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Is Iraq will fall in the credit rating?
Sunday, January 27, 2020
The credit rating or creditworthiness shows the ability of any country or institution to pay its debts, but the factors determining the classification are: the rate of growth of GDP, per capita gross domestic product, the rate of inflation, the state of the public budget, the status of the external balance, the status of external debt Economic development status, historical weighting of the risk of default.
According to Moody's, the credit rating of Iraq at (Caa), which is a degree of payment risk, and a stable outlook. Means that the country or institution has a very high credit risk for debt recovery.
Weak institutions and slow reforms restrict Iraq’s credit rating (Caa) in addition to governance challenges that reduce the government’s ability to deal with internal and external economic shocks and reduce the competitiveness of the Iraqi economy, and the agency said that Iraq “has made slow progress with respect to the structural reforms agenda, which includes improving Laws, legislation and enterprise development to improve public financial management. " Also, "attempts to diversify the economy remain a challenge.
Among the obstacles facing the growth of the non-oil private industrial sector are dilapidated infrastructure, an inefficient banking system, unstable electricity supplies, shortages of skilled workers and weak control of corruption.
The Iraqi economy depends on oil mainly to finance 92% of the revenues of the state budget, and therefore Iraq is greatly affected by fluctuations in world oil prices. Iraq faces an internal challenge represented in political conflicts and the fragile security situation in some areas, and a huge task is to rebuild the cities destroyed by the fighting with ISIS.
On the other hand, Standard & Poor's said that its credit rating for Iraq is at "B- / B" with a stable outlook. According to the agency, Iraq is expected to record a real deficit in the 2019 budget, and the coming years. , Explaining that its classifications for Iraq are under pressure from its emerging political institutions, local political tensions, and security risks.
The Iraqi debt file appears frightening and frustrating, and according to the credit rating agency "Standard & Poor's", the debts will increase over the next four years as a result of the measures that Iraq previously carried out by issuing two billion dollars worth of bonds and high interest rates. The credit rating made Iraq raise interest rates on its bonds. Which amounted to 15% for external marketing, which is considered an unsuccessful economic measure, and a billion amount will be added to Iraq’s debts, part of which will be due in 2020 and the other part 2021, which will compel Iraq to make a settlement to its debts, and add new benefits that burden the Iraqi economy.
In addition to the expected significant increase in public expenditures and the budget deficit for the year 2020 would push Iraq’s credit rating downward and possibly towards the C degree according to the “Standard & Poor's” credit rating, which would create serious difficulties for Iraq in obtaining financial facilities from global financial markets.
Prof. Nabil Jaafar Al-Marsoumi, Professor of Economics at the University of Basra, and the article was published from his Facebook page
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