World Economy

Iraq to Put Off $2b Bond Sale to 2017

Iraq to Put Off $2b Bond Sale to 2017Iraq to Put Off $2b Bond Sale to 2017

Iraq is likely to delay the planned sale of $2 billion in bonds on international markets until at least early 2017, a government adviser said, hoping that rising oil revenues and victory over Islamic State will improve public finances.

Baghdad had said it would issue the bonds, with half the value guaranteed by the US government, in the last quarter of 2016. But those plans appear uncertain after Finance Minister Hoshiyar Zebari was sacked last week on corruption charges, which he denies, Reuters reported.

“I think we are going to push it back,” Mudher Salih, an adviser on financial policy to Prime Minister Haider Al-Abadi, said.

“We have to see the situation of the oil market—if it’s enhanced we could leave it a little, if the oil market deteriorates more, we will have to borrow.”

Oil prices rose nearly 2% on Thursday, with Brent crude futures at $49.49 a barrel, on optimism over OPEC’s first output cut plan in eight years in order to support prices.

Iraq has seen spectacular gains in output in recent years and is asking oil majors to expand production further to above five million barrels per day from the current 4.7 million.

The government, which relies almost exclusively on oil income, has struggled to pay its bills since global crude prices dropped in 2014, the same year terrorists seized a third of the country’s territory.

Al-Abadi has pledged to regain Mosul, Iraq’s second-largest city, by the end of the year and said doing so would effectively end Daesh’s presence in the country.

Salih said he expected the major OPEC producer’s economic situation to improve after the operation, so that military spending could be cut or diverted to rebuilding areas devastated by a war that has displaced more than 3.3 million Iraqis.

Iraq has $2.7 billion of international bonds due in 2028 with a coupon of 5.8%, currently yielding about 9%.

Military spending in Baghdad’s 2017 budget remains the same as this year, but could be reclassified during the fiscal year according to changing needs, Salih said.

To replace missing oil revenue, Iraq has turned to the International Monetary Fund for a loan package that would also serve as the basis for other lenders to provide support.

The IMF approved a three-year, $5.34 billion standby loan in July, in exchange for a package of economic reforms. Baghdad hopes that will unlock over $12 billion in additional aid from sources such as the Group of Seven leading industrialized nations.