Country Report Iraq March 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.
• 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 outlook has deteriorated, after we revised lower our projections for oil production. With oil prices also plunging, we expect the fiscal account to return an average deficit of US$19bn in 2009-10.
• We have revised down slightly our forecast for real GDP growth in 2009, to 5.4%, after lowering our projection for oil production this year.
• The current account is forecast to return a wide deficit of US$12.4bn this year, forcing the Central Bank of Iraq to draw down its foreign-exchange reserves.

Monthly review

• The US president, Barack Obama, has announced that US forces in Iraq will be reduced to 35,000-50,000 by August 2010. The pledge has been welcomed both in the US and in Iraq.
• The final tally of seats in the provincial elections has been announced. It appears that, owing to the fragmentation of the vote and the existence of one-person lists, a large number of votes were essentially wasted.
• Parliament has finally passed the 2009 budget, which sets out lower spending levels than originally envisaged by the cabinet. The prime minister has warned that the reductions could affect reconstruction and security.
• Iraq has reportedly altered the contract terms for international oil companies, including raising the share a foreign partner can hold in a joint-venture project from 49% to 75%.
• The Central Bank has slashed interest rates again, to 11%, and has also slowed markedly the pace of Iraqi dinar appreciation, as both headline and core inflation have remained at low levels.
• Mitsubishi has joined Royal Dutch Shell in its joint venture to capture associated gas.

Source: Country Report