BAGHDAD: Iraq’s government plans a domestic issue of US$5 billion worth of bonds starting in the fourth quarter of this year as it seeks to relieve the pressure of low oil prices on its finances, an official said here the other day.
The medium-term notes, with maturities of between 12 and 18 months, will help to finance the budget deficit and be open to local banks, other institutions and retail investors, said Mudher Saleh Kasim, a former senior central bank official who advises Prime Minister Haider al-Abadi on financial policy.
Through years of conflict and upheaval, Iraqis have become used to hoarding large sums of foreign currency in their homes. The bond issue will seek to tap this hoard.
“It gives a unique opportunity to a group of investors who are cash-rich and essentially hoarders,” Kasim said. “We think there will be good demand for investment.”
The bonds will be denominated in US dollars and issued in stages, according to investor demand. Investors will be able to choose to receive the principal on maturity in dollars or in dinars at a more attractive rate than the current market rate.
The plunge of oil prices since last year and Iraq’s fight against Islamic State militants have put severe pressure on its finances. The government has projected a budget deficit of about US$25 billion this year, in a budget of roughly US$100 billion.
International reserves at the central bank fell to US$66 billion at end-2014 from US$78 billion at end-2013, according to the International Monetary Fund, and they may have dropped further since then.
This has started to put pressure on the Iraqi currency in the secondary market, which sank as low as 1,400 dinars to the US dollar in mid-June from 1,228 a week earlier. It was trading at 1,240 yesterday, dealers said. The central bank auctions dollars to banks and licensed traders at a fixed price of 1,166.
Abadi told local television channel Al Sumeria in mid-June that the dinar was “strongly backed and there’s no fear about the exchange rate against the dollar.”
In addition to the domestic bond issue, Iraq has said it plans to raise US$5 billion with an international bond issue this year.
