Iraq Plans to Borrow More From IMF to Plug Budget Deficit 9/30/2015
Iraq Plans to Borrow More From IMF to Plug Budget Deficit
9/30/2015 0 Comments
An IMF program may help Iraq access international bond markets and cut the government’s borrowing costs Iraq plans to borrow more from the International Monetary Fund, an economic adviser to Prime Minister Haidar al-Abadi said, as the nation’s economy buckles under the surging costs of fighting Islamic State militants and the plunge in global oil prices. Iraqi officials will hold talks with the IMF during the fund’s annual meetings next month in Lima, Mudher Saleh said in a phone interview. He declined to say how much the government may borrow or what type of IMF program it will seek. The Washington-based lender has already extended a $1.25 billion in emergency assistance to Iraq. Underlining the nation’s precarious finances, Abadi told an international conference on combating terrorism in New York, where he had attended the United Nations General Assembly, that Iraq “cannot finance all these battles we are seeking to win. We need your help.” An IMF program may help Iraq access international bond markets and cut the government’s borrowing costs at a time when OPEC’s second-biggest oil producer is engulfed in a conflict with Islamic State militants. A 50 per cent plunge in crude prices over the past year have compounded the crisis. The country will run a current-account deficit equal to 8 per cent of economic output this year and a budget gap of 17 per cent, according to IMF estimates.
Saleh said the government’s economic plans may go a long way in satisfying measures that would be required under an IMF loan accord. Finance Minister Hoshyar Zebari couldn’t be immediately reached for comment.
“Some IMF programs adopt Prime Minister Haidar Al-Abadi’s reforms and consider them enough,” Saleh said. Government reform efforts are “in harmony with what the IMF typically seeks,” he said.
Abadi announced a plan to tackle graft, sectarianism and political patronage in August after public protests and an endorsement from the country’s most senior Shiite cleric, Grand Ayatollah Ali Al-Sistani. The government is also cutting spending and this year’s budget deficit will likely be lower than the 25.4 trillion dinars ($20.9 billion) originally planned, central bank Governor Ali Mohsen Ismail said in an interview this month.
Raza Agha, chief Middle East economist at VTB Capital, said in a note on Sept. 27 that Iraq’s fiscal financing needs may exceed 20 per cent of gross domestic product this year.
“We expect fiscal and external financing needs to remain high next year and for Iraq to be unable to meet them via heavy reliance on private creditors,” he said. “That would necessitate a much larger IMF program” and more spending cuts, he said.