Fitch Ratings anticipated that higher oil prices would improve Iraq's economy, public finances and external balances during the 2018-19 period. It projected real GDP to grow by 1% in 2018 and 3.3% in 2019, relative to a contraction of 1.3% in 2017. Further, it forecast the fiscal balance to shift from a deficit of 2.3% of GDP in 2017 to surpluses of 3% of GDP in 2018 and 1% of GDP in 2019. It noted that the government's finances are highly reliant on hydrocarbon receipts, which generate between 85% and 90% of public revenues. It estimated that an increase of $1 p/b in oil prices generates $1.2bn in additional revenues to the government, assuming stable export volumes. It added that its fiscal forecast does not include a full oil-sharing agreement with the Kurdistan Regional Government. It anticipated Iraq's fiscal balance to shift to a deficit of 1.9% of GDP in 2020 in case oil prices gradually decrease from $70 p/b in 2018 to $65 p/b in 2019 and $57 p/b in 2020. 

In addition, Fitch expected the government's debt level to decline from 60.1% of GDP at the end of 2017 to 50% of GDP at end-2018 and 48.7% of GDP at end-2019, in case of budget surpluses and higher nominal GDP. It noted that the government is planning to repay some Treasury bills and does not intend to issue more Eurobonds. However, it forecast the debt level to increase to 50.4% of GDP at end-2020 when the fiscal balance shifts to a deficit and oil prices decline. It expected foreign currency reserves to grow from $48.9bn at end-2017 to $53.7bn at end-2018 and $54.8bn at end-2019. In parallel, it indicated that Iraq's three-year Stand by Arrangement with the International Monetary Fund is on hold due to differences about the 2018 budget, as weak governance and political tensions in Iraq are constraining the implementation of fiscal and structural reforms. It noted that it is unclear whether Iraq still wants to have the arrangement with the IMF. But it considered that the IMF is open to negotiations with the upcoming government, with a focus on a supplementary 2018 budget or the 2019 budget, which could incorporate more realistic oil prices and additional reconstruction costs.
Source: Fitch Ratings