Following long negotiations, Iraq has agreed on applying the International Monetary Fund’s (IMF) measures to receive loans of $5.4 billion over three years to help the country on surviving a liquidity crisis led by the decline of revenues in line with the significant global drop of oil prices.
Mazhar Mohammad Saleh, the prime minister’s economic adviser, said that the agreement reached last May between Iraq and the IMF is ongoing according to the plan.
Saleh added that the Iraqi government has approved the measures during last week’s meeting and informed the IMF, and that the government expects the bank’s board to approve on paying the first sum of the loan, worth $600 million, by the end of June or the beginning of July.
The loan is expected to be distributed on 13 categories over three years till June 2019, and to be settled over eight years including three years of tolerance, with an interest rate of 1-1.3 per cent, based on the country’s borrowing amount.
The measures on which Iraq agreed include the settlement of all delayed debts of foreign oil companies working in the country by the end of 2016. Iraq, member state of OPEC, seeks to get the international community’s support following the decline of its revenues caused by the drop of oil prices since June 2014. The sharp fall of oil revenues led to a hike in the budget deficit and a delay in paying the dues of foreign oil companies.
The IMF has agreed in May on extending Iraq a loan that worth $5.4 billion over three years, but required the government to implement measures to reduce the budget expenditure, increase the non-oil revenues, and pay the delayed dues of foreign oil companies.
Saleh said that the economic vital reforms include an increase of taxes, electricity fees, and the promotion of banking censure to combat corruption and money laundering. He added that those reforms also require control in the governmental institutions, review of inflated salaries of public sector workers to put an end to the phenomenon of paying undeserved salaries.
Haider al-Abadi, Iraqi prime minister previously said that his country is suffering from a hard economic condition caused by the drop of oil prices in the global markets, and pointed that his government moved toward promoting the fields of agriculture, industry, and tourism, to diversify the revenues depending on the oil exports.
The Iraqi government has raised the sale taxes on the exported commodities, aiming at enhancing the financial revenues to alleviate the financial crisis in the country. But, till this day it is still unable to provide the revenues needed to fund the budget.
The sharp drop in global oil prices since 2014 comes while Iraq needs more resources to combat ISIS that controlled large areas in the western and northern parts of the country, and displaced around four million people. The oil prices have raised and the barrel has reached more than $50, compared with $27 in January. Yet, prices remain significantly below the levels registered in June 2014, when the barrel’s price reached $115.
The Finance Minister Hoshyar Zebari said that the agreement with the IMF will open doors for $18 billion-grants over three years. He noted that the donning parties include the World Bank, and the G7, along with the International Monetary Fund. Zebari said that Iraq expects to sell international bonds worth $2 billion in Q4 2016, in line with the global grant flow, which will reduce the burden of borrowing. The last time Iraq sold international debt tools was in 2006, when it issued bonds that reached $2.7 billion and postponed them till 2028 with 5.8% revenue.
Oil revenues represent around 95% of the country’s income, which made Iraq suffer from an economic crisis. The government expects the financial deficit to reach $25 billion during 2016, in a $100 billion budget, due to the drop of oil prices by more than 50% since 2014, in addition to the costs of the country’s war against ISIS.