MY LADIES: IRAQ GETS SECOND CREDIT RATING FROM STANDARD AND POORS
S&P'S REPORT ON IRAQ AND HOW THEY DECIDED THE RATING
Republic of Iraq Assigned 'B-/B' Foreign And Local Currency Sovereign Ratings; Outlook Is Stable; 130th Rated Sovereign
In our view, Iraq faces security and institutional risks that are among
the highest of all rated sovereigns--stemming primarily from its war with
ISIS--as well as significant fiscal and external pressures due to the
sharp fall in oil prices in the second half of last year.
However, Iraq benefits from massive oil reserves and high oil exports.
Projected large increases in oil production will, in our view, support
economic growth and help alleviate fiscal and external pressures over the
We are assigning our 'B-/B' long- and short-term foreign and local
currency sovereign credit ratings to Iraq.
The stable outlook is premised on our expectation that fiscal and external
deficits will not worsen beyond our forecasts and that the war with ISIS
will be contained.
On Sept. 3, 2015, Standard & Poor's Ratings Services assigned its 'B-'
long-term foreign and local currency sovereign credit ratings on the Republic
of Iraq. The outlook is stable. At the same time, we assigned our 'B'
short-term foreign and local currency ratings. The transfer and convertibility
(T&C) assessment is 'B-'. Iraq is the 130th sovereign rated by Standard &
In our view, the rating on Iraq is constrained by its war with the Islamic
State of Iraq and Syria (ISIS); political institutions that are in an early
stage of development; and sectarian divisions between the Sunni, Shia, and
Kurdish ethnic groups. ISIS controls large areas of the north and west of the
country including Iraq’s second-largest city, Mosul. Nevertheless, crucially,
over 85% of Iraq’s oil fields and production are located in the south of the
country close to Basra, the main port for crude exports. These are
Shia-controlled areas at some distance from the fighting. Our rating assumes
that the government will remain in control of these assets. They are the key
supports for the rating.
Iraq has the world’s fifth-largest proven crude oil reserves and is the
second-largest oil exporter in the Organization of Petroleum Exporting
Countries (OPEC). Oil dominates the Iraqi economy, contributing over 90% of
government revenues and more than 95% of exports.
Iraq elected a new government, and in September 2014 Haider Al-Abadi took over
as prime minister. Mr. Abadi is viewed as more inclusive and secular in his
approach than his predecessor, which could help ease ethnic tensions. In
addition, Mr. Abadi has planned significant reforms including cuts in the size
MY LADIES: After a contraction of 2.2% in 2014 and an estimated 0.3% growth in 2015, real
GDP growth is expected to rise to an average of 5.7% from 2016-2018, largely
as a result of the expansion of oil production. We think that Iraq’s oil
production will reach about 5 million barrels per day (b/d) by 2018 (with
exports of about 4.5 million b/d), compared with around 3.1 million b/d in
2014. We expect domestic demand will remain weak for at least two years owing
to the war against ISIS and general societal uncertainty.
Military and humanitarian expenditure related to the ISIS war and the decline
of oil prices have hurt public finances. We project the general government
fiscal deficit will reach 18% of GDP in 2015 and 12% of GDP in 2016 from a
deficit of 5.5% of GDP in 2014. The widening deficit is planned to be
partially financed by up to US$6 billion in external borrowing, and by
domestic issuance taken up by state-owned banks. We note that the Iraqi
government has recently been able to get international financial support and
access to funding from multilateral institutions. For example, the IMF
recently approved a "Rapid Financing Instrument" of about US$1.24 billion.
We project that general government debt will average 65% of GDP in 2015-2018,
up from about 39% of GDP in 2014. Iraq’s debt load previously benefited from
an 80% haircut that the government negotiated with its Paris Club creditors in
Iraq’s current account has typically run a surplus owing to Iraq’s large oil
exports. However, we expect the current account balance to fall into deficit
in 2015 because of the sharp drop in oil prices. We forecast Iraq’s current
account deficit to average 3% of GDP in 2015-2018, compared with an average
surplus of 10% of GDP in 2011-2014. We forecast narrow net external debt at
about 9% of current account receipts (CARs) during 2015-2018, and we estimate
average gross external financing needs as a percentage of CARs and usable
reserves at about 76%.
MY LADIES: Inflation currently remains low, with consumer price inflation in the low
single digits (approximately 2.2% in 2014). We expect that the Central Bank of
Iraq (CBI) will maintain the dinar’s peg to the U.S. dollar, albeit with minor
fluctuations. While this has helped control inflation, the peg limits the
CBI’s monetary flexibility.
