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Iraq Country Risk Report Q2 2016

  • February 2016
  • -
  • Business Monitor International
  • -
  • 39 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-conqueringthe Anbar province. Iraq will maintain formal unity within a fragilefederalised state over the coming decade, with the Kurdish regionretaining significant autonomy but not outright independence.Stronger headline growth of the Iraqi economy in 2015 will resultfrom accelerating oil exports. Conversely, domestic expansion willbe sluggish and uneven; consumer spending and capital formationwill be hit hard by political instability, and declining oil prices willhinder the government's ability to prop up spending.Major Forecast ChangesThe Iraqi Central Bank will devalue the Iraqi dinar by 7% in H216,as pressures on the country's foreign exchange reserves and on thegovernment's budget become too high, amid low global oil prices.As a result, we forecast the Iraqi dinar to trade at IQD1,265/USDcompared to our previous forecast of IQD1,182/USD.

Table Of Contents

Iraq Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Oil Price Slump, Violence, To Stifle Growth8
The Iraqi economy will grow by a small 03% in real terms over 2016, as oil production plateaus and as low global oil prices limit
government spending and slash capital expenditure Non-oil economic activity will remain flat, as the conflict between Baghdad and
Islamic State prevents manufacturing and agricultural production to recover
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
Dire Times To Continue In 201611
Iraq's fiscal deficit will remain large in 2016, with the government unable to increase revenues amid low oil prices and struggling
to cut current expenditure while fighting Islamic State As a result, public investment will continue falling and public borrowing from
the domestic banking sector will further crowd out private investors, impacting the country's reconstruction and long-term growth
prospects
Structural Fiscal Position 13
TABLE: BREAKDOWN OF REVENUES AND EXPENDITURE13
External Trade And Investment Outlook 14
Further Pain Ahead Amid Low Oil Prices14
Severely impacted by low global oil prices and regional insecurity, Iraq's current account will continue to post large deficits over the
coming years Given the absence of positive prospects for FDI amid a dire operating environment, Baghdad will carry much of the
burden in terms of financing the deficit, resulting in a steady decline in the country's stock of foreign reserves
Outlook On External Position 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE16
TABLE: BREAKDOWN OF IMPORTS IN 201416
Monetary Policy 17
Further Devaluation Ahead17
The 137% devaluation of the Iraqi dinar by the CBI on December 21 will not sufficiently increase the Iraqi government's revenues to
cover the IQD28trn deficit planned for FY2016 As a result, the CBI will engage in further devaluation over 2016, leading to the currency
depreciating by 10% against the US dollar over the next twelve months
TABLE: BREAKDOWN OF EXPORTS IN 201417
Monetary Policy Framework 18
Chapter 2: 10-Year Forecast 19
The Iraqi Economy To 2025 19
Success Story In Jeopardy19
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 FORECASTS19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Sectarian Tensions To Continue, Even Without IS22
The hypothetical removal of IS from Iraq would not lead to sectarian and ethnic tensions suddenly disappearing Rather, confrontation
is likely to increase between Kurdish forces and Baghdad and Shi'a militias once the main security threat is removed In addition, the
Sunni-Shi'a divide will remain high as long as the Sunni minority remains on the side line of federal politics
TABLE: POLITICAL OVERVIEW22
Long-Term Political Outlook 24
Risks Of State Collapse - Scenarios Assessed24
Iraq will maintain formal unity within a more fragile federalised state over the coming decade, but risks that the country will return to
full - blown sectarian civil war are high We believe the 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
TABLE: LONG-TERM SCENARIOS 24
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK 28
Trade Procedures And Governance 29
TABLE: MIDDLE EAST AND NORTH AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK 29
TABLE: IMPORT AND EXPORT DOCUMENTS30
TABLE: TRADE PROCEDURES BREAKDOWN30
Vulnerability To Crime 30
Chapter 5: BMI Global Macro Outlook 35
Global Macro Outlook 35
Downside Risks Gather Momentum35
TABLE: GLOBAL ASSUMPTIONS35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %36
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %37
TABLE: MACROECONOMIC DATA and FORECASTS39

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