By Hassan Hafidh
Iraq will meet with the International Monetary Fund (IMF) in September to finalise a $5.4 billion standby loan to the war-battered country and may launch the sale of treasury bonds worth $3 billion within two months, a central bank official said.
The IMF in June outlined its loan conditions to an Iraqi delegation in Amman, including a call for restructuring of state banks and banking sector reform, senior central bank advisor Mudher Kasim told news agency Zawya Dow Jones late Saturday.
“We think the conditions of the IMF are reasonable and the bank is implementing them prior to applying for the loan,” Kasim said.
The loan is set to help with a budget shortfall resulting from a drop in crude oil prices from a record high of $147 a barrel in July last year to below $40 a barrel late last year, he said.
Iraq’s 2009 budget includes an $18 billion deficit. So far Baghdad has cut its 2009 budget three times because of falling oil prices.
Iraq relies on crude exports for more than 95 percent of its state expenditure and is in desperate need of cash to rebuild its infrastructure hit by war, violence and insurgency. The IMF usually sets conditions for any proposed loan given to countries.
Iraq will receive the loan, which represents 300 percent of Iraq’s IMF set quota, immediately after its signing, Kasim said. It will be paid back in two installments over five years at an interest rate of just above 1 percent, he added.
The fund also welcomed Iraq’s initiative to reconsider its food rationing system, so only those in need receive subsidised food stuffs, Kasim said. The Iraqi parliament voted earlier this year to exclude from the program those with a monthly income of at least 1.5 million Iraqi dinars ($1,300).
In line with other IMF loan conditions, Iraq’s central bank will need to pursue currency stability and curb inflation, Kasim said.
The country’s inflation rate in April fell to 3.7 percent, the lowest level in the past three decades on lower prices of food, energy and other commodities. The rate rose, however, to 4.7 percent in May, driven by an increase in rents for houses and apartments in Baghdad, Kasim added.
Rents are rising amid a shortage of 3.5 million housing units in Baghdad, where half the population of 7 million doesn’t own houses or flats, he said.
The central bank is also preparing to issue $3 billion worth of treasury bonds to finance much needed power projects, Kasim said. “The bank may issue these bonds in two months from now,” he said.
The Iraqi government last month approved a request by the finance ministry to issue the bonds to help finance two large power deals signed last year with General Electric Co (GE) and Siemens AG.
Kasim said the bonds will be sold to state and private Iraqi banks at an interest rate of 2 percent and will be paid back by the central bank within a year.
The process is also part of the central bank’s policy to control liquidity levels as banks will buy the bonds by paying in Iraqi dinars, he said.