Tue Sep 13, 2016 10:06am EDT
Fitch Affirms Iraq at 'B-'; Outlook Negative
(The following statement was released by the rating agency) HONG KONG/LONDON, September 13 (Fitch) Fitch Ratings has affirmed Iraq's Long-Term Issuer Default Rating (IDR) at 'B-' with a Negative Outlook.
The Country Ceiling is affirmed at 'B-' and the Short-Term IDR at 'B'. KEY RATING DRIVERS Political risk and insecurity in Iraq are among the highest faced by any sovereign rated by Fitch.
Sectarian and ethnic tensions continue to undermine political stability, relations with the Kurdish Regional Government are volatile and Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator.
This reflects not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions.
In 2016 the IMF programmes for a deficit of IQD26trn (USD22bn) for Iraq. The majority of financing, USD17bn, will come from T-bills and bonds, USD10.7bn of which will be refinanced by the CBI and USD4bn is from government deposits in the banks.
The banking sector itself is not strong enough to be a source of much financing.
External financing from the IMF, World Bank, US loans and other bilateral loans will make up most of the remainder.
Government debt is rising sharply on the back of these deficits and we forecast it will average 73% of GDP in 2015-17.
International reserves are declining, but remain large and support Iraq's currency peg.
Private sector credit to GDP is one of the lowest of any Fitch-rated sovereign.
The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high non-performing loans and exceptionally low capital adequacy, dominate the sector.
There has been no progress in restructuring these banks, although the government has appointed auditors as required by the IMF.