In the second of our 'Markets in crisis' series, our integrated team of research analysts examine Iraq, another resource-rich country at risk of sovereign default. Iraq's economic dependence on hydrocarbons has made weathering the oil-price downturn especially challenging, and our expert analysts look at what lies ahead for this complex region.
With 90% of its revenue coming from hydrocarbons in 2015, Iraq is heavily dependent on oil production and export. It's no surprise that the recent oil-price collapse and prolonged counter-insurgency have thrown the country into economic crisis. We project Iraq's fiscal deficit could reach 25% of GDP in 2016. With limited resources to finance this deficit, Iraq will rely on loans from the central bank — raising the public debt stock over 100% of GDP and putting the country at risk of sovereign default.
Oil production itself remains at risk from federal default, particularly in southern Iraq, where 80% of production is financed by the federal government. In the north and Kurdistan, production would be less affected, but political and militant risks are high.
Although growing demand for transport fuels has created the need for additional refinery capacity in Iraq, planned projects are at risk due to reliance on government funding and reduced public capital investment.