2024-01-09T12:38:35+00:00
A-
A
A+
/ The Belgian export credit agency, Credendo, lowered Iraq’s rating from 6 to 7, with regard to political risks in the medium and long term, in light of the internal challenges it faces, and the additional risks added by the conflict between Israel and Hamas and the growing tensions between the United States and Iran. And it affects Iraq itself.
The Belgian agency considered, in a report translated by Agency, that Iraq faces a dilemma in light of the American-Iranian competition, as the main weakness for Iraq is its dependence on both forces.
America and Iran
The report explained that Iraq depends on Iran for energy supplies and on the United States for its security, in addition to its dependence on Washington to access its foreign exchange reserves, which are stored in the Federal Reserve, recalling that Washington has restricted, since the end of 2022, transfers of foreign exchange reserves to Iraq, Several banks were prevented from conducting operations in US dollars in order to limit suspicious financial flows to Iran and Syria.
The report pointed out that what the American decision to restrict transfers in US dollars demonstrated is that achieving a balance in Iraq between the two arch enemies (America and Iran) is a major challenge.
Al-Aqsa flood
In addition, the report stated that the war between Israel and Hamas, and the associated tensions between the United States and Iran only contribute to the complexity of Iraq’s precarious situation, as this conflict threatens to destabilize the country.
The report explained that the deteriorating humanitarian situation in Gaza may exacerbate the growing internal social discontent in Iraq and lead to violent demonstrations.
In addition, the report said that since the outbreak of the war between Israel and Hamas, the Iranian-backed militias have targeted American sites in Iraq, and that after Washington initially refrained from retaliating directly inside Iraqi territory, since the end of last November, it began targeting Directly Iranian-backed militias in Iraq itself, which represents a strategic shift on the part of the United States, and represents a major escalation, because the Iraqi government views the American attacks as violating the country’s sovereignty and exacerbating discontent over the presence of American forces in the country.
Exit of the international coalition
The report indicated that the Iraqi government recently announced its intention to remove international coalition forces from its territory.
The report considered that this volatile situation makes Iraq vulnerable to a variety of risks, such as the imposition of additional and more severe sanctions, and the application of greater restrictions on access to foreign exchange reserves, but it also raises the possibility that Iraq will face an escalation in social unrest and insecurity, adding by saying that “the worst The scenarios are for Iraq to be subjected to stronger military retaliation from the United States or Israel.
After the report pointed out that these increasing political risks come on top of the already shaky economic fundamentals in Iraq, it explained that economic activity, public finances, and revenues are excessively dependent on the oil and gas sector, which leads to major fluctuations in the economy.
He pointed out that despite the urgent need to diversify the oil-dependent economy, no concrete measures have been taken so far, adding that the financial budget that was approved for a period of three years is expected to exacerbate economic problems and impose renewed pressures on public finances, as Estimates indicate that Iraq will face a large public financial deficit under the new budget.
Growing public debt
He continued that fiscal policy is expected to lead to an increase in public debt levels from 44.9% of GDP in 2022 to 61.4% of GDP in 2025, adding that the most worrying issue is that the public salary bill is expected to rise dramatically. Significant given the expected increase in public sector employment, as Iraq already has one of the highest levels of public employment in the entire region.
The report considered that this vicious circle of economic dependence on oil and gas markets could complicate the ability of the Iraqi authorities to implement structural financial reforms without inflaming social tensions.
The report concluded by saying that while the political situation in Iraq was very difficult, the conflict between Hamas and Israel and escalating regional tensions could further destabilize the country, as they fuel social unrest, increase insecurity and political instability and expose Iraq to far-reaching retaliatory measures from Before the United States or Israel.
Therefore, the report concluded by saying that the Credendo Agency decided to reduce the medium- and long-term political risk ratings in Iraq from category six to category seven.
Translated by Agency