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IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
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IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by The Great Oz Fri Aug 07, 2015 9:37 am
Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
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Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
Link to Fitch Ratings’ Report: Iraq – Rating Action Report
Fitch Ratings-London-07 August 2015: Fitch Ratings has assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of ‘B-’ with a Stable Outlook. The agency has also assigned a Country Ceiling of ‘B-’ and a Short-term IDR of ‘B’.
KEY RATING DRIVERS
The ratings reflect the following factors:
Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.
Iraq holds the world’s fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world’s second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014.
Iraq’s fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July. Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014.
Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the ‘B’ range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016. Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime).
Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.
Fitch estimates Iraq’s net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median.
Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015.
The banking sector is under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.
Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.
Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.
RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to a positive rating action are:
- A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq’s public and external finances.
- A fundamental improvement in the country’s security that allows for stronger non-oil economic development.
The main factors that could, individually or collectively, lead to a negative rating action are:
- Further deterioration in the country’s security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.
- A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit.
KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017.
Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.
Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government’s control.
Source: https://www.fitchratings.com/site/fitch-home/pressrelease?id=989164
http://iraqieconomists.net/en/2015/08/07/fitch-assigns-iraqs-first-rating-at-b-stable/
Reports & News
Leave a reply
Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
Link to Fitch Ratings’ Report: Iraq – Rating Action Report
Fitch Ratings-London-07 August 2015: Fitch Ratings has assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of ‘B-’ with a Stable Outlook. The agency has also assigned a Country Ceiling of ‘B-’ and a Short-term IDR of ‘B’.
KEY RATING DRIVERS
The ratings reflect the following factors:
Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.
Iraq holds the world’s fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world’s second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014.
Iraq’s fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July. Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014.
Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the ‘B’ range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016. Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime).
Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.
Fitch estimates Iraq’s net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median.
Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015.
The banking sector is under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.
Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.
Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.
RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to a positive rating action are:
- A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq’s public and external finances.
- A fundamental improvement in the country’s security that allows for stronger non-oil economic development.
The main factors that could, individually or collectively, lead to a negative rating action are:
- Further deterioration in the country’s security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.
- A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit.
KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017.
Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.
Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government’s control.
Source: https://www.fitchratings.com/site/fitch-home/pressrelease?id=989164
http://iraqieconomists.net/en/2015/08/07/fitch-assigns-iraqs-first-rating-at-b-stable/
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Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by Kevind53 Fri Aug 07, 2015 10:30 am
Yep ... as I predicted, B or B- ... so basically their bonds are "junk bonds." Bet you don't see this discussed much on the pooroo sites, certainly not the ramifications of having such a low rating.
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Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by Ponee Fri Aug 07, 2015 6:22 pm
Fitch Assigns Iraq's First Rating at 'B-'/Stable
Link to Fitch Ratings' Report: Iraq - Rating Action Report
Fitch Ratings-London-07 August 2015: Fitch Ratings has assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of 'B-' with a Stable Outlook. The agency has also assigned a Country Ceiling of 'B-' and a Short-term IDR of 'B'.
KEY RATING DRIVERS
The ratings reflect the following factors:
Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.
Iraq holds the world's fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world's second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014.
Iraq's fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July. Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014.
Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the 'B' range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016. Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime).
Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.
Fitch estimates Iraq's net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median.
Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015.
The banking sector is under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.
Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.
Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.
RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to a positive rating action are:
- A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq's public and external finances.
- A fundamental improvement in the country's security that allows for stronger non-oil economic development.
The main factors that could, individually or collectively, lead to a negative rating action are:
- Further deterioration in the country's security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.
- A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit.
KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017.
Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.
Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government's control.
Contact:
Primary Analyst
Paul Gamble
Senior Director
+44 20 3530 1623
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Ed Parker
Managing Director
+44 20 3530 1176
Committee Chairperson
James McCormack
Managing Director
+44 20 3530 1286
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.
Date of Relevant Rating Committee: 10 July 2015
Additional information is available on www.fitchratings.com.
