Fitch Assigns Iraq's First Rating at 'B-'/Stable

[yota691]

Fitch Assigns Iraq's First Rating at 'B-'/Stable

Link to Fitch Ratings' Report: Iraq - Rating Action Report

Fitch Ratings-London-07 August 2015: Fitch Ratings has assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of 'B-' with a Stable Outlook. The agency has also assigned a Country Ceiling of 'B-' and a Short-term IDR of 'B'. 

KEY RATING DRIVERS 
The ratings reflect the following factors: 

Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak. 

Iraq holds the world's fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world's second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014. 

Iraq's fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July. Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014. 

Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the 'B' range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016. Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime). 

Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.

Fitch estimates Iraq's net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median. 

Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015. 

The banking sector is under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.

Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.

Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line. 

RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to a positive rating action are:

- A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq's public and external finances.
- A fundamental improvement in the country's security that allows for stronger non-oil economic development.

The main factors that could, individually or collectively, lead to a negative rating action are:

- Further deterioration in the country's security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.
- A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit. 

KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017.

Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.

Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government's control.

[yota691]

Fitch assigns Iraq a sovereign credit rating
Friday, 07 August 2015


Fitch Ratings has assigned Iraq a long-term foreign currency Issuer default rating (IDR) of 'B-' with a stable outlook. The agency has also assigned a country ceiling of 'B-' and a short-term IDR of 'B'.  No surprise perhaps that political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the country’s 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak. 


Iraq holds the world's fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world's second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014. 

Even so, Iraq's fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict.
Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July.





Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014. 

Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the 'B' range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016.
Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime). 

Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.

Fitch estimates Iraq's net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median. 

Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015. 

The banking sector remains under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.

Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.

Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line. 

Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017. It also assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.

Moreover, the ratings agency assumes ongoing serious security threats, with large parts of the north east outside of the government's control.

 

[newbieDA]

ty Yota!

[easyrider]

good to see they finally got a credit rating.

Edited August 7, 2015 by easyrider

[Flamtap]

Wake me up when the money is rated 'R'

RV or RI

:-)

[climber7]

And so many gurus were stating that a rack would have to have a new rate and that it would be revealed with the credit rating SMH

Iraq--not 'a rack'

Stupid spell check

[MyLadiesDaddy]

Interesting how this news comes out the VERY NEXT DAY after 

 

Abadi directed to postpone the introduction of the new customs tariff

Read more: http://dinarvets.com/forums/index.php?/topic/206368-abadi-directed-to-postpone-the-introduction-of-the-new-customs-tariff/#ixzz3i8p2DZSw

 

Ya gotta wonder what rating they would of got ifn they weren't so ignorant. 

[Officiallytook]

It's OK LB check Kuwaiti credit rating

We're still good fam

[Officiallytook]

We're in the .10c to 1$ range out the gates for sure with the B rating

[blueskyline]

Could someone please open the gate. If you would.

[WheresmyRV?]

Exactly what I was thinking LGD!

[siberian_shaddow]

Much appreciated Yota as always, i just hope they get there sand land together. Or its going to be a long wait, because right now know one wants to play in there sandbox. Come on 2016.

[Laid Back]

Finally a credit rating for Iraq.

This is good news, Iraq continue moving forward in the right direction.!

B- is a Highly speculative credit Rating.

Go Iraq

Go HCL

Go CBI

Go dinar

Go $1:1+

Edited August 7, 2015 by Laid Back

[trident]

Economy Fitch gives Iraq its first credit rating

The ratings agency has given the country a stable outlook and a B- rating, six notches into junk.

The country is planning a $5bn bond issue towards the end of this year.

Fitch is cautious. Very cautious. It says:

Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.

Iraq's fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July.

And if that wasn't enough...

Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.

Iraq, of course, has oil. Lots of it. Indeed, the country has a "commodity dependence among the highest of all rated sovereigns", Fitch says.

The ratings agency is assuming here that the price of Brent holds at an average of $65 a barrel this year, $75 next year, and $80 in 2017. "Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017," it says.

EconomyIraq    ft,com

[jobug38]

So now how about the rv!

[NeedRv]

well if we got one credit rating then the rest are bound to follow soon enough.

 

come on RV... 

[Freedomwish]

B-, not too shabby I guess.  Now, we're all ready for that darn HCL to come into light!  Yep.

[gymrat76541]

Fitch credit rating for the USA is AAA for 2015. How does B- compare?

[pocono]

The article posted by Trident indicates B minus is 6 notches below junk. Anything below BBB is in the junk category.

 

Saleh predicted a B - about 3 months ago so it shouldn't come as a surprise.

[TQueezy]

And this, in no way whatsoever, indicates a revaluation of the Iraqi dinar.

Such a shame. They could do so much better than this if it weren't for cultural infighting and greedy politics.

[yota691]

 

Fitch Iraq begin to cover the classification of B- / stable

 

      Friday   07   August   2015 | 16:07

 

 

 

 

Fitch stressed that "Iraq's dependence on the initial of the highest levels among the countries covered by the ratings agency goods level"

 

 

Fitch credit rating begins Iraq cover the classification of B- with a stable outlook. Agency indicated that political risk and security instability in Iraq levels of the highest levels among the country classified by Fitch, pointing out that they expect a deficit in the double-digit budget of Iraq in 2015 because of falling oil prices and rising military expenditures and the costs associated with the conflict. 
She stressed Fitch that "the level of adoption Iraq on primary of the highest levels among the countries covered by the ratings agency goods, "pointing out that" economic policy in Iraq Limited tools are difficult to face the volatility of oil prices. "

[davis411]

And this, in no way whatsoever, indicates a revaluation of the Iraqi dinar.

Such a shame. They could do so much better than this if it weren't for cultural infighting and greedy politics.

greedy politics, ahhhh come on that does not happen anywhere, i know here our govt never takes, they just give and give, they are

like santa,

hahaha ya santa with horns and alot of coal,

govts will be done one day, i just hope i am around to help with it,

 

look after your fellow man if you can, the world in general is beautiful but is going to hell at the same time

bless all

 

davis

[10 YEARS LATER]

Gee , if we only had a currency

[chinadawg]

Fitch credit rating for the USA is AAA for 2015. How does B- compare?

I guess Iraq just needs to be 18 trillion upside down and they could also be rated AAA...........................If anyone believes this debt ridden country we call the USA CORP is deserving of a AAA RATING I have some ocean front property in Arizona i would like to sell.,,,,,,,,as for as ABADI"s  postponement of the bond sales, I get it, It can"t happen before some kind of increase in value.....I'm still believing we are in a good spot.

[chinadawg]

Fitch credit rating for the USA is AAA for 2015. How does B- compare?

I guess Iraq just needs to be 18 trillion upside down and they could also be rated AAA...........................If anyone believes this debt ridden country we call the USA CORP is deserving of a AAA RATING I have some ocean front property in Arizona i would like to sell.,,,,,,,,as for as ABADI"s  postponement of the bond sales, I get it, It can"t happen before some kind of increase in value.....I'm still believing we are in a good spot.