Moody’s warns of high-risk challenges in Iraq
Moody’s warns of high-risk challenges in Iraq
2025-11-22
Shafaq News – Translation
Moody’s credit rating agency maintained Iraq’s long-term local and foreign currency rating at Caa1 with a stable outlook, while warning of a number of structural challenges facing the Iraqi economy, most notably weak institutions and governance, and the near-total dependence of public finances on oil revenues.
In a report on Iraq, translated by Shafaq News Agency, Moody’s stated that “Iraq’s heavy reliance on the hydrocarbon sector, which provides about 90% of the government’s revenues, puts it in a vulnerable position to fluctuations in crude oil prices, especially with expectations of lower prices during 2026-2027 compared to the levels of 2023-2025, which threatens additional pressure on the budget and the state’s ability to finance its spending.”
According to the report, the fragmented political landscape following the November 2025 elections may repeat the scenario of delays in forming a government and approving the budget, as happened after the 2021 elections, especially since the current three-year budget ends at the end of 2025, which means the country could enter a financial vacuum if the political agreement is delayed.
Moody’s predicted that the fiscal deficit would reach about 7.4% of GDP in 2025, widening to approximately 9% during 2026-2027, driven by declining oil prices and rising expenditures.
It also predicted that government debt would exceed 60% of GDP by 2026. After the economy contracted in 2024, the agency expects a modest return to growth in 2025, before accelerating to 4% in 2026 as oil production recovers.
Despite the negative indicators, Moody’s believes that the stable outlook is based on several supporting elements, most notably: “The composition of government debt tends towards low costs, strong foreign exchange reserves give the central bank greater capacity to absorb shocks, and a limited size of actual external debt, as most of the overdue debts belong to countries outside the Paris Club and are not currently being serviced.”
The agency believes that the strength of the cash reserve reduces liquidity risks in the near term, despite the high government financing needs.
Moody’s noted that Iraq’s rating within the Environment, Society and Governance (ESG) index is at the CIS-5 level, which is among the lowest ratings, reflecting a very high exposure to environmental and social risks and deep institutional weaknesses, which directly contribute to lowering the country’s credit rating.
shafaq.com
