As oil rebounds and economy is poised to recover Iraq eyes foreign investment
The economy is now forecast to grow 1.1% in 2021 after contracting 10.9% last year, supported by a recovery in oil prices and higher Opec+ output quotas
Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, welcomes Iraq's Prime Minister Mustafa Al Kadhimi upon his arrival in Abu Dhabi, UAE. The Emirates pledged $3bn of investment commitments to Iraq. AFP
Iraq is poised to attract significant foreign investment into its energy sector, in tandem with expected higher revenues following the Opec+ decision to raise output that will help strengthen its weak fiscal position.
Baghdad, a founding member of Opec and the group's second largest producer, is forging ahead with a number of public and private sector transactions that the government hopes will shore up its finances after it was forced to devalue its currency last year.
Iraq's investment drive is in stark contrast to its fiscal position last year, when its economy was on the brink of collapse, with the public sector burning through $5 billion month on salaries for government servants.
On Monday, Prime Minister Mustafa Al Kadhimi said Iraq's foreign reserves rose to more than $60bn and credited the increase to his government's efforts to wipe out corruption.
Though its ability to borrow was constrained last year after it exhausted all domestic options, Iraq's credit out look has also improved.
“Progressing and maintaining the fiscal consolidation will be critical for the sustainability of the economy in Iraq, despite the improvement in the oil price,” Jihad Azour the head of the IMF’s Middle East and Central Asia department, told The National.
“The higher oil price is an opportunity to advance on some of the structural reforms that will allow to achieve a higher level of inclusive growth.”
Last month, Fitch Ratings affirmed the country's long term foreign currency issuer default rating at B-, while adjusting Iraq's outlook to stable from negative.
Regional investors are cautiously eyeing Iraq as a possible investment destination this year.
"Iraq doesn't have the same credit profile [as the UAE or Saudi Arabia].
So they have to think of the mix of resources that they can mobilise including the support of other of multilateral financial institutions, particularly for larger projects in the energy space," Mr Al Attiga said in an interview.
Attracting private investments would be the most "sustainable source" of financing Iraq's government could possibly muster, he added.
Iraq's credit rating was "significantly higher" than the lowest investment grade awarded by ratings agencies, he added.
The country was "punching above its weight" and needed to implement significant institutional changes as detailed in the seminal white paper on economic reform submitted to parliament last year.