Political instability in Baghdad may delay Iraq's IMF bailout

Iraq’s International Monetary Fund (IMF) bailout has been put at risk following last week’s dismissal of its Finance Minister Hoshiyar Zebari.

With Zebari’s dismissal the Baghdad government has lost the figure most closely associated with the deal, which puts into jeopardy many of the plans and economic reforms that was agreed in exchange for the $5.34 billion bailout.

The IMF had approved a three-year, $5.34 billion standby loan in July, in exchange for a package of economic reforms. Baghdad is hoping it will unlock more than $12 billion in additional aid from sources such as the World Bank and the Group of Seven leading industrialised nations.

An initial tranche of $640 million was loaned in July but the next tranche of equal value depends on a first review. That could happen as early as mid-November but may be delayed while Iraq gets its house in order.

Zebari’s dismissal is another reminder of Baghdad’s political instability, a situation that risks delaying billions of dollars in badly needed budget support from international lenders and investors.

A prominent Kurdish official, Zebari has previously served as foreign minister for more than a decade. He was dismissed after questioning over alleged corruption and mishandling of public funds.

He denied the charges as “vengeful, politicised and short-sighted”, accusing former Prime Minister Nouri Al-Maliki of orchestrating his ouster in a bid to topple the government of Prime Minister Haider Al-Abadi.

The next IMF meeting will be a “crux point”, said a Western diplomat in Baghdad who closely monitors Iraq’s economic affairs, reported Reuters.

“Can they get themselves back in order and deliver things by then? If I were to put a bet on it, I would say it would be delayed at the very least but it probably will just be a delay.”