Bank of America Merrill Lynch (BofAML) expected that the recent parliamentary elections in Iraq and the recovery in global oil prices would put the IMF-supported economic program on hold or off-track. It noted that higher oil prices would ease sovereign financing constraints for Iraq and postpone any external bond issuance in the near term. However, it anticipated that the lack of reforms under the IMF program would expose the sovereign's balance sheet to oil price volatility. It said that the IMF program aims to stabilize spending in order to gradually close the fiscal gap, mainly through reforms to the public-sector wage bill, pensions, the electricity sector and non-oil revenues, among others. In parallel, it considered that the 2018 budget is not consistent with the IMF program's conditionality due to the government's failure to implement non-oil revenue tax measures, as well as to the decline in transfers to the Kurdistan Regional Government. It added that the government did not meet prior actions that were required for the completion of the third IMF review. It anticipated that the IMF could resume its discussions over an economic program with Iraqi authorities, in case oil prices declined and a neutral Prime Minister takes office. In parallel, it indicated that fiscal pressures are receding and projected the fiscal deficit to reach 1.8% of GDP in 2018, which would reduce the authorities' incentives for reforms. It added that external pressures are also decreasing, with the Central Bank of Iraq's gross foreign assets reaching $52bn, or 22% of GDP, in April 2018. 

Further, BofAML pointed out that the alliance between Shia parties would reduce political instability and minimize risks of intra-Shia clashes following the election results. However, it expected that the formation of a new government of national unity could take several months, which would weaken the country's reform ability. It added that Iraq's relationships with the U.S. and the GCC countries depends on the appointment of a neutral figure as the next Prime Minister, on regional developments related to Iranian sanctions, as well as on incentives to maintain international financing prospects, mainly from Arab pledges.
Source: Bank of America Merrill Lynch

Fitch Ratings affirmed Armenia's long-term foreign- and local-currency Issuer Default Ratings (IDRs) at 'B+' with a 'positive' outlook. It indicated that the ratings are supported by the country's credible monetary policy framework, reduced external imbalances and higher income per capita than similarly-rated peers. But it said that the ratings are constrained by the country's wide fiscal deficits, rising public debt level, high external debt level and tensions with neighboring countries. It forecast real GDP growth at 4.7% in 2018 and 4% in 2019, supported by strong external and domestic demand, a recovery in consumption and investment, higher commodity prices, and sustained growth in remittance inflows and tourism receipts. Also, it pointed out that the fiscal deficit narrowed from 5.5% of GDP in 2016 to 4.8% of GDP in 2017, but underperformed the government's target deficit of 2.7% of GDP due to the disbursement and execution of a Russian defense loan of $170m, equivalent to 1.5% of GDP. Still, it projected the deficit to narrow to 3.5% of GDP in 2018 and 3% in 2019 in the absence of further unanticipated external loan disbursements. As such, it expected the public debt level to decrease from 59% of GDP at the end of 2017 to 58.4% of GDP at end-2018. It noted that the public debt level is exposed to exchange rate volatility, given that 81% of the public debt is denominated in foreign currency. In parallel, Fitch forecast the current account deficit to slightly widen from 3.5% of GDP in 2017 to 3.8% of GDP in 2018, as the growth in export receipts and remittance inflows would be offset by strong import demand and rising energy prices. It said that the country's exchange rate flexibility, reduced external imbalances and access to external financing would reduce risks to the balance of payments in the near term.
Source: Fitch Ratings

The Institute of International Finance indicated that the level of general government debt in emerging markets (EMs) reached a record-high of $14 trillion at the end of 2017, which is equivalent to 48% of aggregate EM GDP. It noted that government debt in EMs grew by $6 trillion since the end of 2010, with significant increases in the public debt levels of Brazil, Colombia, Egypt, South Africa and Ukraine. Also, it pointed out that government debt in Asia is largely in local currency; while 79% of public debt in Argentina is in foreign currency, followed by Saudi Arabia with 48.3% of its debt, Turkey (39%), Poland (31%) and Colombia (30.5%). Further, it said that domestic banks held 86.1% of public debt in China at the end of 2017, followed by Egypt with 52.6% of its debt, Turkey (44.2%), Bulgaria (43.7%) and Russia (42.2%). It added that foreign investors held 62.3% of general government debt in Indonesia at end-2017, followed by Peru with 60.6% of its debt, Ukraine (56.6%), Colombia (53%), Romania (52%) and Uruguay (51.1%), while they held only 3% and 6.1% of government debt in China and India, respectively. In addition, the IIF expected financing needs in Egypt and Pakistan to exceed 15% of their GDP in 2018, while it estimated that the government financing needs of Chile and Russia would be below 5% of their GDP this year. It also anticipated a record-high of $365bn in EM bonds and syndicated loans to mature in 2019, relative to $160bn and $185bn in maturing debt in 2017 and 2018, respectively. Further, it expected debt servicing on EM public debt to be equivalent to around 2% of aggregate EM GDP in the 2018-19 period, ranging from around 0.5% of GDP in Russia to over 6% of GDP in each of Brazil and Egypt.
Source: Institute of International Finance