Cash Pile Swells as Infighting Is a Boon to Iraq Bonds
|May 27, 2014||Filled under Iraq Daily News|
Iraq Daily News -
An unintended consequence of Iraq’s political strife is cheaper borrowing costs for the government.
The yield on Iraq’s January 2028 bond tumbled 101 basis points this year to 6.64 percent today, within three basis points of the lowest since March 2013. In this period, the bond has returned 13 percent, more than twice the average for dollar-denominated sovereign bonds from the Middle East’s OPEC members.
Foreign currency reserves rose 33 percent to $88 billion in the fourth quarter from the end of 2012 after the nation surpassed Iran as OPEC’s second-biggest oil producer. An impasse over revenue-sharing between the government and Iraq’s self-ruling Kurds is among the disputes that have blocked approval of a record budget of $145.9 billion for 2014. Sectarian killings in the country, which held elections last month, are at the highest since 2009.
Mohieddine Kronfol, chief investment officer, global sukuk and Middle East and North Africa fixed-income at Franklin Templeton Investments ME, said, “From a financial perspective, they are getting stronger as spending is postponed and they accumulate reserves with crude production stable.”
Iraq, with the world’s fifth-largest oil reserves, is rebuilding its energy industry after decades of war and economic sanctions. Helped by investors including Royal Dutch Shell Plc and Exxon Mobil Corp., the country pumped 3.25 million barrels a day in April, data compiled by Bloomberg show. It has to be noted that Saudi Arabia is the only member of the Organization of Petroleum Exporting Countries producing more.
The economy is forecast to grow by 5.8 percent this year, up from 3.7 percent in 2013, according to the IMF (International Monetary Fund). Even so, non-energy investment and spending on housing and other social needs has slowed amid political wrangling.
Kronfol also said, “The more polarized the politics and dangerous the security situation in Iraq, the less they are able to execute on their much-needed and very large capital expenditure plans.”
Prime Minister Nouri al-Maliki’s State of Law bloc, which won the biggest share of the vote in the April 30 elections, is trying to reach an agreement with parties opposed to his staying in office for a third term. Parties including the Islamic Supreme Council of Iraq accuse Maliki of refusing to share power.
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