Iraq’s debt set to fall steeply in 2022: Fitch Ratings

[yota691]

Iraq's credit rating and world confidence

Monday 06 June 2022 302

 

 Dr.. Ibrahim Al-Shamry

 

The agency "Standard & Poor's" (S&P) presented a report on the credit rating, while praising the Iraqi economy's continued maintenance of its credit rating, as a result of the ongoing economic reforms of fiscal policy (instruments of the Ministry of Finance) and monetary (instruments of the Central Bank) in Iraq. The agency expected that the debt ratio of Iraq's GDP will decrease significantly in 2022.

The credit rating measures the extent of the country’s ability to repay its debts or its creditworthiness, as Iraq reached the “B-” rating in 2021, which is a good indicator, compared to previous years, with risks of default, with a limited margin of safety, as it exhausted The country has financial obligations, represented by loans with their progressive interest, but the ability to continue to repay is subject to deterioration in the business environment.

The agency’s special report on Iraq came within the framework of “risk reports” related to 138 countries around the world, in which the levels of risk for each country are determined, in order to serve international insurance companies to meet their financial obligations, based on the study and evaluation of all factors that directly or indirectly affect the The insurance sector, which is done by classifying countries according to their danger, as Iraq was classified among the most dangerous countries, meaning that it constitutes a great risk to the financial stability of the guarantors, but the improvement of Iraq’s economic level and gaining the confidence of the international community and the European Union, and the payment of external financial obligations, including to the State of Kuwait With an amount of 52 billion dollars, Iraq has become an attractive place for foreign investments and foreign capital.

It has become imperative for international credit organizations to reconsider their ratings towards Iraq and its creditworthiness and raise them to two degrees higher, which will reduce the costs of financing (external and internal borrowing), and this is what has actually been achieved, as the credit rating has become (-A).

In this regard, the World Bank expected that Iraq will witness the highest economic growth among the Arab countries during the years 2022 and 2023, but the country is still unilateral, and the Bank said in a report in February 2022 that Iraq is expected to witness the highest economic growth among the Arab countries and the State of Iran During the year 2022, and by 7.3%, up from 2.6% in the year 2021, after this growth decreased to – 15.7% in the year 2020, indicating that “it is expected that the economic growth in Iraq will remain higher than the rest of the Arab countries for the year 2023, despite its decline to reach 6.3%. 

Through the foregoing, we conclude that the economic growth in any country is high, a positive indicator of the improvement of its economy, but at the same time, Iraq is still considered one-sided, mainly dependent on its oil sector, and the higher the oil prices and the higher the production the higher the growth in Iraq, but it From an economic point of view, relying on a single resource to achieve the growth rate is a negative, not a positive, point.

In conclusion, we affirm that the high level of the credit rating must be accompanied by real economic growth, by attracting foreign investors, and benefiting from the low costs of financing, in addition to the need to diversify sources of income, and focus on the agricultural, industrial and tourism sectors to contribute effectively to achieving the growth rate, not Rely on oil only to achieve an increased growth rate.

[steveh12]

Thank You Yota!!😊

[ronscarpa]

Fitch Affirms Iraq's Region Trade Bank at 'CCC+'

Thu 09 Jun, 2022 - 5:58 AM ET

 

 

Fitch Ratings - Dubai - 09 Jun 2022: Fitch Ratings has affirmed Iraq's Region Trade Bank for Investment and Finance Private Shareholding (RTB) Long-Term Issuer Default Rating (IDR) at 'CCC+' and Viability Rating (VR) at 'ccc+'.

 

Fitch has withdrawn RTB's support system" rel="">support Rating and support system" rel="">support Rating Floor as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on 12 November 2021. In line with the updated criteria, we have assigned RTB a Government support system" rel="">support Rating (GSR) of 'ns' (no support system" rel="">support).

KEY RATING DRIVERS

 

RTB's IDRs are driven by its standalone strength, as indicated by its VR. RTB's VR is constrained by a weak operating environment and reflects the bank's limited franchise, unstable business model, volatile and concentrated customer deposit base and weak profitability. The VR also reflects the bank's conservative risk appetite, and high capital and liquidity ratios. The VR is below the implied VR of 'b-' due to its business profile (negative).

 

Weak Operating Environment: The Iraqi operating environment is constrained by a high dependence of the economy on the oil sector, the state's high involvement supporting credit growth, projects and job creation, a weak regulatory and governance framework and a fragile business environment. Higher oil prices are expected to support system" rel="">support real GDP growth (8.6% expected in 2022, up from 3.8% in 2021).

