Country Report Iraq February 2009

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 prime minister, Nouri al-Maliki, should remain in power until end-2009, boosted by his strong showing in the provincial elections in January.
• With a fragmented and divided parliament likely to be elected at the end of this year, MrMaliki will have to work assiduously to both build and maintain alliances with a diverse range of political actors.
• 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.
• Iraq's fiscal position will deteriorate markedly over the outlook period, on the back of plunging oil prices; the fiscal account will record a deficit of US$24bn (34% of GDP) in 2009, which will narrow to almost US$13bn in 2010.
• Iraqi real GDP growth will slow slightly, to around 6% in 2009-10, as oil export growth eases and fiscal expenditure is reined in.
• We have revised up our oil price forecast for 2009, to US$40/barrel, as the war in the Gaza Strip pushed prices higher in January. However, the current account is still forecast to return a wide deficit of US$12.4bn this year.

Monthly review

• The State of Law list, headed by Mr Maliki's Daawa Party, performed strongly in the local elections, gaining the largest share of the vote, mostly at the expense of a more Islamist Shia party, the Islamic Supreme Council of Iraq.
• The Sunni Arab boycott was not repeated this time around, although the overall turnout was slightly below previous levels, indicating perhaps a measure of voter dissatisfaction at the performance of the political parties.
• A cabinet spokesman, Ali al-Dabbagh, has announced that the government will use past fiscal surpluses to cover its budget deficit this year The government has also said that it is planning to issue US$5bn of debt.
• Iraq oil production recovered in the final quarter of 2008, although revenue fell dramatically as oil prices declined.
• Iraq has released its first socioeconomic survey in 14 years. Among other things, the survey found that 40% of household members are under 15, a serious concern given a youth unemployment rate of 26%.

Source: Country Report