Iraq has reached a $5.4 billion standby agreement with the International Monetary Fund that could unlock $15 billion more in international assistance over the next three years, Finance Minister Hoshiyar Zebari said on Thursday.
Iraq’s economy has been hit by the plunge in oil prices since mid-2014 and the country is expected to have a financing gap of $17 billion this year unless it can secure more funding, an IMF document obtained by Reuters showed. The cost of fighting Islamic State militants is another burden on the budget.
Zebari said the deal agreed after a week of talks with the IMF in neighboring Jordan could allow Iraq to borrow again in international markets.
“The program will help us get bonds and improve our international credit rating,” he told a news conference in the Jordanian capital. “In this program we will win time to do much-needed reforms to push our resources.
“It’s not the end of the road but the deal is crucial to allow us to overcome the crisis Iraq faces.”
Iraq’s existing dollar bond, due 2028 traded almost 1 cent higher after the IMF deal was announced.
Christian Josz, head of the IMF’s Iraq mission, told reporters the agreement was an important first step that would give confidence to other donors to extend more financing.
Need to Cut Deficit
He said the standby loan would be disbursed in 13 tranches over the three years to June 2019, with payment over eight years including a three-year grace period. The interest rate will be between 1 and 1.3% depending on how much Iraq borrows.
Zebari said the standby loan was conditional on cutting Iraq’s budget deficit and other measures like reducing the billions of dollars in arrears owed to foreign oil companies.
Iraq, a major OPEC exporter, is planning to lower the oil price assumed in its budget, widening the fiscal deficit of 24 trillion dinars ($21 billion) by several billion dollars.
The agreement still needs the approval of the IMF board, which meets in June. A decision is expected either at the end of June or in July.
Josz said in March that the IMF wanted Iraq to gradually bring spending into line with revenues so that it can stabilize its debt at 75% of gross domestic product by 2020.
“The main objective of the program is to achieve debt sustainability and so to achieve that Iraq needs to rein in spending. The main component of the program is fiscal adjustment,” Josz said on Thursday.