The stable outlook reflects our expectation that fiscal and external deficits
will not worsen beyond our forecasts and that the war with ISIS will be
contained. It also incorporates our forecast of a return to strong growth from
2016 onward owing to the projected increases in oil production and oil
exports. We could lower the ratings if these assumptions do not hold.
On the other hand, we could raise the ratings if Iraq’s security situation
improves significantly and, with it, Iraq’s public finances.
MVL: WOW...upgraded to "stable"..
PrincessDD: Stable is good. Hope that helps nudge things along.
Lisa: Thank you, Mary, for the fantastic articles and commentary this morning. The overarching ‘theme’ I see coming through is that ALL country’s economies are so entirely interlinked. It’s like an ocean wave, when one part shifts, the other parts must react and comply with the force of its movement. (Which is why, I’m sure, you’ve been saying for a long time that Iraq WILL react eventually to all the shifts. It HAS too!) Also, the remarks made in Iraq’s latest S&P rating are interesting. They’ve crafted their comments to be very flexible, allowing room for even more adjustments, especially upward. So, I have a question, are credit ratings done on a scheduled basis, or are they random and done when S&P sees fit?
Sager: I don't think that's an upgrade to Iraqs rating. If I recall Fitch gave the first rating. This is the second rating given from another entity.
MY LADIES: CORRECT SAGER, AND IRAQ REQUESTED RATINGS FROM ALL 3 AGENCIES.
Lisa: So, do all three agencies change their rating (up or down) randomly (or I should say, when they are asked to), or do they do it on a schedule?
MY LADIES: HERE LISA FOR YOUR READING PLEASURE http://www.standardandpoors.com/aboutcreditratings/
MY LADIES: IT DEPENDS ON IF THE ORIGINAL RATING WAS LONG TERM OR SHORT TERM INTENDED. https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352
Sager: I checked Wikipedia on all three agencies, and the last one needing to rate Iraq will be Moody's. What's interesting about Moody's is that the industry it's in is the Bond Credit Ratings, whereas the other two entities's industry label is Financial Services. Just an fyi.
Memphis: "It's like an ocean wave..."This is one of the most eye opening things I have discovered in my mental journey, the interconnectedness of everything. You not only have noticed it but also expressed it well. it is an important key to understanding how the world works and Armstrong speaks to this often.
Memphis: some great reading ML. thanks for taking time to bring it!
I had missed the news that Iraq has requested a rating from the big three agencies. This makes the favorable rating from S&P today seem all the more significant.
It stands in contrast to that of Fitch and thus denotes a progression!
MY LADIES: MEMPHIS THEY DID THAT ALMOST 6 MONTHS AGO, WHEN THEY DECIDED TO SELL BONDS.
WITHOUT A CREDIT ANALYSIS THERE IS LITTLE CHANCE OF SELLING THEM FOR A DECENT PRICE.
THESE 3 AGENCIES ARE PRIVATELY CONTRACTED AND ONE NEEDS TO PUT IN A REQUEST FOLLOWED BY A CHECK TO HAVE THE SITUATION LOOKED INTO AND OBTAIN ANY SORT OF RATING.
AW: Memphis,...........the rating by Standard & Poors appears to be mostly identical to Fitch. However, it is good that they too....consider Iraq as "stable".
MY LADIES: AND I'M FAIRLY SURE MOODY'S WILL BE THE SAME... THEY ALL FOLLOW THE SAME THE PROCEDURES... AND THOSE PROCEDURES WERE IN THOSE 2 LINKS I POSTED FOR LISA
MY LADIES: OH LISA HERE I STAND CORRECTED THEY WILL EVALUATE EVERY 6 MONTHS..
EMEA Sovereign, Regional, And Local Government Rating Actions Recap: Aug. 29 To Sept. 4, 2015
The European credit rating agency regulation (Regulation (EU) No 1060/2009, as
amended by Regulation (EU) No 462/2013 "the EU CRA Regulation"), requires
credit rating agencies to review sovereign ratings, as defined below, at least
every six months and publish sovereign ratings and related rating outlooks on
pre-determined dates set out in their annual sovereign publication calendar
(see "Calendar Of 2015 EMEA Sovereign, Regional, And Local Government Rating
Publication Dates: Second-Quarter Update").
MY LADIES: HERE IS HOW THEY DO IT AND THE DEFINITIONS