2014 has seen the country face a number of serious challenges such as its ongoing battle with ISIL, falling oil prices, terrorism, and disputes with the Kurdish regions. Suha Najjar and the Akkadia Partners team provide a pulsecheck on how Iraq’s economy is faring in the face of these challenges.
The IMF has lowered its economic growth forecast for 2014 for oil exporting countries in the region to 2.5% from 4% due to the conflict in Libya and Iraq and lower oil prices. Oil production in the two countries has held up and in the case of Iraq, production this year is expected to be unaffected. The downward revision was partially due to the drop in oil prices which, according to the organisation, is expected to persist for the next two years. The impact of the conflict is mostly outside the oil sector especially on infrastructure and private sector activities. Meanwhile, Iraq’s oil exports and production reported an increase in October according to Iraq’s Ministry of Oil. Total exports for the month reached 76.3 million barrels with corresponding revenues of USD$ 6.2 billion. The bulk of exports came from the southern fields while exports through the Kirkuk – Ceyhan terminal are halted.
The 2014 budget continues to be debated while the year is coming to a close. The escalating cost of the war against terror and lower oil prices are likely to leave the real 2014 budget with a wide deficit. The delay in approving the budget has had negative impact on economic growth this year due to the lack of investment spending. The 2015 budget is likely to be set lower because of the decline in oil prices and uncertainty around oil production in the northern regions.
Central Bank of Iraq (CBI) average daily currency auction stood at CBI Currency Auction, 2014 USD$ 241 million during the month of October, slightly above the yearly average of USD$ 206 million. The official Central Bank rate was unchanged at IQD:USD$ 1,116. In the market, the dinar appreciated in recent weeks to stabilize around 1,199 to the dollar compared to 1,220 at the end of 2013. Foreign reserves at the Central Bank were estimated at USD$ 67 billion, which although marks a decline from their peak level of USD$ 80 billion, are still sufficient to provide a healthy cushion for the currency. Mobile operators have been granted the 3G license by the Iraq Ministry of Communication. All three operators namely Zain, Asiacell and Korek were given the spectrum at a cost of USD$307 million each. Iraq is one of the few countries in the word that continues to rely on the 2G technology. Fixed line penetration is also one of the lowest in the world at 5.4%. The high speed service is expected to be launched by the operators in early 2015.
Iraq Stock Exchange (ISX) was down 0.22% in October closing at 99.91 points. Year to date the index is down 11.7%. The ISX took the worst hit in June & July following the advancement of ISIS into The 2014 budget continues to be debated while the year is coming to a close. The escalating cost of the war against terror and lower oil prices are likely to leave the real 2014 budget with a wide deficit. The delay in approving the budget has had negative impact on economic growth this year due to the lack of investment spending. The 2015 budget is likely to be set lower because of the decline in oil prices and uncertainty around oil production in the northern Mosul, the second largest city in Iraq. Further deterioration in August following ISIS capture of additional towns had little impact on the market due to low foreign participation by then. Trading volume 40 stood at IQD37.7 billion in October, 53% below the yearly average 20 due to the limited trading sessions. The market had 11 trading sessions only due to public holidays. Large cap stocks reversed their trend after two consecutive months of gains. On average, large caps were down 3% in October. The index largest constituent, Asiacell (TASC) lost 15% of its value during October. The selloff sentiment by Non- Iraqis resumed with foreign selling constituting 72% of the stock’s trading volume. Bank of Baghdad (BBOB), the leading stock in the banking sector lost some of the gains captured in pre- vious months as it lost 8% by the end of October. On the other hand, Baghdad Soft Drinks (IBSD), witnessed marginal improvements ending the month up by 3%. The performance of small cap stocks was negative during October.