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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

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    The risks of the war in Gaza on the Iraqi economy

    Rocky
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    The risks of the war in Gaza on the Iraqi economy Empty The risks of the war in Gaza on the Iraqi economy

    Post by Rocky Sun 26 Nov 2023, 4:16 am

    The risks of the war in Gaza on the Iraqi economy
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    Baghdad today - follow-up
    Today, Saturday (November 25, 2023), Moody's credit rating agency reviewed the risks of the war in Gaza on the Iraqi economy, as it maintained  Iraq's rating at CAA1, with a stable future outlook.
    The agency said in a statement that the classification reflects Iraq's financial and external dependence on hydrocarbons, which may lead to it being affected by fluctuations in oil prices and the risks of transitioning away from carbon.
    Moody's said that "the ongoing conflict between Israel and Hamas" remains primarily focused in Gaza. Regional escalation of the conflict with the participation of Iran and the United States, a scenario that Moody's considers a low possibility at this stage, will have material repercussions for Iraq, through a number of channels.
    More importantly, any escalation of tensions in the Gulf would threaten to disrupt maritime transport routes through the Strait of Hormuz, on which Iraq depends for most of its oil exports.
    She said that oil's dominance of government revenues and exports would imply immediate and significant pressures on public finances and liquidity, with the overall impact depending on how long this disruption lasts. However, Iraq's low reliance on external financing and the buffers provided by rebounding foreign exchange reserves underscore a range of mitigating factors even in this scenario.
    In details, Moody's confirmed that the rating reflects Iraq's economic, financial and external dependence on the oil and gas sector, which leads to significant exposure to oil price fluctuations and the risks of the carbon transition. Very weak institutions and governance constrain the effectiveness of policies, the government's ability to respond to domestic and external shocks, and the competitiveness of the economy.
    The agency's report on its website pointed out that the deep political division, Iraq's vulnerability to geopolitical tensions, and the increasing social pressures resulting from high youth unemployment rates and insufficient access to basic services, are all factors that expose Iraq to the risks of political events.
    The rise in global oil prices led to a major shift in Iraq's financial and external accounts, which supported the reduction of public debt and a noticeable recovery in the position of foreign exchange reserves at the Central Bank of Iraq to record levels. However, an expansionary three-year budget and limited reform will support a steady and renewed deterioration in fiscal metrics, further entrenching Iraq's structural vulnerabilities.
    Iraq's local and foreign currency ceilings remain unchanged, with the economy highly dependent on a single source of revenue, very high political risks and highly unpredictable institutions.
    The report said that Iraq's exceptionally high share of oil revenues in total government revenues (about 90%) supports the high sensitivity of the government's financial accounts to developments in global oil prices and oil production. In the absence of any stabilizing factors, the financial situation and liquidity fluctuate along with oil prices.
    According to Moody's, Iraq remains one of the oil and gas producers most exposed to the risks of the carbon transition due to the dominance of oil in government revenues and exports, in addition to limited capacity to adapt, and as a result of institutional, social and political obstacles to reform.
    Iraq also remains among the countries with the lowest scores on corruption indicators, ranking 157 out of 180 countries surveyed in Transparency International's 2022 Corruption Perceptions Index. Weak public financial management means that the government is vulnerable to fiscal pressures, especially in times of oil price shocks (such as those seen in 2015-16 and 2020), when government revenues weaken and access to external financing is restricted.
    Domestic political and social tensions affect policy effectiveness and public finance outcomes, and progress is likely to remain limited in efforts to diversify the economy, enhance non-oil revenue collection, and address deficiencies in public financial management.
    The new government's agenda focuses on reducing corruption, enhancing economic opportunities, and improving public services. Although these policy areas are considered key to social and economic outcomes in Iraq, according to Moody's, the government's ability to pass structural reforms through a large, but unwieldy, parliamentary coalition is highly uncertain.
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