Fitch Rates Iraq at ‘B-‘, With a Stable Outlook

Fitch Ratings has affirmed Iraq’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-’ with a Stable Outlook. This decision highlights several positive developments despite challenges in Iraq’s economy.

1. Oil Production Growth: Iraq is expected to see an increase in oil production, reaching 4.28 million barrels per day (mmbbl/d) in 2025 and 4.54 mmbbl/d by 2026. This growth is vital for Iraq’s economic recovery and will help offset fiscal deficits.

2. Strong Foreign Exchange Reserves: Iraq maintains robust foreign-exchange reserves, forecasted to cover 16.7 months of current external payments. These reserves provide a significant buffer against external financial pressures.

3. Government Debt Contained: While government debt is rising, it remains manageable. The government is primarily financing through domestic channels, notably the Central Bank of Iraq (CBI), with large cash deposits offering an alternative financing option.

4. Substantial Fiscal Buffer: The country’s foreign exchange reserves are projected to be sufficient to absorb the expansion of the CBI’s balance sheet, maintaining stability in the exchange rate and overall financial system.

5. Improved Budget Outlook: Iraq is addressing challenges to its budget by gradually increasing oil production and adjusting its fiscal strategy to meet rising expenditures, especially in preparation for the upcoming elections in 2025.

While Iraq faces some risks, including internal tensions and external security threats, its fiscal position remains resilient. The country’s substantial oil output, coupled with strategic fiscal management, positions Iraq to handle economic challenges and continue its gradual recovery. The Stable Outlook from Fitch reflects confidence in Iraq’s ability to manage its economic and political risks moving forward.

This rating action indicates a balanced view, acknowledging Iraq’s positive fiscal fundamentals while highlighting the need for continued political stability and governance improvements to support long-term growth.

Source: Fitch Ratings