IRAQ

RISK RATING
High
Default High Risk Score 7.00
Normal Average 6.30
Weighted Average 6.38
RISK RATING HISTORY
RISK RATING SCALE

Risk Rating Scale

Severe: 8.0 to 10
High: 6.0 to 7.9
Elevated: 4.0 to 5.9
Moderate: 2.0 to 3.9
Low: 0.0 to 1.9
EXCHANGE RATE
Country Outlook

Iraq, which is the world’s third largest oil exporter, faces a serious economic crisis that has triggered recurrent protests, destabilised its fragile political system, and increased risk of non-payments. The country is putting pressure on OPEC+ to increase oil production as Iraq’s economy contracts by 12 percent in 2020, more than any other OPEC member under a production quota. Prime Minister Mustafa Al-Kadhimi, who styles himself as the champion of the protesters, wants to raise borrowing to pay salaries of Iraq’s roughly 7 million public workers. Yet the opposition resists efforts to increase debt and only limited funding has been secured for 2021, indicating that more protests and non-payments are likely, thus threatening political stability.

  • The de facto leader of Iraq, radical cleric Moqtada al-Sadr and his ultra-nationalist ‘Sairoon’ bloc, seized power in the May 2018 elections. Since then, anti-US sentiment has intensified, Russia has stepped up its interests in the oil sector, and relations with Iran have improved, financially, politically, and militarily. Prime Minister Al-Kadhimi struggles to balance the demands of protesters with the opposition’s fiscal conservatism under an oil production quota, challenging a government struggling to tackle the fallout from years of war and rampant corruption. Cutting public sector payrolls and reforming state finances would undermine the patronage systems that the political elite have used to entrench their power.
  • Iranian-backed militias have been escalating their attacks on American interests in Iraq, especially after the US killing of top Iranian commander Qasem Soleimani in Baghdad in 2020. The US-led coalition has been stationed in Iraq to fight the Islamic State since 2014. The US plans to draw down most of its remaining troops, claiming that Iraqi security forces are capable of dealing with multiple insurgencies. The sway of Islamic State has been largely contained compared with the period between 2014 and 2017, allowing foreign troops to gradually withdraw from a handful of bases – a move accelerated by Iranian-backed armed groups targeting US positions. However, armed groups still pose a threat to Iraq and a complete withdrawal of US forces from Iraq remains unlikely.
  • The OPEC+ production quota means that Iraq loses roughly USD 40 million a day in oil export revenues. Saudi Arabia and Russia have resisted increasing Iraq’s quota, even though the country faces a serious economic crisis and political destabilisation due to protests. Iraq’s commitment to the OPEC+ deal on reducing oil output has squeezed the country’s finances, challenging a government struggling to tackle the fallout from years of war and rampant corruption. Iraq relies on oil to fund 97 percent of its state budget. Iraq has more than 144 billion barrels of proven crude oil reserves (nearly 18 per cent of the Middle East’s total, and around 9 per cent of the world’s). Parliament has approved limited increased borrowing to make up a budget shortfall to cover public servants’ salaries, food imports, and crucial projects. But financing constraints will reappear in 2021, indicating that further debt accumulation is likely.
CUMULATIVE AND DAILY COVID-19 INFECTIONS AND DEATH RATE
INTERNATIONAL MONETARY FUND | DATAMAPPER
Risk Perils
Political Instability
7.0
Expropriation, Nationalisation, Confiscation & Deprivation
5.5
Contract Frustration & Breach
6.0
Taxation
6.0
Bribery & Corruption
6.5
Regulatory Burden
6.0
Strikes, Riots & Civil Commotion
6.5
Security
6.5
Sovereign Default
6.0
Economic Volatiliy
7.0

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