Country Report Iraq December 2008

Outlook for 2009-10

• The drawdown of US forces from early 2009, and the continued weakness of central authority, may allow militia and insurgent groups to re-establish themselves in some areas, although violence should not return to 2006-07 levels.
• The attempt by the prime minister, Nouri al-Maliki, to boost his authority on the back of a revived Iraqi army will lead to friction with the Kurdish parties, exacerbated by a failure to resolve the status of the "disputed territories".
• Iraq's foreign policy will be focused on carving out a more independent role for the countrya task made easier by the start of the US troop withdrawal.
• Despite the lack of a federal hydrocarbons law, the government will persist with its efforts to award long-term oilfield development contracts to international companies.
• Following a downward adjustment to our oil price forecast, we now expect the fiscal account to return a deficit of US$23bn in 2009 and US$11bn in 2010, forcing the government to access its stand-by facility with the IMF.
• Iraqi real GDP growth will slow slightly, to around 6% in 2009-10, as oil export growth softens and fiscal expenditure is reined in.
• We have revised Iraq's current-account outlook in line with the lowering of our oil price forecasts. The current account is now expected to move from a surplus of US$16.5bn in 2008 into an average deficit of US$16bn in 2009-10.

Monthly review

• Parliament has approved the Status of Forces Agreement, which lays out plans for a full US military withdrawal by end-2011. However, this could be brought forward, if the document is rejected in a referendum planned for next year.
• A war of words has broken out between the Kurdistan Regional Government (KRG) and the prime minister, provoked by Mr Maliki's efforts to create Awakening Councils in the disputed areas.
• The oil minister, Hussein al-Shahristani, has said that two oilfields recently developed in the KRG region will be connected to the export pipeline, although contracts with the companies involved may have to be revised.
• The finance minister, Bayan Jabr, has called for oil production to be lifted in an effort to cushion the effect on the public finances of falling oil prices. In addition, he has also optimistically floated the idea of widening the tax base.
• Headline inflation has risen in October, to 7.6% year on year, and core inflation rose to 13.6%, led by higher foodstuffs prices and rents.
• The UN World Food Programme has reported that the number of Iraqis either "food insecure" or at risk has fallen markedly compared with its 2005 survey.