Country Report Iraq January 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 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.
• Iraq's fiscal position will deteriorate markedly over the outlook period, on the back of plunging oil prices. As a result, we expect the fiscal deficit to reach US$24bn (34% of GDP) in 2009, narrowing to US$11bn in 2010.
• Iraqi real GDP growth will slow slightly, to around 6% in 2009-10, as oil export growth softens and fiscal expenditure is reined in.
• Iraq's current-account outlook has improved, after new IMF data revealed that invisibles outflows were lower than previously recorded. Nevertheless, we still expect the current-account deficit to average US$12bn in 2009-10.

Monthly review

• The Iraqi Accord Front, the main Sunni Arab parliamentary bloc, has split, owing largely to shifting loyalties to Mr Maliki. The ructions within the group have delayed efforts to replace the speaker, who resigned in December.
• According to Iraq Body Count, civilian deaths in Iraq in 2008 declined to 25 a day, compared with 72 a day in 2006-07. However, the fall masks regional variations, with violence rising in a few northern governorates.
• The IMF has published a positive final report on Iraq's performance under its second stand-by arrangement. The upbeat assessment will trigger a final 20% reduction in Iraq's debt to Paris Club creditors.
• In the wake of falling oil prices, the government has cut its 2009 budget for a second time, to US$60bn. However, its baseline oil price forecast, of US$50/barrel, could still prove optimistic.
• The Ministry of Oil has launched its second oil development round, which means that 90% of Iraq's proven reserves are now open to foreign firms.
• China National Petroleum Corporation (CNPC) has begun work at the AlAhdab field, some 11 years after the original deal with CNPC was signed.

Source: Country Report