Government debt is forecast to rise sharply on the back of these deficits, averaging more than 70% of GDP in 2016-17, up from 56% of GDP in 2015. However, this debt stock includes funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 24% of estimated 2015 GDP. Iraq faces no pressure to repay or service this debt. Excluding this, Iraq's government debt would be lower than the 'B' median.
Fitch estimates that the current account swung into a large deficit in 2015, with oil export revenue down by more than 40%. Deficits are forecast in 2016-17, averaging 9% of GDP. This will contribute to further declines in international reserves, which we project to slip from USD53bn at end-2015 to less than USD40bn this year, still covering almost eight months of CXP. We assume the authorities will maintain the dinar's peg to the US dollar, although this could come under pressure.
Iraq's 'B-' IDR also reflects the following key rating drivers:
Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Some progress has been made in pushing back the Islamic State (IS), but IS is expected to retain a significant presence in Iraq, at least in 2016. Sectarian and ethnic tensions continue to undermine political stability, relations with the Kurdish regional government are volatile and Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator. This reflects not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions.
Comments are closed.