Iraq Business Forecast Report Q4 2012

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Increasing Political Uncertainty Hinders Transition
Iraq is in the midst of an acute political crisis, which will slow policy formation and hinder the government's ability to guarantee security
and the rule of law Moreover, as we do not see instability abating anytime soon, the risks that the country will fall back into civil war are
on the rise
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Multiple Challenges To Stability Over The Coming Decade
Iraq faces multiple challenges to its stability over the coming decade, and we do not preclude a return to authoritarian rule, renewed
sectarian conflict or the break-up of the state

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
All About Oil?
We forecast Iraq's economy to grow 10 5% and 13 8% in real terms in 2012 and 2013, respectively, compared to our estimate of 12 4%
in 2011 Increasing oil exports will be the main factor driving growth, offsetting a rapid increase in imports, while private consumption will
expand at a slower pace
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Inflation To Remain In Single-Digits
We project consumer price inflation (CPI) in Iraq averaging 6 5% in 2012, down from our previous forecast of 6 8%, which is primarily a
result of a faster-than- expected decrease in food prices That said, inflation will remain relatively elevated over the remainder of 2012,
owing in large part to the economy's strong growth outlook
TABLE: MONETARY POLICY
Fiscal Policy
Political Paralysis Slowing Investment Spending
We project Iraq's budget to come in surplus to the tune of 9 4% and 7 6% of GDP in 2012 and 2013, respectively Current expenditure
will continue to increase at a rapid clip, as the government seeks to bolster public support, while investment spending will slow as a
result of the ongoing political crisis, which is delaying approval of many much-needed infrastructure projects
TABLE: FISCAL POLICY
Balance Of Payments
Politics Undermining Investment Outlook
We project Iraq's current account to come in surplus to the tune of US$28 3bn in 2012 and US$31 0bn in 2013, representing 20 4%
and 18 6% of GDP, respectively The trade balance will remain firmly in the black, owing to rapidly increasing oil exports However, due
to political in-fighting between the central and Kurdistan regional governments, foreign investment in the oil sector will remain below
potential
TABLE: CURRENT ACCOUNT
Economic Policy
Conference Highlights Challenges For Investors
A recent Iraq investment conference reinforced our view that the country's security situation, uncertain legal framework and patchy
bureaucracy present considerable risks for investors That said, owing to the considerable opportunities that the economy offers, we
expect a significant influx of foreign investment over the coming years

Chapter 3: 10-Year Forecast
The Iraq Economy To 2021
Continued Growth Dependent On Maintaining Stability
Our 10-year macroeconomic forecasts are based on the expectation that Iraq will become an increasingly stable polity, setting the
foundation for average real GDP growth of 8 6% between 2012 and 2021 The oil and gas sector will continue to be the lifeblood of the
economy over this time frame
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
Market Orientation
TABLE: MIDDLE EAST AND AFRICA – ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
TABLE: TOP EXPORT DESTINATIONS

Chapter 5: BMI Global Assumptions
Global Outlook
Q412 Update
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 35