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Iraq Country Risk Report Q4 2016

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

Core Views

Islamic State (IS) will remain well entrenched over the coming year,and Iraqi security forces (ISF) and its allies will focus on re-conqueringMosul and securing Anbar. Iraq will maintain formal unity within afragile federalised state over the coming decade, with the Kurdishregion retaining significant autonomy but not outright independence.Iraq will remain in recession over 2016. Domestic expansion will besluggish and uneven; consumer spending and capital formation willbe hit hard by political instability, and declining oil prices will hinderthe government's ability to prop up spending.

Table Of Contents

Iraq Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Key Risks..5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
No Upside For The Coming Quarters..8
The Iraqi economy will continue to face a perfect storm of political violence and low oil prices over the coming quarters. Output growth in
the hydrocarbon sector will provide some support, but 2016 will mark another year of recession.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS.9
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS.10
Fiscal Policy And Public Debt Outlook 11
Monetising The Deficit In 2016..11
Iraq will face difficulties in financing its 2016 budget deficit with conventional tools. Oil prices will remain low, preventing the country to
tap international markets, while limited political reforms will reduce the scope of IMF assistance. As a result, Baghdad will continue to
monetise its deficit, an unsustainable situation over the longer term.
TABLE: NET EXPORTS FORECASTS..11
FINANCING THE DEFICIT ACCORDING TO THE IRAQI BUDGET, USDMN.12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS..13
TABLE: BREAKDOWN OF REVENUES AND EXPENDITURE.14
External Trade And Investment Outlook. 15
Current Account Deficits To End In 201715
Iraq's current account deficit will bottom in 2016, following the trajectory of oil prices. Foreign aid and investments will be too limited to
cover the country's trade deficit, and the government will therefore continue tapping foreign reserves.
Outlook On External Position. 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE..16
TABLE: CURRENT ACCOUNT BALANCE FORECASTS17
TABLE: BREAKDOWN OF IMPORTS IN 2015.17
TABLE: BREAKDOWN OF EXPORTS IN 2015.17
Monetary Policy.. 18
Peg Will Hold On Falling Imports, Debt Monetisation.18
Iraq will be able to maintain the dinar peg to the US dollar over the coming quarters, despite elevated pressure on the currency. We
have revised our forecast due to a more rapid trade rebalancing than previously anticipated, and the government using monetisation to
cover the budget deficit on a large scale.
TABLE: CHANGE TO FORECAST..18
Monetary Policy Framework 19
TABLE: MONETARY POLICY FORECASTS.19
Chapter 2: 10-Year Forecast. 21
The Iraq Economy To 2025.. 21
Success Story In Jeopardy.21
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 3.6% 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 FORECASTS.21
Chapter 3: Political Outlook. 23
SWOT Analysis 23
BMI Political Risk Index. 23
Domestic Politics . 24
Little Hope For Improvement Despite IS Setback.24
Military progress against Islamic State in Iraq is no panacea for the country's protracted political crisis. Increasing poverty, sectarian
tensions and power struggles are among the main factors that will keep Iraq deeply unstable over the coming quarters and beyond.
TABLE: POLITICAL TABLE.24
Long-Term Political Outlook.. 27
Risks Of State Collapse - Scenarios Assessed.27
Iraq will maintain formal unity within a more fragile federalised state over the coming decade, but r isks that the country will return to
full - blown sectarian civil war are high. We believe theat IS will be defeated by Iraqi forces with support from the United States and Iran,
but this will take more than twelve 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 SCENARIOS28
Chapter 4: Operational Risk. 31
SWOT Analysis 31
Operational Risk Index.. 31
Operational Risk 32
TABLE: OPERATIONAL RISK32
Market Size And Utilities 33
TABLE: MIDDLE EAST AND NORTH AFRICA - MARKET SIZE AND UTILITIES RISK. 33
Labour Costs 37
TABLE: REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE38
Chapter 5:BMI Global Macro Outlook. 41
Global Macro Outlook. 41
Brexit Risk Casts A Long Shadow..41
TABLE: GLOBAL ASSUMPTIONS..41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..43
MACROECONOMIC FORECAST.45
TABLE: MACROECONOMIC DATA and FORECASTS.45

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