Iraq Country Risk Report Q4 2018
Political risk will remain elevated over the coming quarters, especially following the May 2018 parliamentary elections which saw the Sa'irun coalition of Muqtada al-Sadr coming first, and the Iran-backed Fatah coalition second, ahead of incumbent Prime Minister Haider al-Abadi.
At the time of writing, a government had yet to be formed and we expect policy-making to be weak due to the fragmented political landscape and low voter turnout. The likely participation of Iran-backed parties in the incoming government risks fuelling sectarian tensions.
Real GDP growth will pick up modestly in 2018, reflecting a brightening outlook for the non-oil economy as the reconstruction process kicks off, and a gradual return to growth for oil exports. 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 4.3% of GDP in 2018. Government efforts to contain the public sector salary bill will be mitigated by fiscal slippage and elevated reconstruction costs.
The Kurdistan Regional Government (KRG) will continue to struggle 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.
Major Forecast Changes
We now forecast real GDP growth of 2.2% in 2018 and 4.7% in 2019, up from 1.5% and 4.5% previously.
We now forecast a budget deficit of 4.3% of GDP in 2018 and 2.9% in 2019, down from 6.6% and 3.2% previously.
Sectarian tensions will remain elevated even with the defeat of IS. Sunni grievances could turn violent again if Baghdad fails to reconstruct the Sunni territory it re-conquered from IS.
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