Fitch adjusts Iraq's credit rating to stable

Fitch adjusts Iraq's credit rating to stable

 2021-03-24 05:45
Shafq News/ Fitch International Credit Rating Agency has adjusted Iraq's outlook to stable and confirms its rating at B.

The New York-based agency said in a report to Twilight News that it "adjusted Iraq's outlook to a stable from negative, but the dynamics of the political economy continue to hinder policy-making, although the 18.5% devaluation of the Iraqi dinar and the government's approval of the white paper on financial and economic reforms point to some possibilities for measures to put Iraq's finances on a more sustainable footing."

"Iraq's rating is constrained by commodity dependence, weak governance, high political risks and an undeveloped banking sector, while the rating is supported by high foreign exchange reserves and low interest costs on government debt," it said.

The agency projected a budget deficit of about 5% of GDP in 2021, shrinking from an estimated 16.5% of GDP in 2020 due to high oil prices and currency depreciation, which would boost the value of the local currency for oil exports by 5% of GDP. with the rest of the variables fixed. 

"There is a great deal of uncertainty in the outlook because the 2021 budget has not been finalized, amid widely divergent proposals. In 2022, we are expecting a similar deficit, as higher oil exports have offset lower oil prices, while spending has increased marginally only after strong growth in 2021.

Oil export revenues will grow by 75% in 2021, based on a 42% improvement in the price of Iraqi oil to US$55 per barrel (Brent crude at US$58 per barrel), currency depreciation and slightly higher export volumes.

She pointed out that non-oil revenues are likely to increase, but they do not meet budget proposals, which included an upward reform of the payroll tax, a 10% flat tax on pensions, and a new sales tax on alcohol, tobacco and car sales.

"Government debt/GDP rose to 87% in 2020 from 48.5% in 2019, driven by a budget deficit, a 25% decline in nominal GDP and a currency devaluation, adding nearly 10 points in the ratio of government debt/GDP. Foreign currency debt includes an estimated US$40 billion of old debt from the 1980s, which Iraq faces no pressure to service after the 2004 Paris Club Agreement. With the exception of this debt, total government debt/GDP was about 60% at the end of 2020."

Fitch predicted that "government debt/GDP will fall in 2021 to 74%, before gradually rising about 80% in the medium term, due to moderate oil prices and increases in oil production and exports to 4.6 million barrels per day and 3.45 million barrels per day. , respectively, in 2024."

"International reserves remain large, at US$54 billion, although they are down by US$14 billion in 2020. We expect reserves to stabilize in 2021 as oil prices rise and the currency depreciates. However, we expect reserves to fall in 2022 to US$48 billion, iraq's reserves will remain stronger than the average "B" ratio of 4.3 months from CXP and significant in terms of projected government debt depreciation of US$4.7 billion."
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