Country Report Iraq June 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 potential for a fundamental realignment of Iraqi politics is rising, with the prime minister, Nouri al-Maliki, leaning towards a nationalist alliance involving more secular and tribal forces.
• 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 account is expected to fall deep into deficit in 2009-10, potentially forcing the government to turn to the IMF for budgetary support.
• We have lowered our inflation forecast, after Iraq slipped into deflation in the first quarter of 2009. Nonetheless, with anecdotal reports revealing fast-rising food prices, we expect inflation to average 3.5% in 2009 and 6.1% in 2010.
• Real GDP growth is forecast to slow in 2009-10, from an estimated rate of 7.8% in 2008 to an average of 5.7%, as a tighter fiscal stance has a knock-on impact across the economy.
• We expect Iraq's current account to move into deficit over the forecast period, in line with lower oil prices. The deficit is projected to be US$8.9bn in 2009, narrowing to US$6.4bn in 2010.

Monthly review

• The trade minister, Abdul Fatah al-Sudani, has been arrested on charges of corruption connected with food procurement contracts. The move may herald a crackdown on ministerial corruption.
• A war of words has broken out between Iraqi and Kuwaiti MPs, over Kuwait's opposition to the lifting of the remaining UN sanctions on Iraq and Iraq's opposition to the continuance of reparation payments.
• The government has announced that it is seeking to raise some US$3bn in a bond issue, and that it is considering turning to the IMF for US$5bn-7bn in budgetary support.
• The cabinet has approved a plan to impose a tax of at least 35% on foreign oil firms operating in Iraq.
• Average Iraqi consumer prices fell year on year in the first quarter of 2009, but the government's decision to take over responsibility for importing vegetables from the private sector has apparently led to a rise in food prices.
• Oil exports from the Iraqi Kurdistan region have begun.

Source: Country Report