 

Limited Franchise; Unstable Business Model: RTB is a privately-owned bank, headquartered in Erbil, with minimal market shares in Iraq, no competitive advantages and limited distribution capabilities. The Iraqi banking sector is dominated by three state-owned banks and private banks have small market shares.

 

Conservative Risk Appetite: RTB's loan book is minimal and loan growth is weak and unstable given limited lending opportunities, the bank's low risk appetite and tightened underwriting standards. Liquid assets including cash and balances at Central Bank of Iraq (CBI) and interbank placements with foreign banks were 60% of total assets at end-2021.

 

Asset Quality Sensitive to Sovereign: Cash (38% of total assets at end-2021), fixed assets (28%), interbank placements with foreign banks (15%) and balances with CBI (11% including mandatory reserves) drive our assessment of RTB's asset quality. These assets are highly volatile, and are sensitive to and driven by sovereign deposits and local business opportunities.

 

Weak Profitability: Large non-to-low-interest-earning liquid assets and non-earning fixed assets and volatile impairment charges weigh on RTB's profitability. Operating profit is less than 2% of average total assets. Operating profit originates mainly from non-interest income. RTB's profitability is likely to remain volatile due to its lack of scale and political instability in Iraq. For 2022 higher oil prices (Fitch expects on average approximately USD100/barrel) should support system" rel="">support business volumes and RTB's profitability.

 

High Capital Ratios: RTB's total capital adequacy ratio (CAR) of 92.2% at end-2021 was substantially above the regulatory minimum of 28% (specifically for the bank due to its high concentrations versus Iraq's 12%). The tangible leverage ratio is high (38% at end-2021). Capital ratios are likely to remain high given RTB's cash-oriented business model.

Rapid balance-sheet growth could bring some volatility to RTB's tangible leverage ratio. Our assessment of capital is negatively affected by the weak domestic operating environment, unstable business model and low risk weight density.

 

High Liquidity Mitigates Funding Volatility: RTB's loans/deposits ratio is low (16.3% at end-2021). Excess liquidity, coming from equity or government-related deposits, is mainly kept as cash or placed with CBI. High-quality liquid assets (HQLAs) represented a high 60% of total assets at end-2021 and covered more than 100% of customer deposits. Nevertheless, the bank's funding is highly sensitive to concentrated government deposits, which have proved volatile.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

 

A downgrade of the sovereign rating could result in a downgrade of the bank's Long-Term IDR and VR. Deterioration in the domestic operating environment weakening the bank's financial profile, would lead to a downgrade of the VR. A rapid expansion in lending in Iraq, weakening the bank's asset quality and materially absorbing its capital, would also be negative for the VR.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

 

An upward revision of the operating environment, which would likely come from a sovereign upgrade, could lead to an upgrade of the bank's Long-Term IDR and VR, provided RTB's financial profile remains stable.

VR ADJUSTMENTS

 

The operating environment score of 'ccc+' is below the 'b' category implied score for Iraq, due the following adjustment reasons: size and structure of economy (negative) and financial market development (negative).

The business profile score of 'ccc+' is below the 'b' category implied score, due to the following adjustment reasons: business profile (negative) and market position (negative).

The capitalisation and leverage score of 'b-' is below the 'bb' category implied score due to the following adjustment reasons: risk profile and business model (negative) and leverage and risk-weight calculation (negative).

The funding and liquidity score of 'b-' is below the 'bb' category implied score due to the following adjustment reason: deposit structure (negative).

BEST/WORST CASE RATING SCENARIO

 

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG CONSIDERATIONS

 

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg

 

Link: https://www.fitchratings.com/research/banks/fitch-affirms-iraq-region-trade-bank-at-ccc-09-06-2022

[The Englishman]

Iraq’s debt set to fall steeply in 2022: Fitch Ratings

• IraqiNews
•  July 20, 2022
•  73
•  7 min

Al Magreb Street (Morocco Street) in Baghdad, Iraq.

Baghdad (IraqiNews.com) – Iraq’s government debt is set to fall steeply as a share of GDP in 2022, bringing it to pre-Covid-19 pandemic levels, says Fitch Ratings. This is positive for the sovereign’s creditworthiness, but the decline may not be sustainable, as it partly reflects political tensions that have constrained public spending and reflect the high political risk captured in Iraq’s ‘B-’ rating.

Fitch Ratings’ expects debt/GDP to drop as higher oil prices – which they estimate will average at USD105/barrel (bbl) in 2022 and USD85/bbl in 2023 – and production boost government revenue and nominal GDP. Their forecast fall in Iraq’s government debt/GDP ratio in 2022, to around 47% of GDP, from 66% in 2021, is the largest for any sovereign in the Middle East and north African region, bringing the country below the median for ‘B’ rated sovereigns.

