IMF approves $3.6 billion loan for Iraq
The International Monetary Fund on Wednesday approved a $3.64 billion loan for Iraq as the economy struggles with lower revenues from a sharp drop in oil prices and uncertainty in the lead-up to March 7 parliamentary elections, Reuters reported.
The IMF mission chief to Iraq, Ron van Rooden, said the loan would help plug financing needs of close to $5 billion until the end of 2011.
In addition to the IMF money, the gap would be filled by funding from the World Bank and other small donors, he said. The World Bank is set to meet on Thursday to discuss its strategy for Iraq.
The IMF said it would immediately disburse about $455 million of the loan to Iraq.
Iraq has had two previous IMF arrangements of less than $1 billion each.
"The authorities view the program primarily as a way to provide a sound macroeconomic framework during a period of high economic and political uncertainty with the elections coming up in March," van Rooden told a conference call.
Iraq relies on oil exports for as much as 90 percent of its revenues and desperately needs funds to rebuild after years of conflict and an insurgency triggered by the 2003 U.S. invasion.
A sharp drop in global oil prices from their 2008 highs was especially hard on the government's coffers, and the next government will be in power when the last U.S. soldier withdraws by the end of 2011, putting pressure on the authorities to provide economic security.
Even with a drop in violence, Iraq is in a shambles with widespread unemployment.
"The authorities wanted an economic framework in place before the elections, which would guide them through this period, especially because it is quite uncertain how long it will take before a new government may be formed if the last election is any guidance," van Rooden said.
"If we'd waited to discuss a new program until after a new government was formed...we would have lost valuable time," he said.
He said oil prices have been volatile over the last two years and "we don't know where they are headed."
Iraq's budget is based on an oil price of $62.50 per barrel. Should prices rise above that, pressures to finance the budget from external sources would ease. If that were the case, van Rooden said Iraq would not need to tap the IMF's funds and could treat the loan as "precautionary."
He said Iraq's medium-term economic outlook remains favorable because oil prices and production are projected to rise in the coming years. Based on conservative oil price estimates, Iraq's current account and overall balance of payments are expected to remain in deficit in 2010 and 2011.
Similarly, Iraq's fiscal position is projected to record large, albeit declining deficits in both years, before returning to a surplus position in 2012.
Van Rooden said monetary and exchange rate policies in Iraq are aimed at containing inflation.
The program also aims at key reform measures in public financial management, including the management of the country's oil resources, and financial sector development.