Iraq's economy is weakening owing to the sharp drop in oil prices and related revenues, high and poorly-directed fiscal expenditures, and weak governance. The Iraqi government and its allies have recaptured some territories controlled by the so-called Islamic State (IS) militants, such as Ramadi (west of Baghdad). Owing to the oil price fall, we expect significant fiscal and external pressures to persist between 2016 and 2019, despite our projected significant increase in Iraq's oil output. However, we think the unfunded International Monetary Fund (IMF) Staff-Monitored Program approved in December 2015 will help pave the way to a possible IMF financing arrangement in 2016. We are affirming our 'B-/B' long- and short-term foreign and local currency sovereign credit ratings on Iraq.
