BAGHDAD, Iraq (AFP) — Fitch Ratings graded Iraq Friday as being at risk of default due to insecurity, financial difficulties and poor governance, in its first rating of the country.

The Islamic State group overran large areas of Iraq last year and the country is still battling to regain ground, while lower oil prices have hit its petroleum-dependent economy.

“Political risk and insecurity are among the highest faced by any sovereign rated by Fitch,” the agency said, explaining Iraq’s B- rating with a stable outlook.

All B ratings “indicate that a material default risk is present.”

Fitch said it forecasts a double-digit deficit for Iraq this year “owing to lower oil prices, higher military spending and costs associated with civil conflict”, and that debt will reach 51 per cent of GDP by the end of 2015.

Iraq is almost entirely dependent on oil for funds, and Fitch said the country’s non-oil GDP contracted by nine per cent last year, a situation that will likely worsen in 2015.

And “Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions,” it said.

Iraq’s inadequate finances have resulted in already poor services worsening even further, sparking nationwide protests in which demonstrators accuse the political class of being incompetent and corrupt.

And while the country’s security forces have retaken some areas from the Islamic State group, the jihadists still large parts of Iraq, including second city Mosul and most of the western province of Anbar.