30/03/2016 11:01 AST
The International Monetary Fund could approve as early as June a standby arrangement (SBA) with Iraq unlocking $15 billion in international assistance over the next three years, the head of the IMF's Iraq mission said.
Christian Josz said the package of assistance, nearly one third of it from the IMF and the rest from international groups and donor countries, would be in line for approval by the board if talks with Iraq next month go well.
Josz told Reuters at the end of a round of talks with Iraqi Finance Minister Hoshiyar Zebari in Jordan that the structure of the deal itself was now in place.
"If we conclude the discussions in April in Washington I think we could present an agreement of the standby arrangement for the approval of the board of the IMF in June," he said, adding that good progress had been made in talks since November.
Zebari said Iraq must push faster with fiscal reforms to overcome a financial crisis prompted by the fall in oil prices, the mainstay of the country's income.
"We cannot continue as we used to in the past. The country must succeed and not become bankrupt," Zebari said.
Financial assistance for the debt-ridden country could come from several sources including the IMF, the World Bank, Gulf states, the United States and other G7 countries, Josz said.
"If they adjust their spending we see they have a financing need of $15 billion over three years," he said, envisaging that Iraq would get at least $5 billion this year and the remainder by the end of the arrangement.
Iraq could get as much as $3.9 billion from the IMF over the course of three years, with $1.9 billion disbursed in 2016, based on preliminary estimates, Josz said. Quarterly tranches of around $600 million would be contingent on Iraq meeting the SBA performance criteria, he added.
Josz said later in a statement that Iraq's economic growth had contracted by 2.1 per cent in 2015 and its current account had widened, depleting the major OPEC producer's foreign reserves by $13 billion to $54 billion at the end of the year.
He attributed the slowdown to "the conflict (with Islamic State), destruction of infrastructure and assets, disruptions in trade and deterioration of investor confidence".
CONTROLLING DEBT
Josz said the main challenge of the SBA would be gradually to bring spending into line with revenues so that Iraq could stabilise debt at 75 per cent of gross domestic product by 2020.
Debt as a percentage of GDP hit 53 per cent last year and will reach 77 per cent this year, he added.
"The deal will bring debt sustainability. They have a large deficit - debt is rising very fast. It's inevitable that debt is increasing (because) the fall of oil prices was so sharp," the IMF official said.
The IMF deal is contingent on progress in meeting five main targets related to the budget deficit, its financing by the central bank, keeping sufficient reserves, targeting social spending and avoiding accumulating arrears to international companies, Josz said.
Iraq will also have to take measures to alleviate a massive wage bill for more than 3.5 million civil servants and six million pensioners and find new sources of taxation and revenue.
Josz said there was no way around what he described as a difficult adjustment ahead.
"When countries are in financial crisis ... it is a good time for reform when countries have no choice," he said.
Reuters
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