What's the status of IMF loan as Iraq dismisses finance minister?

The International Monetary Fund has granted a $3 billion loan to Iraq; however, parliament and the government have not yet reached an agreement over the loan conditions.

al-monitor An exterior view of the International Monetary Fund headquarters is seen in Washington, DC, July 1, 2015. Photo by REUTERS/Jonathan Ernst.

Topics covered

krg, iraqi parliament, iraqi economy, interest rates, imf, haider al-abadi, financial assistance

Sep 23, 2016

BAGHDAD — Prior to his dismissal Sept. 21, Iraqi Finance Minister Hoshyar Zebari ran successful negotiations with international banks to obtain financial support for Iraq. His last achievement was a $3 billion loan from the International Monetary Fund (IMF) that was secured during negotiations on Sept. 9.

These second round of negotiations between the Iraqi government and the IMF took place in the Jordanian capital Amman. The loan addresses the huge deficit in the 2016-17 fiscal budget due to lower oil prices; however, mystery still surrounds the amount of money that Iraq will have to pay in interest and the conditions imposed by the IMF on the Iraqi government.

Iraq originally began negotiations with the IMF during a first round of negotiations on May 14. With the objective of receiving $16 billion in installments over a three-year period, Iraq secured $5.4 billion.

The World Bank delegation participating in the meetings provided an economic development funding vision for Iraq that consisted of a soft loan of about $3 billion to be paid in installments and settled over a long period of time at a very low interest rate.

Mazhar Mohammed Saleh, the economic adviser to the Iraqi government, told Al-Monitor, “The World Bank said that the loan aims to support the federal budget in line with the economic reform paths and the document of reform launched by the prime minister.”

However, the government still has reservations in regard to the loan interests and the conditions of the World Bank at a time when the stated details seem inaccurate, economist Abdul-Rahman al-Mashhadani told Al-Monitor. He said, “According to the IMF laws on loans, the initial interests of any loan range between 1.4% to 2.6% and fluctuate between 6% and 10% in the second and third installments. As far as the conditions are concerned, they vary depending on the state of the creditor.”

Mashhadani said that the IMF imposed several conditions that included reducing the operating expenses, limiting the governmental appointments, applying austerity measures and reducing the government spending. It is likely that based on those conditions Prime Minister Haider al-Abadi proposed Sept. 6 that state employees be granted a vacation of five years and be paid nominal salaries.

Abadi was probably seeking to cut down costs and address next year’s budget deficit, which is expected to reach $18 billion. This was opposed by some political blocs and parliamentary committees, including the parliamentary Finance Committee, which is still calling on the government to present the IMF loan conditions to the parliament.

Member of parliament for the Finance Committee Ahmed Sarhan told Al-Monitor, “According to the information available to the Finance Committee, the government’s idea to give state employees a vacation of five years comes in the framework of the implementation of the IMF conditions, but we will oppose such a proposal as it threatens a wide category of staff.”

Ahmed said, “The parliament may have given the government the authority to conclude agreements and take loans that address the state budget deficit, but this does not mean that the legislative power should not be made aware of the details of the loans that are granted in the form of international agreements so that this power can discuss such details and examine their consequences. We are awaiting the IMF loan details.”

Parliamentarian Sarhan Ahmed told Al-Monitor that next year’s budget is expected to reach about $82 billion, calculated at a price of $40 per barrel of oil, while the deficit is expected to reach $18 billion.

But Ahmed Kanani, the chairman of the parliamentary Finance Committee, said Sept. 2 that the economic crisis plaguing Iraq can only be solved with higher oil prices or a loan. Kanani said in a statement to Mawazin News, “The World Bank loan will help solve part of the budget crisis until the end of the year.” This infers the absence of agreement between the government and the parliament on ways to address the financial crisis and solve the budget deficit amid the ongoing drop in oil prices.

It should be noted that Abadi submitted an economic reform project that was agreed upon with the delegation of the Kurdistan Regional Government on Jan. 31, with the aim of reducing dependence on oil as the sole source of national income and maximizing other resources, all the while showing full commitment to collecting tariffs and income tax, which serve as financial resources to the federal government and benefit the Kurdistan Region and the provinces.

What further deepens concerns over the presence of other non-declared IMF conditions is the Iraqi government’s delay to present the loan details to the parliament despite much speculation by parliamentary parties, which believe that the loan will lead to the imposition of harsh conditions that would affect the ordinary citizen and lead to the cutting down of employees' salaries and the abolition of ration cards. Meanwhile, there are parties that support the government's move toward foreign borrowing and deny the existence of direct harm to Iraqi citizens, arguing that the World Bank loan terms and interest rates are easy to deal with.

The coming months will definitely reveal the reforms and conditions imposed by the World Bank on Iraq as well as the interest to be paid by the Iraqi government in exchange for the loans, as the latter takes advantage of the financial budget law, which allows the government to conclude agreements and borrow money without referring to the parliament.

Continue reading this article by registering at no cost and get unlimited access to:
  • Al-Monitor Archives
  • The Week in Review
  • Exclusive Events
  • Invitation-only Briefings

More from  Iraq

Iraqi prime minister vows to bring expert's killers to justice
Ali Mamouri | | Jul 7, 2020
Despite promises, displaced Iraqis linger in limbo
Adnan Abu Zeed | | Jul 9, 2020
Counter-Terrorism forces take greater role in Iraq
Shelly Kittleson | Terrorism | Jul 3, 2020
Iraqi government battle against Iran-backed militias enters new phase
Ali Mamouri | Armed Militias and Extremist Groups | Jul 1, 2020