Iraq

This report does not constitute a rating action. Overview Institutional and economic profile Flexibility and performance profile Iraq's complex and volatile political situation limits policy predictability. Oil exports will keep the current account in a surplus, while large domestic spending plans will return the fiscal position to a deficit. --Recent attacks by Iraqi Shia militias on U.S. military bases have heightened regional tensions and fractured U.S.-Iraqi bilateral relations since the onset of the Israel-Gaza conflict. --We expect the fiscal position will revert to a deficit in 2024 after a minor surplus in 2023, as the new government addresses spending pressure in the economy. --Oil exports continue to be negatively affected by OPEC+ production cuts, the closure of the Northern Iraq-Ceyhan

...Spillovers from the Israel-Gaza conflict are raising domestic and regional political tensions. In response to attacks on its troops, the U.S. has retaliated militarily against Iran-backed Iraqi militant groups on Iraqi soil. The U.S. has warned of further attacks on Iran-linked targets, which is likely to further strain Iraq's diplomatic relations with both the U.S. and Iran. Iraq continued to underspend in 2023 despite parliament passing its largest multi-year budget to date. Preliminary data suggests Iraq posted its third consecutive fiscal surplus of around 2% of GDP in 2023--versus budgeted projections of a 16% deficit--owing to significant underspending on infrastructure projects and public sector wages. We expect Iraq's fiscal position will revert to a deficit of approximately 4.6% of GDP over 2024-2027. Iraq's sizable oil export capacity will support external surpluses and FX reserves. Despite OPEC+ production cuts and the ongoing closure of the Iraqi-Ceyhan pipeline, we expect increasing...

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