Iraqi Kurds doubtful about IMF loan prospects

OREANDA-NEWS. June 03, 2016. The Kurdistan Regional Government is doubtful it can get a share of external aid promised to the Iraqi central government to overcome a severe budget shortfall stemming from low oil prices.

The IMF board in May completed negotiations with the central government on a \\$5.4bn funding package, conditional on Baghdad's implementation of previous reform commitments.

The Iraqi Kurdish region took part in the negotiations with the IMF and was hoping to secure a share of IMF funds. But Baghdad's ability to implement the IMF conditions and receive the funds is doubtful, Kurdistan Regional Government board of investment chairman Noori Abdulrahman said today.

"The federal government of Iraq is not ready to fulfill the IMF conditions," Abdulrahman said at an event hosted in Washington by Johns Hopkins University's School of Advanced International Studies. "I cannot assure you that Iraq will get us a share of our budget" even after receiving IMF funds, he said, speaking via a videolink from Erbil.

The Kurdish region is struggling to continue making payments to foreign oil operators in northern Iraq. And the budget shortfall for the Iraqi central government has resulted in a drastic cut in payments that Baghdad allocates to foreign oil companies to reimburse their development expenses.

The central government in Baghdad still has not resolved a dispute with the Kurdish region over the distribution of budget revenue and oil sales. Iraq's output, including production from the semi-autonomous region of Kurdistan, is around 4.5mn b/d, according to state-owned marketer Somo. Pipeline exports from northern Iraq to Turkey's averaged 513,041 b/d in May, according to the Iraqi Kurdish authorities.

The IMF said its board will vote on the Iraqi assistance program in the next two months. The IMF money will be disbursed over a three year period in exchange for policies that will bring spending in line with the lower level of oil prices and ensure debt sustainability.

Baghdad is taking the steps willingly, knowing that "we have to go through harsh times to reduce reliance on oil," Iraqi ambassador to the US Lukman Faily said at the discussion. The initial approval of the IMF program is "a good sign that we understand what it takes to integrate into the world economy," he said.

The US is pleased about the IMF program as it will help close Iraq's massive budget gap, US State Department deputy assistant secretary Joe Pennington said. The State Department estimated the Iraqi budget shortfall at \\$5bn/month as of February. But the recovery in oil prices since then likely reduced that amount. The 2016 budget that Iraq approved in December 2015 assumed a \\$45/bl average crude price.

The US will extend a \\$1bn loan guarantee to Baghdad after the approval of the IMF program. The amount is part of the \\$3.6bn assistance package that the G7 major economies pledged to Iraq on 27 May. The G7 pledge will help unlock up to \\$18 billion in external assistance for Iraq from multilateral and other sources over the next three years, the White House said.