Applicable Criteria
Country Ceilings (pub. 28 Aug 2014)
Sovereign Rating Criteria (pub. 12 Aug 2014)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
RELATED ENTITIES
Iraq
RELATED ENTITY RESEARCH
Fitch Assigns Iraq's First Rating at 'B-'/Stable
07 Aug 15
Iraq - Rating Action Report
07 Aug 15
VIEW ALL
RESEARCH
RELATED SECTOR RESEARCH
2015 Mid-Year Sovereign Review and Outlook
14 Jul 15
Global Economic Outlook
02 Jul 15
Sovereign Data Comparator - June 2015 (Excel file)
30 Jun 15
Sovereign Data Comparator - June 2015
30 Jun 15
Global Economic Outlook Datasheet - June 2015
29 Jun 15
Endorsement Policy - Fitch's approach to ratings endorsement so that ratings produced outside the EU may be used by regulated entities within the EU for regulatory purposes, pursuant to the terms of the EU Regulation with respect to credit rating agencies, can be found on the EU Regulatory Disclosures page. The endorsement status of all International ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for all structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.
https://www.fitchratings.com/site/fitch-home/pressrelease?id=989164
Link to Fitch Ratings' Report: Iraq - Rating Action Report
Fitch Ratings-London-07 August 2015: Fitch Ratings has assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of 'B-' with a Stable Outlook. The agency has also assigned a Country Ceiling of 'B-' and a Short-term IDR of 'B'.
KEY RATING DRIVERS
The ratings reflect the following factors:
Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.
Iraq holds the world's fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3m b/d in May 2015, from an average of 2.4m b/d in 2010, with Iraq becoming the world's second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014.
Iraq's fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict. Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a eurobond and funding through an IMF rapid financing instrument that was approved in July. Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF programme is likely in 2016. We forecast a small deficit for 2017. The government has cleared the USD9bn of payment arrears to international oil companies that were run up in 2014.
Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the 'B' range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP. Debt/GDP is forecast to peak in 2016. Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP. Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime).
Commodity dependence is among the highest of all rated-sovereigns. Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts. Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017. Limited economic policy tools complicate the response to oil price volatility.
Fitch estimates Iraq's net external creditor position to have totalled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014. However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise. Foreign exchange reserves, at USD67bn at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median.
Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country. This is offsetting the boost to GDP from rising oil production. A return to growth looks possible in 2016. Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the USD. Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015.
The banking sector is under-developed and fundamentally weak. Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign. The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector. There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalisation by the government.
Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy. At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.
Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions. Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at USD5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.
RATING SENSITIVITIES
The main factors that could, individually or collectively, lead to a positive rating action are:
- A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq's public and external finances.
- A fundamental improvement in the country's security that allows for stronger non-oil economic development.
The main factors that could, individually or collectively, lead to a negative rating action are:
- Further deterioration in the country's security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.
- A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit.
KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD65/b in 2015, USD75/b in 2016 and USD80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m b/d in 2017.
Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.
Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government's control.
Contact:
Primary Analyst
Paul Gamble
Senior Director
+44 20 3530 1623
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Ed Parker
Managing Director
+44 20 3530 1176
Committee Chairperson
James McCormack
Managing Director
+44 20 3530 1286
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.
Date of Relevant Rating Committee: 10 July 2015
Additional information is available on www.fitchratings.com.
Applicable Criteria
Country Ceilings (pub. 28 Aug 2014)
Sovereign Rating Criteria (pub. 12 Aug 2014)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
RELATED ENTITIES
Iraq
RELATED ENTITY RESEARCH
Fitch Assigns Iraq's First Rating at 'B-'/Stable
07 Aug 15
Iraq - Rating Action Report
07 Aug 15
VIEW ALL
RESEARCH
RELATED SECTOR RESEARCH
2015 Mid-Year Sovereign Review and Outlook
14 Jul 15
Global Economic Outlook
02 Jul 15
Sovereign Data Comparator - June 2015 (Excel file)
30 Jun 15
Sovereign Data Comparator - June 2015
30 Jun 15
Global Economic Outlook Datasheet - June 2015
29 Jun 15
Endorsement Policy - Fitch's approach to ratings endorsement so that ratings produced outside the EU may be used by regulated entities within the EU for regulatory purposes, pursuant to the terms of the EU Regulation with respect to credit rating agencies, can be found on the EU Regulatory Disclosures page. The endorsement status of all International ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for all structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.
https://www.fitchratings.com/site/fitch-home/pressrelease?id=989164
Last edited by Ponee on Wed Apr 05, 2017 6:02 pm; edited 2 times in total
Ponee- Admin
- Posts : 38267
Join date : 2011-08-09
Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by Ponee Fri Aug 07, 2015 9:07 pm
Iraq receives first rating in boost to bond issue plans
* Plans first bond issuance for 9 years, worth $5 bln
* Fitch forecasts double-digit fiscal deficit for 2015
* Oil, primary source of income, far from IS frontlines
By Sudip Roy and Ahmed Rasheed
LONDON/BAGHDAD, Aug 7 (Reuters) - Iraq received its first sovereign credit rating on Friday, which it had sought ahead of a planned $5 billion international bond issue aimed at relieving the pressure of low oil prices on state finances.
