Iraq Country Risk Report 20 2018
Political risk will remain elevated over the coming quarters, especially in the run-up to the elections planned for May, due to the highly mili-tarised nature of Iraqi society, grievances among religious and ethnic minorities, intra-Shi'a tensions and external powers vying for influence.
Our core view is for Prime Minister Haider al-Abadi to secure a second term in the May elections, ensuring relative policy continu-ity – although greater political fragmentation and endemic corruption will weigh on policy-making. That said, a return of Nouri al-Maliki to premiership cannot be ruled out either – a scenario which would pose risks to social stability and the country's reconstruction process.
Real GDP growth will pick up modestly in 2018, reflecting a brighten-ing outlook for the non-oil economy as the reconstruction process kicks off. However, weak growth in oil production, given the OPEC-stipulated production cuts, and elevated political risk will continue to weigh on the economic outlook. We forecast growth to accelerate in 2019.
The fiscal position of the Iraqi government will see some modest improvements over the coming years, as recovering oil prices feed through to higher revenues. We forecast the Iraqi government to post a budget deficit equivalent to 6.6% of GDP in 2018. Government ef-forts to contain the public sector salary bill will be mitigated by fiscal slippage ahead of the elections and elevated reconstruction costs.
The Kurdistan Regional Government (KRG) will continue to strug-gle politically and economy over the coming years, owing to the consequences of Baghdad's military offensive following the region's independence referendum in September 2017.
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