| BAGHDAD, Sept 29
BAGHDAD, Sept 29 Iraq is likely to delay the
planned sale of $2 billion in bonds on international markets
until at least early 2017, a government adviser said on
Thursday, hoping that rising oil revenues and victory over
Islamic State will improve public finances.
Baghdad had said it would issue the bonds, with half the
value guaranteed by the U.S. government, in the last quarter of
2016. But those plans appear uncertain after Finance Minister
Hoshiyar Zebari was sacked last week on corruption charges,
which he denies.
"I think we are going to push it back," Mudher Salih, an
adviser on financial policy to Prime Minister Haider al-Abadi,
told Reuters in an interview. "We have to see the situation of
the oil market - if it's enhanced we could leave it a little, if
the oil market deteriorates more, we will have to borrow."
Oil prices rose nearly 2 percent on Thursday, with Brent
crude futures at $49.49 a barrel, on optimism over OPEC's first
output cut plan in eight years in order to support prices.
Iraq has seen spectacular gains in output in recent years
and is asking oil majors to expand production further to above 5
million barrels per day from the current 4.7 million.
The government, which relies almost exclusively on oil
income, has struggled to pay its bills since global crude prices
dropped in 2014, the same year Islamic State militants seized a
third of the country's territory.
Iraqi forces, backed by a U.S.-led military coalition, have
retaken around half that land and are gearing up now for a push
on Mosul, the largest city under the jihadists' control.
Abadi has pledged to regain Mosul, Iraq's second-largest
city, by the end of the year and said doing so would effectively
end Islamic State's presence in the country.
Salih said he expected the major OPEC producer's economic
situation to improve after the operation, so that military
spending could be cut or diverted to rebuilding areas devastated
by a war that has displaced more than 3.3 million Iraqis.
"We will be going from a war budget to a peace budget,"
Salih said in his office in Baghdad's heavily fortified Green
Zone government district.
He predicted this would improve Iraq's credit rating to at
least a B+ in the next six months, from a current B-, and
significantly lower its cost of borrowing.
Iraq has $2.7 billion of international bonds due in 2028
with a coupon of 5.8 percent, currently yielding about 9
Military spending in Baghdad's 2017 budget remains the same
as this year, but could be reclassified during the fiscal year
according to changing needs, Salih said.
To replace missing oil revenue, Iraq has turned to the
International Monetary Fund for a loan package that would also
serve as the basis for other lenders to provide support.
The IMF approved a three-year, $5.34 billion standby loan in
July, in exchange for a package of economic reforms. Baghdad
hopes that will unlock over $12 billion in additional aid from
sources such as the Group of Seven leading industrialized
Salih said Iraq had agreed "in principle" last month to a
three-year, $3 billion Development Policy Financing (DPF) loan
from the World Bank to support Baghdad's budget. This would be
the first stream of extra financing to come out of the IMF deal.
Details of conditions to enhance Iraq's public finance
institutions and pensions have not been ironed out yet, but the
first tranche will be disbursed in December, said Salih.
The loan has a 16-year repayment period with a three-year
grace window and a rate of around two percent, he said.
A World Bank official said the loan was expected to be
approved in December and disbursed soon after that.
(Reporting by Stephen Kalin; editing by Mark Heinrich)