BAGHDAD: Iraq expects to sell $2 billion in eurobonds in the last quarter of the year, when international aid starts coming in, helping lower its cost of borrowing, Finance Minister Hoshiyar Zebari said. The OPEC nation expects to receive in September $600 million from the International Monetary Fund, the first tranche of a $5.4 billion facility that the organization is expected to provide over three years under a standby agreement announced last month, Zebari told Reuters in an interview.
Iraq sought international support after a collapse in oil prices two years ago caused its revenue to drop. The government relies on oil for 95 percent of its income. Iraq last sold international debt in 2006, when it issued about $2.7 billion of bonds due in 2028 with a coupon of 5.8 percent. “The measures we’re doing in terms of reforms, signing the SBA, all this help enhance our credit rating and get a better interest rate,” Zebari said, adding that Iraq would like to see the yield on its debt drop to 5 or 6 percent.
Moody’s and Fitch Ratings last month said Iraq’s IMF deal is credit positive. Fitch rated Iraq’s long-term credit at B-, below investment-grade. “The deal is likely to pave the way for further international support and may enable the government to issue international bonds,” Fitch said on May 20. “Engagement with the IMF could bring some improvements to economic policy making and management.”
Oil’s crash came just as Iraq needed more resources to fight Islamic State, the ultra-hardline group that took control of vast tracts of its northern and western regions. The war has displaced about 4 million people. The agreement with the IMF should unlock a total of $18 billion in international assistance over three years, said Zebari, citing the World Bank and the Group of Seven leading industrialized nations among other donors.
The government will meet next week to approve the fiscal measures agreed with the IMF to cut costs and increase non-oil revenue, he said. The recent improvement in oil prices, which have reached $50 a barrel, from below $30 a barrel earlier this year, will not delay the reforms, he said. The measures include increased taxation on income, sales and customs that won’t affect the poor, he said. A government freeze on hiring except for “essential” positions like doctors is also included, he said.
