The Iraqi economy will grow by a small -.- in real terms over ----, as oil production plateaus and as low global oil prices limit government spending and slash capital expenditure. Non-oil economic activity will remain flat, as the conflict between Baghdad and Islamic State pre- vents manufacturing and agricultural production to recover. ...Indeed, we expect Baghdad to moderately cut back on public wages � with close to -.- million Iraqis, -- of the population, employed in the public sector � which will impact households purchasing power. More importantly, private spending will remain constrained by more than - million Iraqis displaced by the fighting against IS. As of December ----, more than -.- million Iraqis were supported by the UN � in particular in the Northern and Eastern Gover- norates where the frontline against IS lies - and the rest having found refuge in the relatively more peaceful Iraqi Kurdistan and southern cities, driving up prices in those areas. In addition, we expect the Central Bank of Iraq (CBI) to de- value the Iraqi dinar by - against the US dollar over ----, as foreign reserves decrease significantly, and in a bid to prop up government s revenues in dinar terms from oil exports � which are settled in US dollar and account for close to -- of total revenues. ...In addition, we expect the Central Bank of Iraq (CBI) to de- value the Iraqi dinar by - against the US dollar over ----, as foreign reserves decrease significantly, and in a bid to prop up government s revenues in dinar terms from oil exports � which are settled in US dollar and account for close to -- of total revenues. With Iraq importing most of its capital and consumer - Business Monitor International Ltd www.bmiresearch.com
...Source: UN, BMI for many households have disappeared, a situation unlikely to change over the coming quarters. ...Government Consumption: We expect government spend- ing growth to be subdued until ----, as Baghdad is unable to significantly cut spending despite facing a very large fiscal deficit, brought about by the slump in global oil prices. Given the existential threat posed by IS and sectarian divides in the country, we do not see the federal government having the political leverage to cut military spending or the wage bill � with more than -- of the Iraqi labour force of -- million employed by the state � any time soon. Fixed Investment: With oil prices unlikely to rally before ---- at the earliest, and with the oil sector making up more than -- of the Iraqi economy, we believe that fixed investment growth will remain subdued for the next two years at least in Iraq. ...Concomitantly, import growth will remain subdued, as private consumption and fixed capital formation remain low.
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