Iraq, the second largest producer in OPEC, sits on enormous oil reserves, and revenues from the sector feed 90 percent of the federal government budget.

In Fitch Ratings’ January 2022 affirmation of Iraq’s rating, they stated that positive rating action could result from a sustained period of elevated oil prices, particularly if combined with higher oil production and exports, leading to a downward trend in government debt/GDP and larger foreign reserves. Nonetheless, there is still significant uncertainty about public finance trends and the oil price outlook.

Iraq’s falling debt ratio also reflects its failure to form a government and pass a budget since its October 2021 elections. This constrained spending to 2021 levels until parliament passed an emergency funding bill on 6 June to allocate USD17 billion, or 7% of GDP, for food and energy subsidies and salaries. Subsidy programmes, which remain unreformed, were in danger of running out of money due to the rise in global commodity prices.

Fitch Ratings forecast of a 17% of GDP fiscal surplus in 2022 assumes a 6% of GDP boost in spending, broadly consistent with the emergency funding. However, risks to their spending forecasts are on the upside, as any new budget is likely to entail higher spending in light of Iraq’s pressing social and economic development needs.

Iraqi Prime Minister Mustafa Al-Kadhimi and other officials during the inauguration of Maysan Power Plant. Photo: Prime Minister Office

Fitch Ratings still forecast some nominal reduction of debt in 2022 if a new budget passes, in particular of accumulated central bank claims on the government, which had risen to about 13% of GDP in 2021. However, accelerated spending could impair the sustainability of public debt reduction. This could track a similar path as in 2018, also following elections, when public spending was slow to accelerate after oil prices rose, leading debt to fall to a degree, but spending eventually rose strongly.

It remains unclear whether an incoming government will execute reforms put forward in a whitepaper under the previous administration in October 2020, even if Prime Minister Al Kadhimi is re-appointed. Parliament took out proposals for income tax reform from the 2021 budget, while other reforms, such as the removal of fuel subsidies for electricity generation, were approved, but not implemented.

Iraq’s populist cleric Moqtada Sadr. Photo: AFP

The political outlook remains volatile. The largest parliamentary faction, led by Shia cleric Muqtada al-Sadr with 73 of the 329 members, resigned collectively on 12 June, having failed to form a coalition excluding the rival Iran-backed Shia Coordination Framework. The reordering of forces in parliament may enable government formation. However, Sadr retains considerable influence outside parliament and the underlying tensions that have hobbled Iraq’s politics will persist, including over Iranian influence and Kurdish oil autonomy.

Public grievances could boil over into broader social instability, as they did in 2019-2020, with protests ultimately leading to early elections. Iraq scores poorly across the World Bank’s governance indicators, reflecting insecurity and political instability, corruption, government ineffectiveness and weak institutions. Fitch Ratings expect persistently high levels of political risk and weak governance will continue to weigh on the sovereign rating.

https://www.iraqinews.com/iraq/iraqs-debt-set-to-fall-steeply-in-2022-fitch-ratings/

[yota691]

Fitch expects Iraq's debt to decline sharply during 2022

Fitch Rating Agency

 July 20 2022 12:01 PM

Mubasher: Fitch Ratings expected Iraq's government debt to decline sharply in 2022 relative to gross domestic product, bringing it to pre-Covid-19 levels.

Fitch said, in a report today, Wednesday, that this decline is a positive matter for the creditworthiness of the sovereign rating, noting that this decline may not be sustainable; Due to political tensions that have constrained public spending and reflect the high political risks that are recorded in Iraq’s rating at “ B .” ".

The agency forecasts that debt-to-GDP will decline as oil prices rise - which it estimates will average $105 per barrel in 2022 and $85 per barrel in 2023 - and government revenues and nominal GDP increase.

Fitch noted that it expects the ratio of the Iraqi government debt to GDP to decrease in 2022 to about 47% of GDP, compared to 66% in 2021, indicating that the debt ratio in the country is the largest for any sovereign country in the Middle East. and North Africa, making the country below the average “ B .” " average in the sovereign rating.

The agency indicated that its expectations of achieving a fiscal surplus of GDP of 17% in 2022 assumes an increase in spending by 6% of GDP, in general agreement with the emergency support law.

[DoD]

Fitch said, in a report today, Wednesday, that this decline is a positive matter for the creditworthiness of the sovereign rating, noting that this decline may not be sustainable; Due to political tensions that have constrained public spending and reflect the high political risks that are recorded in Iraq’s rating at “ B .” ".
 

What a sad report from an independent third party analyst. Iraq just can’t quite get past themselves even with all the oil money….