Iraq's dependence on oil to continue as reform pace slows, says Moody's

The Opec producer receives 90 per cent of government revenues from sale of oil, a major impediment to economic reforms

Vehicles move through the Green Zone in Baghdad, Iraq, Tuesday, Sept. 24, 2019. Two rockets were fired into the capital's fortified Green Zone Monday evening, landing around one kilometer (a half-mile) from the U.S. Embassy amid soaring tensions between the U.S. and Iran. (AP Photo/Hadi Mizban)
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Iraq's continued dependence on oil revenues is likely to slow structural and fiscal reforms over the medium term, Moody's said in a report, which also highlighted the Opec producer's susceptibility to political risk.

"We do not expect Iraq's dependence on oil production and sensitivity to oil price swings to materially decline in the next five years," said Alexander Perjessy, a Moody's vice president and senior analyst.

Political fragmentation, elevated political and security risks and the authorities' desire to avoid social unrest are other factors affecting implementation of much-needed economic reforms, he added.

Iraq, Opec's second-largest producer derives 90 per cent of its government revenue from the sale of oil, which accounts for 60 per cent of gross domestic product.

According to the ratings agency, fiscal deficits will amount to around 4 per cent of the Iraqi economy during 2019 to 2020, following a 7.9 per cent surplus in 2018. Baghdad's current account balance is also expected to deteriorate gradually to 2 per cent of GDP deficit by next year following surpluses of 5.8 per cent and 0.8 per cent this year and in 2018.

Geopolitical tensions in the Middle East, which have concerned the transit of oil along heavily congested pathways such as the Strait of Hormuz, also pose "a significant risk to Iraq's credit profile," Moody's noted.

The country has also been rocked by two days of violent protests over widespread unemployment, failing public services and state corruption, leading to the deaths of 19 people.