Iraq's growth at 4% in 2019 amid reconstruction plans

Economic Research | Country Risk Weekly Bulletin | Country Risk Weekly Bulletin 576 | Iraq's growth at 4% in 2019 amid reconstruction plans | Lebanon | Byblos Bank

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Country Risk Weekly Bulletin 576

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Iraq's growth at 4% in 2019 amid reconstruction plans

The Institute of International Finance indicated that the domestic political gridlock has impeded Iraq's recovery path, as the government remains incomplete since the May 2018 elections. Still, it noted that economic conditions in Iraq are improving, amid rising oil production and the defeat of Islamic State militants. It projected real GDP growth to accelerate from 2.3% in 2018 to 4% in 2019, and to continue rising over the medium term, driven by reconstruction plans. It forecast growth in the non-hydrocarbon sector to accelerate from 3.4% in 2018 to 8% in 2019 and 7% in 2020, supported by construction projects and infrastructure investments. It anticipated hydrocarbon output to expand by 1.5% in 2019 and 2% in 2020, relative to 1.7% in 2018, as it projected oil output to increase from 4.54 million barrels per day (b/d) in 2018 to 4.61 million b/d in 2019 and 4.71 million b/d in 2020, despite the recent OPEC production cut agreement. It added that the increase in output from the Baji refinery would support economic growth and reduce the need to imports petroleum products. 

In parallel, the IIF projected Iraq's fiscal balance to shift from a surplus of 2.4% of GDP in 2018 to a deficit of 0.9% of GDP in 2019, as oil prices moderate. It forecast the public debt level to increase slightly from 50.8% of GDP at end-2018 to 52% of GDP at end-2019. Further, it expected the current account surplus to narrow from 10.9% of GDP in 2018 to 2.3% of GDP in 2019, while it anticipated foreign currency reserves to increase from $58.4bn at end-2018 and $65.7bn at end-2019. The IIF pointed out that Iraq is in desperate need of international assistance and reforms to support private sector growth, which include reducing corruption, strengthening institutions, reforming the electricity sector, and ensuring water security. Further, it considered that the state-dominated domestic banking sector lacks the capacity to finance the economic recovery despite the rapid pickup in credit activity. It noted that security conditions and political instability remain the key downside risks to the outlook.
Source: Institute of International Finance
 
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