Fitch revises Iraq’s outlook to negative
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Fitch Ratings has revised the outlook on Iraq’s long-term foreign currency issuer default rating (IDR) to negative from stable and affirmed the IDR at B-. The country ceiling has been affirmed at B- and the short-term foreign currency IDR at B.
Fitch Ratings said lower oil prices are driving a significant deterioration of Iraq’s financial position. The budget deficit widened in 2015 to an estimated 8.2 per cent of GDP, due to sharply lower oil prices.
The 2016 budget envisages a larger deficit, but its assumptions of an average oil price of $45 a barrel and 3.6m b/d of crude exports look optimistic. Fitch forecast that Brent crude will average $35 a barrel in 2016, suggesting an Iraqi price of $32 a barrel. Fitch said it forecasts the budget deficit to increase to 15 per cent of GDP in 2016.
Iraq is hoping to revive plans to issue eurobonds of up to $2bn this year. Fitch said this requires finalising a financial support agreement with the IMF.
Government debt is forecast to rise to more than 70 per cent of GDP in 2016-17 compared with 56 per cent of GDP in 2015. This includes funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 24 per cent of estimated 2015 GDP.
“Iraq faces no pressure to repay or service this debt,” Fitch said.
Fitch forecast that government reserves will fall from $53bn at end-2015 to less than $40bn this year.