S&P Global Ratings has affirmed Iraq's sovereign credit ratings at 'B-' for long-term obligations and 'B' for short-term obligations in both foreign and local currency, and retained a stable outlook.
The ratings agency said its decision reflects expectations that Iraq's international reserves will continue to exceed the country's external public sector debt, a dynamic that helps it absorb substantial risks stemming from regional geopolitical tensions, structural institutional weaknesses, and limited economic diversification.
S&P highlighted that regional geopolitical risks remain elevated, driven by ongoing tensions between the U.S. and Iran. The agency noted that a military escalation could amplify regional uncertainty, but that it currently assumes the U.S. lacks an appetite for direct military intervention.
On the economic front, S&P projects a recovery in oil output in 2026. The forecast reflects anticipated production growth as OPEC+ eases quotas and the Northern Iraq Kirkuk-Ceyhan pipeline resumes exports. Those gains are expected to partially counteract the impact of softer oil price assumptions, which the agency has set at $60 per barrel for 2026 and $65 per barrel for the 2027-2029 period.
Macroeconomic projections from S&P foresee average annual GDP growth of roughly 2% over 2026-2029, after an estimated contraction of about 1% in 2025. The agency reports Iraq's GDP per capita at approximately $5,800 in 2026, while noting that this figure does not fully capture the size of the informal economy.
Politically, Iraq remains without a formed government following November's parliamentary elections. While the Coordination Framework coalition won the most seats, the appointment of a prime minister has not been determined. Voter participation rose to 56% from 41% in 2021.
On fiscal policy, S&P expects Iraq to run moderate deficits averaging about 3% of GDP through 2029. In the near term the government is operating under a monthly spending rule that permits outlays equal to one-twelfth of the previously adopted annual budget while the 2026 budget has not been approved due to election-related delays.
Regarding debt dynamics, the rating agency forecasts that general government debt net of liquid assets will increase to 42% of GDP by 2029 from 32% in 2025. Despite that projected rise, S&P continues to view Iraq's external position as a rating strength, with usable reserves expected to remain near $100 billion across 2025-2029.
S&P set out potential pathways for future rating changes: a downgrade could result if heightened domestic political uncertainty or a deterioration in regional geopolitics undermines growth, fiscal performance, or the balance of payments. Conversely, an upgrade would be contingent on measurable institutional reforms and a more stable security environment that bolsters growth prospects and the investment outlook.
Contextual note: The assessments and projections above reflect S&P Global Ratings' current assumptions and baseline scenarios as described in the agency's evaluation.