The recent devaluation of the Iraqi dinar will help preserve Iraq's reserves and alleviate short-term fiscal pressures, albeit at the expense of higher inflation and falling real wages. We expect the government's domestic financing needs will be largely met indirectly by the central bank, while its external financing needs will be met by reserves and possible bi- and multi-lateral support. Rising oil prices and production will narrow Iraq's fiscal and external deficits in 2021 compared with 2020, although domestic spending pressure will remain elevated. We are therefore affirming our 'B-/B' ratings on Iraq. The outlook remains stable. On Feb. 19, 2021, S&P Global Ratings affirmed its 'B-' long-term and 'B' short-term foreign and local currency sovereign credit ratings on Iraq.
