Iraq: Iraq Economy Profile

Economic Overview

Increase is estimate to continue registering strong annual increases in 2013 and 2014, half reflecting the ongoing reconstruction and recovery next the fall of the Saddam Hussein regime and return of output in the oil sector. Moreover, inflows of oil revenues have enabled the government to increase capital spending. International energy companies are conducting exploratory work and new oilfields are likely to be discovered, with potential for in general economic increase to remain strong into the medium-term. EH forecasts GDP increase of +5% in 2013 and +5.5% in 2014, subject to an absence of significant disruption to the oil sector from internal conflict.

The economic authorities have been successful in controlling inflationary pressures at a time of rapid increase and high receipts of oil revenues. In 2007, inflation reached over +30% y/y but consumer price increase averaged only +5.1% in 2009 and ended that year at +3.1%. Relatively strong domestic request and upward price pressures through housing and food have increased inflation but price pressures appear containable.

EH expects a fiscal surplus of over +7% of GDP in 2012 to be repeated in 2013, reflecting high revenues from oil sales. Even with a estimate easing in international energy prices in 2014 (weakness in some key import markets and further supplies of shale oil from North America) a fiscal surplus will be recorded in that year, currently estimate at +3.8%.

Iraq’s external accounts mirror developments in oil output and international energy prices. Accordingly, large surpluses were recorded in the current account in 2011 and 2012, +13.4% and +15.2% of GDP, respectively. EH expects the surplus to remain in double digits in 2013 (+12.7% of GDP) before falling back to +6.5% in 2014, reflecting the estimate easing in oil prices and output stabilisation. Against this background of large current account surpluses, FX reserves have remained above USD50 billion and currently provide around 10 months of import cover, suggesting that repayments of foreign deficit obligations and settlement of trade payments will not be a problem over the estimate period.

Iraq’s external deficit levels are low relative to the size of the economy and gain generation ability. EH expects external debt/GDP to be around 14% in 2013 and debt/export earnings 35%. In terms of repayments of existing external deficit the servicing ratio (repayments/export earnings) is estimate at below 6% in 2013.

Strengths

Substantial hydrocarbon reserves
Fiscal and current account surpluses
High FX and strong import cover
Low external debt and comfortable repaymentschedule

Weaknesses

Domestic politics is fragile because of ethnic fragmentation, weak institutions and inexperience of those in governance
Partly reflecting the above, security (domestic and border) is weak, with significant levels of violence
Uncertainties relating to the country’s national integrity, particularly given the aspirations for independence of the semi-autonomous Kurdish region
Regional tensions, including border with Iran
Industry and export base is highly concentrated