Iraq's Oil Revenue Expected to Moderate in 2023

Iraq's budget surplus will increase to around 10% of its gross domestic product (GDP) in 2022 due to higher oil revenue, although political instability has restrained spending growth somewhat, the rating agency was quoted by Anadolu news agency as reporting.

The country's oil production growth of 12%, which is in line with OPEC+ production agreements, has driven real GDP close to 10%, while nominal GDP has likely grown by 36%, pushing the economy above levels reached in 2013-2014, it said.

The rating agency, however, said it forecasts a significantly smaller surplus in 2023 at 2.2% of GDP, while it expects at least a 10% increase in spending, with the price of global benchmark Brent crude averaging $85 per barrel, down from $100 per barrel earlier this year.

The agency, in addition, anticipates a budget deficit of around 3% of GDP in 2024, assuming that the average price of Brent crude falls to $65 per barrel that year.

"Iraq's budget revenue sensitivity to oil price and volume is significant. A $10 per barrel change in the average oil price in 2023 relative to our forecast would impact the budget by around 4% of GDP, assuming unchanged spending," the statement said.

"In terms of volume, an additional 250,000 barrels per day of oil exports would boost revenue by 2.6% of GDP," it added.

Fitch said high oil prices have improved many of Iraq's credit metrics in 2022, but the absence of structural, economic or fiscal reforms and persistence of political risk constrain its rating.

The agency affirmed Iraq's credit rating at 'B-' with a stable outlook but warned that worsening fiscal conditions due to a sustained period of low oil prices or uncontrolled government spending could lead to negative rating action or a downgrade.

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