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Iraq Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views Islamic State will remain well entrenched over the coming year and Iraqi security forces (ISF) and its allies will focus on reconquering the Anbar province and Mosul. Iraq will maintain formal unity within a fragile federalised state over the coming decade, with the Kurdish region retaining significant autonomy but not outright independence. Iraq will remain in recession over 2016. Domestic expansion will be sluggish and uneven; consumer spending and capital formation will be hit hard by political instability, and declining oil prices will hinder the government’s ability to prop up spending.

Table Of Contents

Iraq Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Still A Recession In 20168
Iraq will remain in recession over 2016 as elevated political instability and low oil prices prevent economic activity and government
spending from picking up However, the hydrocarbon sector will prove resilient, on the back of more consistent payments to International
Oil Cssompanies (IOCs)
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
A Lot More Needed To Avoid Fiscal, BoP Crises11
IMF support and FX reserves will not suffice to cover Iraq's fiscal and external imbalances over the coming years, amid low global oil
prices Nor is the Central Bank of Iraq's (CBI) monetisation of public debt sustainable As a result, the CBI will have to devalue the Iraqi
dinar Furthermore, Baghdad will need to carry out important cuts in spending, and/or receive greater international assistance
Structural Fiscal Position 13
TABLE: BREAKDOWN OF REVENUES AND EXPENDITURE13
Monetary Policy 14
CBI To Follow Fed Hiking Cycle, Further Devalue Dinar14
The Central Bank of Iraq (CBI) will not be able to support the country's ailing economy by easing monetary policy as the US Federal
Reserve further hikes rates over the coming quarters In addition, pressures on the Iraqi dinar will continue to increase while the CBI
buffers grow thinner, compelling the CBI to further devalue the currency by the end of 2016
Monetary Policy Framework 15
KRG Outlook 16
Kurdistan: Fiscal, Political Situations To Worsen16
The Kurdistan Regional Government will continue to face large fiscal deficits over the coming months, bloating the autonomous
government's already large public debt load, and significantly limiting its ability to pay back its arrears As a result, civil servants and
peshmerga forces will remain paid sporadically, increasing the region's social malaise and political crisis
TABLE: RAPIDLY GROWING DEBT17
TABLE: TIMELINE OF TURKEY-PKK RELATIONSHIP18
Chapter 2: 10-Year Forecast 21
The Iraqi Economy to 2025 21
Success Story In Jeopardy21
Iraq's potential as a regional economic outperformer has faded as a result of elevated political instability and we project real GDP
expanding by a yearly average of 36% over the 2016-2025 period The oil and gas sector will be the lifeblood of the economy over this
time frame despite declining oil prices
TABLE: LONG-TERM MACROECONOMIC FORECASTS21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Political Crisis To Benefit IS, Delay Reconstruction24
Political tensions in Baghdad have increased to a new high since the beginning of April, as political parties clash over a government
reshuffle called for by many parliamentarians and the populace While the consequences could be even more dire than we currently
expect, the protracted crisis will delay military progress against Islamic State, reconstruction of war-torn areas and the reintegration of
internally displaced Iraqis
TABLE: POLITICAL OVERVIEW24
TABLE: CABINET RESHUFFLE PROPOSALS 25
Long-Term Political Outlook 26
Risks Of State Collapse - Scenarios Assessed26
Iraq will maintain formal unity in a more fragile federalised state over the coming decade, but risks that the country will return to fullblown
sectarian civil war are high We believe the Islamic State (IS) will be defeated by Iraqi forces with support from the United States
and Iran, but this will take more than 12 months ,given that IS is still well entrenched in the West and North of Iraq, and still controls
Mosul, the country's second largest city The situation in Iraq and in neighbouring Syria will remain the major risk to systemic stability in
the Middle East over the coming years
TABLE: LONG-TERM SCENARIOS26
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Economic Openness 31
TABLE: FREE TRADE AGREEMENTS31
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES32
Availability Of Labour 35
TABLE: MIDDLE EAST AND NORTH AFRICA-AVAILABILITY OF LABOUR RISK 35
TABLE: TOP 10 SOURCE COUNTRIES FOR MIGRANT WORKERS36
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook 41
Tentative Stability, But New Risks Emerging41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43
TABLE: MACROECONOMIC DATA and FORECASTS 45

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