The distinction of being one of the fastest growing economies in the world has been awarded to one of the most unstable countries in the world.

And that economy is of Iraq, which, according to World Bank data, is expected to grow by a sizzling 7.2 percent this year even though it is riven by terrorist insurgency and civil strife.

The economy is outpacing the Middle East’s average economic growth of 3 percent and has recovered from a brutal 9 percent contraction in 2015. And investors say Iraq could eventually be positioned to become a magnet for investor capital even though it may seem unthinkable for now. And some even are of the view that time for Iraq would come sooner than most think.

For now, the country have laid siege to entire swaths of Iraq and remains in the throes of a major offensive to root out ISIS extremists. However, the structural factors, including a recovery in the bear market for oil, are necessary for the country to come out of, say analysts.

Even as it recently obtained a $5.4 billion International Monetary Fund loan to boost stability, Iraq appears poised to navigate cheaper oil prices better than others in the region given that its peers in the Gulf (Saudi Arabia, for example) relied too heavily on triple-digit oil prices to support their domestic budgets.

“Oil at $30 was devastating for a growing country like Iraq, especially coming down from above $100,” Shwan Taha, founder of Rabee Securities, a brokerage headquartered in Baghdad said recently.

At current levels under $50, however, “it is a good price to give a breather and also not to cause the population to be dependent on it,” Taha added. “The economy has to work to grow.”

“Although Iraq has the natural resources to meet some of the criteria for emerging market status, on others it is still quite far away. We think it could take a decade or more before this would become a real discussion.”-Alan Cameron, economist, Exotix Partners

Some say that the IMF package comes at a time when the country’s fundamentals are showing resilience and can be seen as a badge of credibility that somewhat elevates Iraq from pariah status in the eyes of investors.

“Fiscal consolidation, including a freeze in nominal spending, has been delivered and oil exports from the South have surprised on the upside,” said Stuart Culverhouse, head of research at Exotix Partners, a London-based investment firm that specializes in emerging markets.

During a period when oil was priced above $65 per barrel, Iraq’s bonds have been rallying for much of the year to levels not seen in more than a year and Exotix has been advising clients to buy Iraq’s bonds. Among the buyers are smaller investors, a number of blue chip wealth managers and hedge funds.

According to Exotix, while payment delays to international oil companies have been shortened from 220 days to 120 — and may fall further, Iraq’s debt is likely to fall below 79 percent of gross domestic product this year additionally.

(Adapted from CNBC)

Categories: Economy & Finance, Uncategorized