IMF approves $3.6b Iraq loan

Bagdhad: The International Monetary Fund (IMF) approved a two-year, $3.6 billion loan to help Iraq cover a temporary financing need after a drop in oil prices since 2008 hurt the country's biggest source of revenue.

"Following a very strong economic performance, the Iraqi economy has been seriously affected by the drop in oil prices from their peak level in May 2008," Ron van Rooden, the IMF's mission chief in Iraq, said on a conference call yesterday. "As a result, Iraq's external position deteriorated substantially in 2009."

The Iraqi government, which depends on oil revenue for most of its budget, had been in talks with IMF officials since the expiration of a $744 million precautionary loan in March. The World Bank will discuss aid today and along with smaller donors will try to help reach the $5 billion needed through the end of 2011, van Rooden said.

While a recent rebound in oil prices is helping improve the outlook for the country's deficit, elections scheduled for March threaten to increase political concerns. The US, which is due to complete withdrawing troops in 2011, has emphasised the need for a free and fair election to strengthen democracy and political stability.

Crude oil for April delivery rose $1.14 to $80 a barrel Wednesday on the New York Mercantile Exchange. Oil futures prices are down about 45 per cent from a peak of $145.29 a barrel in July 2008.

Framework

Iraqi authorities view the economic policies tied to the IMF loan "as a way to provide a sound macroeconomic economic framework during a period of high economic and political uncertainties with the elections", van Rooden said.

The IMF loan programme is "challenging", seeking to contain government spending while "catching up on much needed investment spending", he said.

Still, the budget deficit, estimated at 20 per cent of gross domestic product last year, is expected to shrink to 19 per cent of GDP this year and 6 per cent in 2011, before returning to a surplus in 2012, he said.

While the past two IMF loans were precautionary, authorities would need to use the programme announced yesterday if oil prices remained around their "conservative" budget prediction of about $62.50 a barrel, according to van Rooden.

If they turned "significantly higher", financing needs would disappear and the government would not want to tap into the loan, van Rooden said.