data.
3. Moderate fiscal fundamentals, as debt-relief since 2004 has lowered the government's debt burden, while at the same time facing challenges from a low oil price environment and rising debt burden.
4. Very high susceptibility to event risk, which is predominantly driven by the challenges posed by deeply entrenched sectarian and ethnic tensions, and the ongoing insurgency by the Islamic State of Iraq and the Levant (ISIL).

RATINGS RATIONALE

Moderate economic strength: a sizable but undiversified economy with robust growth prospects

Iraq is oil-rich and has a lot of potential for economic development and growth. According to the BP Statistical Review of World Energy 2015, Iraq's proven oil reserves were 150 billion barrels in 2014, the fifth largest in the world, accounting for 8.8% of global proven reserves.

Real GDP growth has averaged 7.7% between 2008 and 2013, making it the 15th fastest growing economy in the world based on IMF data. According to Moody's estimates, growth was particularly strong in the oil sector, which expanded by almost 12% on average, whereas non-oil real GDP grew much more slowly, by around 5.5% on average. In 2014, real GDP declined by 2.1%, driven by a sharp contraction in non-oil growth, whereas oil production continued to grow by around 4.5%.