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Wed 13 Jan 2016 12:25 PM

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Iraq aims to reduce deficit to $11bn in 2016 ahead of possible IMF loan

GDP seen growing 1.5% in 2015, 10.6% in 2016

Iraq aims to reduce deficit to $11bn in 2016 ahead of possible IMF loan
(Getty Images)

Iraq plans to finance its balance of payments deficit by drawing its foreign exchange reserves down to $43 billion in 2016 from $59 billion at the end of October, it said in an International Monetary Fund (IMF) memo.

The deficit is expected to reach $14 billion in 2015 before narrowing to $11 billion in 2016, the government said as part of a Staff Monitoring Programme agreement that the IMF approved on Tuesday as a precondition for a loan.

The agreement, running from November 2015 to December 2016, is aimed at offering Iraq help in steadying its finances as the major oil exporter grapples with lower oil prices and costs associated with the fight against ISIL militants.

It paves the way for a possible funding programme this year which would, however, come with potentially unpopular conditions such as steps by Baghdad to reduce energy price subsidies and reform state-owned enterprises.

Prime Minister Haider Al Abadi is already struggling to sustain support for political reforms he announced in August aimed at reducing corruption and waste.

Iraqi authorities agreed in November to have the IMF monitor their economic policies to help rein in spending and curb the budget deficit.

They estimate falling oil prices will swell the budget deficit to 15 percent of gross domestic product (GDP) in 2015 from 6 percent a year earlier, before easing to 10 percent in 2016, according to the memo.

The government said it expected GDP to grow by 1.5 percent in 2015 on 10 percent higher oil production and 10.6 percent in 2016 on a 20 percent jump in production.

Financial pressures on Iraq have become so heavy that Baghdad halted a plan to issue $2 billion of international bonds last year because investors were demanding too high a yield.

Its finance minister told Reuters last month it planned to revive the bond issue in 2016, betting that gains by the armed forces against militants and support from international financial institutions would reassure investors.

Falling foreign reserves are expected to gradually recover to $88 billion by 2020 as oil revenues increase, the memo said, adding the Iraqi dinar's peg with the dollar would be maintained.

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