Fitch Ratings said in a new report that Iraq's fiscal deficit will deteriorate sharply this year as low oil prices negatively impact government revenues.
According to the report, the fiscal balance is expected to decline to 9.7% of GDP in 2025 from 2.7% in 2024, due to lower revenues caused by lower oil prices.
The report notes that government spending is set to rise as expenses increase ahead of the upcoming parliamentary elections.
Despite "high commodity dependence, weak governance, high political risk, and fiscal stagnation," Fitch maintained Iraq's long-term foreign currency credit rating at B-.
The agency expects the fiscal deficit to average 8.8% of GDP in 2026-2027, based on a Brent crude price of USD 65 per barrel.
Fitch also expects debt levels to rise, with the debt-to-GDP ratio expected to rise to 54.1% by the end of 2025 and 62.5% by 2027.
The report said: "We expect most of the funding to come from the CBI via indirect purchases of government securities, while a smaller portion will come from the government's large cash deposits, which were equivalent to 17% of GDP at the end of 2024."
Oil remains the mainstay of Iraq's economy, accounting for about 40 percent of GDP, 90 percent of government revenues, and nearly all exports.
The report added that oil production fell 6% in 2024 to 3.8 million barrels per day due to cuts aimed at offsetting the previous increase in production.
However, Fitch expects production to recover, rising 6% annually to average 4.3 mb/d in 2025-2027 as OPEC+ voluntary cuts come to an end and exports from the Kurdistan Region increase.
The Iraqi government has already signed agreements with Chevron, ExxonMobil and BP to boost production, following the $27 billion multi-sector deal it signed with France's Total Energy in 2023, the report said.
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