World Economy

Iraq to Cut 2016 Spending

Iraq to Cut 2016 SpendingIraq to Cut 2016 Spending

Iraq, pressured by lower-than-expected oil prices, will cut non-oil spending in its 2016 budget by 15% and take on several billion dollars in international debt, it said in a memo which the International Monetary Fund released on Thursday.

OPEC’s second-largest producer, which relies on oil exports for nearly all its revenue, has sought donor support amid a collapse in global crude prices and a costly war against Islamic State militants that has displaced more than 3.4 million people, Reuters reported.

Iraq’s parliament in December approved a 2016 budget of 105.8 trillion Iraqi dinars ($90 billion), with a deficit of 24 trillion dinars.

The government now expects the deficit to narrow to $4.9 billion in 2016 and then to $13.2 billion during 2017-19, it said in a June letter to the IMF requesting a Standby Agreement.

The IMF approved the SBA last week, granting access to an initial tranche of $1.9 billion in loans.

Iraq said other financing sources for this year’s deficit would include more than $2 billion in loans from the World Bank, partially guaranteed by France, the United Kingdom and Canada, and over $3 billion in loans from the United States and other lenders.

The authorities will also rely on a $1 billion bond with full guarantee of the United States and $1 billion Eurobond issuance in the last quarter of 2016.

Iraq last sold international debt in 2006, when it issued about $2.7 billion of bonds due in 2028 with a coupon of 5.8%.

The government plans to draw down its foreign exchange reserves over the next few years to help supplement that financing. It projects they will bottom out at $31.5 billion in 2020 from $59 billion in October.