Iraq announced the sale of $1 billion in bonds guaranteed by the United States, paying an interest of 2.1%, far below the 9% yield on the country’s non-guaranteed debt.
The Iraqi government, which relies almost exclusively on oil income, has struggled to pay its bills since crude prices dropped in 2014, the same year that Islamic State militants seized a third of the country’s territory.
The Iraqi government in November said it plans to issue $2 billion worth of bonds on international markets to help narrow its budget deficit in 2017.
The bonds will be sold in two equal tranches of one billion dollars each, one of them with a US guarantee that would reduce its cost of borrowing, it said.
Iraq has a speculative rating of B/B- from both S&P and Fitch. It has a $2.7 billion in international bonds due in 2028 with a coupon of 5.8%, currently yielding about 9%.
Meanwhile, 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 nations.