Standard & Poor’s Affirms Iraq’s Sovereign Credit Rating at B- with Stable Outlook

AP

Standard & Poor's headquarters.

Standard & Poor’s Global Ratings has affirmed Iraq’s long-term foreign and local currency sovereign credit ratings at ‘B-’ and its short-term rating at ‘B’, maintaining a stable outlook.

The rating agency’s decision reflects expectations that Iraq’s international reserves will continue to exceed its external public sector debt, which helps mitigate significant risks from geopolitical uncertainties, weak institutional framework, and lack of economic diversification.

Standard & Poor’s noted that regional geopolitical risks for Iraq remain elevated due to ongoing tensions between the U.S. and Iran. While a military escalation could increase regional uncertainty, the agency assumes the U.S. currently lacks appetite for direct military intervention.

Iraq’s oil production is expected to rise in 2026 as OPEC+ tapers quotas and the Northern Iraq Kirkuk-Ceyhan pipeline resumes exports. This should partially offset softer oil prices, which S&P projects at $60 per barrel for 2026 and $65 per barrel over 2027-2029.

The agency forecasts average annual GDP growth of about 2% over 2026-2029, following an estimated contraction of about 1% in 2025. Iraq’s GDP per capita is relatively low at approximately $5,800 in 2026, though this figure doesn’t fully account for the country’s sizable informal economy.

Following November’s elections, Iraq has yet to form a government. The incumbent Coordination Framework coalition secured the most parliamentary seats, but it remains unclear who will be appointed prime minister. Voter turnout increased to 56% from 41% in 2021.

S&P expects Iraq to run moderate fiscal deficits averaging 3% of GDP through 2029. The government is currently operating under a monthly spending rule that allows for 1/12 of the previously adopted annual budget due to election-related delays in passing a 2026 budget.

The rating agency forecasts Iraq’s general government debt net of liquid assets will rise to 42% of GDP in 2029 from 32% in 2025. The country’s external position remains a rating strength, with usable reserves expected to remain near $100 billion over 2025-2029.

S&P could lower the ratings if domestic political uncertainty or regional geopolitical risks escalated, affecting Iraq’s growth, fiscal performance, and balance of payments. Conversely, an upgrade could follow if institutional reforms and a more stable security environment strengthened the country’s growth prospects and investment outlook.



PUKMEDIA