Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to negative rating action are:
- Failure to secure adequate fiscal financing in 2017-18.
- Deterioration in the country's security, particularly if insecurity hinders oil production and exports.
The main factors that could, individually or collectively, lead to positive rating action are:
- A period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and exports and leading to an improvement in Iraq's public and external finances.
- A sustainable improvement in the country's security that allows for stronger non-oil economic development.
KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD52.5/b in 2017 and USD55/b in 2018 (up from USD45.1/b in 2016). We assume that Iraqi oil sells at a consistent discount to Brent. Fitch forecasts Iraqi oil exports (excluding exports from the Kurdish region) to average 3.3m b/d in 2017-18.
Fitch does not incorporate into its fiscal numbers an oil-sharing agreement between the central government and the Kurdish Regional Government, given the patchy track record for implementing this agreement.
(Source: Fitch)
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