Prime Minister Mohammed Shia al-Sudani's government signed the agreement with the IFC, which pledged to "harness private sector capital and expertise" to upgrade Iraq's main airport.
The IFC will present "a comprehensive investment portfolio for the expansion, financing, operation and maintenance of Baghdad International Airport," said a statement from the office of Sudani, who attended the signing ceremony.
The project aims to "enhance its facilities, safety measures and overall services, aligning with global airport standards, facilitated by a specialised international firm," the statement added.
The IFC said that "upon the government's approval, the project will move to tender stage to attract private investors and operators".
Baghdad's airport has undergone no substantial renovations since it opened in the early 1980s when dictator Saddam Hussein ruled Iraq.
Its three terminals are outdated and equipped with only basic amenities, and the facility and its staff quickly become overwhelmed when travel peaks during Shiite religious pilgrimages.
In late 2022, two fires erupted at the airport just three days apart, without causing any casualties. Sudani dismissed three airport officials after the incidents.
Baghdad Airport was closed in the 1990s due to international sanctions, forcing travellers to take the road to Amman in neighbouring Jordan to catch their flights.
Troops belonging to the international coalition against the Islamic State group are still stationed in a part of the airport and sporadically come under fire.
In January 2022, a rocket attack damaged two empty planes on the tarmac.
In April, the government allocated $500,000 to the Civil Aviation Authority to negotiate a contract with the IFC, the leading international development institution focused on boosting the private sector in emerging countries.
"This agreement marks a new era in Iraqi history, allowing the country to leverage its unique geographical position, supporting trade, creating jobs and fostering diversification," Khawaja Aftab Ahmed, IFC's regional director, was quoted as saying.
The IFC has committed $1.2 billion to supporting Iraq's private sector since 2005, added the statement, noting investments in the country's energy, telecom and banking sectors.
Iraq, despite being rich in oil, suffers from deteriorating infrastructure and failing public services as a result of decades of conflict that have plagued the country, as well as poor public management and endemic corruption.
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