Fitch assigned Iraq a B- rating with a stable outlook, six notches below investment-grade, citing political risks and insecurity that are among the highest faced by any sovereign rated by the agency.
It also forecast a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with the fight against Islamic State insurgents in the country's north and west.
Finance Minister Hoshiyar Zebari said earlier this year that Iraq was planning its first international bond sale for nine years. Obtaining the credit rating could help persuade global fund managers and banks to buy the bonds.
Haitham al-Jubouri, secretary of the Iraqi parliament's financial panel, said the junk-grade rating did not "meet ambitions" but could be considered a launching pad for financial development.
"It encourages us to start taking serious steps to reform the Iraqi banking sector, to send a positive message to investors and improve our future financial and economic outlook," he told Reuters by phone.
In steps towards increasing investor confidence, the World Bank said last month it would provide Iraq with loans totalling $1.7 billion, while the International Monetary Fund reached an earlier agreement for a $833 million loan programme.
As the holder of the world's fifth biggest oil reserves, Iraq could be an attractive investment for some investors. Oil accounts for around 40 percent of gross domestic product and over 90 percent of fiscal and current external receipts.
"Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity," Fitch noted in a statement.
A rebound in oil prices would help improve the government's fiscal position with Fitch forecasting a small deficit by 2017.
(Writing by Stephen Kalin; Editing by Catherine Evans) ((stephen.kalin@thomsonreuters.com; +961 81639179; Reuters Messaging: stephen.kalin.thomsonreuters.com@reuters.net))
Keywords: IRAQ RATINGS/
http://www.zawya.com/story/Iraq_receives_first_rating_in_boost_to_bond_issue_plans-TR20150807nL5N10I2MYX2/?utm_medium=twitter&utm_source=twitterfeed
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Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by Kevind53 Fri Aug 07, 2015 11:13 pm
A B- rating is not considered investment grade. Anything lower than a B+ rating is considered to be junk bonds. The stable term means it is not expected to get worse, but neither is it expected to get better.
Can they still sell their bonds? Sure, but it's gonna cost them, they'll have to offer some pretty attractive rates ....
Can they still sell their bonds? Sure, but it's gonna cost them, they'll have to offer some pretty attractive rates ....
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Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by Ssmith Mon Aug 10, 2015 9:26 am
More on bond ratings:
Bonds are generally classified into two groups - "investment grade" bonds and "junk" bonds. Investment grade bonds include those assigned to the top four quality categories by either Standard & Poor's (AAA, AA, A, BBB) or Moody's (Aaa, Aa, A, Baa).
Clifford G. Dow
Chartered Financial Analyst
Certified Financial Planner
AN EXPLANATION OF "JUNK" BOND RATINGS
Bonds are generally classified into two groups - "investment grade" bonds and "junk" bonds. Investment grade bonds include those assigned to the top four quality categories by either Standard & Poor's (AAA, AA, A, BBB) or Moody's (Aaa, Aa, A, Baa).
The term "junk" is reserved for all bonds with Standard & Poor's ratings below BBB and/or Moody's ratings below Baa. Investment grade bonds are generally legal for purchase by banks; junk bonds are not.
The specific definitions assigned to junk bond ratings by the services help define the magnitude of the risk associated with them. Because Standard & Poor's definitions are somewhat more comprehensive, they are quoted here:
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC, and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.BB: Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments.B: Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal.
Because a B rating is the single most common rating found in a junk bond portfolio, Moody's definition of its B rating follows:
Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
To resume with Standard & Poor's:
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal.D: Debt rated D is in payment default.
Clifford G. Dow
Chartered Financial Analyst
Certified Financial Planner
Copyright © 1998 Dow Publishing Company, Inc. All Rights Reserved.
http://mockingbird.creighton.edu/english/fajardo/teaching/SRP435/junkbond.htm
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Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by Kevind53 Mon Aug 10, 2015 10:14 am
Good explanation, each rating agency uses a different set of ratings, but a B- would roughly compare to a CCC from S&P.
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Re: IMPORTANT - Fitch Assigns Iraq’s First Rating at ‘B-’/Stable
by RamblerNash Tue Apr 04, 2017 10:50 am
Kevind53 wrote:A B- rating is not considered investment grade. Anything lower than a B+ rating is considered to be junk bonds. The stable term means it is not expected to get worse, but neither is it expected to get better.
Can they still sell their bonds? Sure, but it's gonna cost them, they'll have to offer some pretty attractive rates ....
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