August 7, 2015 / 4:46 PM / 4 years ago

Iraq receives first rating in boost to bond issue plans

* Plans first bond issuance for 9 years, worth $5 bln

* Fitch forecasts double-digit fiscal deficit for 2015

* Oil, primary source of income, far from IS frontlines

By Sudip Roy and Ahmed Rasheed

LONDON/BAGHDAD, Aug 7 (Reuters) - Iraq received its first sovereign credit rating on Friday, which it had sought ahead of a planned $5 billion international bond issue aimed at relieving the pressure of low oil prices on state finances.

Fitch assigned Iraq a B- rating with a stable outlook, six notches below investment-grade, citing political risks and insecurity that are among the highest faced by any sovereign rated by the agency.

It also forecast a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with the fight against Islamic State insurgents in the country’s north and west.

Finance Minister Hoshiyar Zebari said earlier this year that Iraq was planning its first international bond sale for nine years. Obtaining the credit rating could help persuade global fund managers and banks to buy the bonds.

Haitham al-Jubouri, secretary of the Iraqi parliament’s financial panel, said the junk-grade rating did not “meet ambitions” but could be considered a launching pad for financial development.

“It encourages us to start taking serious steps to reform the Iraqi banking sector, to send a positive message to investors and improve our future financial and economic outlook,” he told Reuters by phone.

In steps towards increasing investor confidence, the World Bank said last month it would provide Iraq with loans totalling $1.7 billion, while the International Monetary Fund reached an earlier agreement for a $833 million loan programme.

As the holder of the world’s fifth biggest oil reserves, Iraq could be an attractive investment for some investors. Oil accounts for around 40 percent of gross domestic product and over 90 percent of fiscal and current external receipts.

“Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity,” Fitch noted in a statement.

A rebound in oil prices would help improve the government’s fiscal position with Fitch forecasting a small deficit by 2017.

Writing by Stephen Kalin; Editing by Catherine Evans

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