Iraq’s plans to raise $2bn on international debt markets to help fill a budget gap caused by low oil prices were thwarted last week by the US Congress’ refusal to guarantee half the bonds’ value.
As part of a 2017 budget endorsed by the International Monetary Fund, Baghdad said it would seek to issue a $1bn bond fully guaranteed by the US in order to lower borrowing costs before issuing another $1bn. Those funds would complement a three-year $5.34bn standby loan, which the IMF approved in July in exchange for economic reforms.
Baghdad hopes the IMF deal will unlock more than $12bn in additional aid from sources such as the World Bank and the Group of Seven leading industrialised nations.
Western allies have acknowledged the need to guard major Opec producer Iraq’s fragile economy from a collapse that would risk undermining military gains against Islamic State by a US-led coalition and local forces that are looking to retake the militant stronghold of Mosul later this month.
While the Obama administration requested the guarantee be included in a “continuing resolution” - stopgap legislation that keeps the US government running while more permanent spending decisions are agreed - it did not end up in the final version passed by Congress on Wednesday.
Lawmakers said they had tried to keep side issues out of the spending bill in order to ensure it would go into effect before the new fiscal year began on October 1.
Iraqi Prime Minister Haider al-Abadi’s financial adviser, Mudher Salih, who has worked closely on the bond issue, and a source familiar with the matter told Reuters the guarantee had been held up by Republicans in Congress, without providing details.
Republicans have majorities in both the House and Senate, but it was unclear if they had a particular objection to putting up more funding for Iraq, which has already received billions of dollars in military, economic and humanitarian aid from Washington since the US-led invasion that toppled Saddam Hussein in 2003.
Many members of Congress are frustrated with Iraq’s government. They worry that the US has sent far too much money to Baghdad, with too few results, due to corruption and incompetence. Many also view the Iraqi government as being too close to Iran, and are angry with its Shia leaders for alienating minority Sunni Muslims.
The Iraq loan guarantee could still be included in spending legislation that must pass in order to keep the government open past December 9, when the temporary spending bill expires.
Salih told Reuters on Thursday that Iraq was likely to delay the bond issuance until at least early 2017, in part because of the lack of a US guarantee.
Baghdad’s latest budget proposal for 2017 forecasts expenditures of 90.224tn Iraqi dinars ($77.6bn) with a shortfall of around 12tn dinars.