Financial Times reports: The International Monetary Fund has agreed to give Iraq a three-year $5.4bn bailout to help it manage the economic fallout of its war against Isis and low oil prices that have left a gaping hole in its budget.

The new rescue package, which the IMF said should be accompanied by assistance from other members of the international community, will require the government in Baghdad to implement unpopular cuts in public spending and other reforms at a time when the economy is already reeling.

“Iraq has been hit hard by the conflict with Isis and the precipitous fall in oil prices,” said Christian Josz, IMF mission chief for Iraq.

He added that the conflict with Isis had left more than 4m Iraqis internally displaced and was straining resources, while the steep fall in oil prices was “causing a large external shock to the balance of payments and budget revenue, which depend predominantly on oil export receipts”.

UN diplomats in Baghdad and officials in Washington say Iraq’s foreign backers are determined to get support to Iraq at a time when both the central government and the semi-autonomous Kurdistan administration in the north — both critical in the fight against Isis — look on the verge of economic collapse. With no money for repairs, several cities recaptured from Isis still lie in ruins.

However, Iraqi politicians privately said last week that the government may not be able to meet the terms of the IMF deal — which include fighting corruption and money laundering, as well as cutting subsidies and raising taxes. [Continue reading…]