The IMF has reached an agreement to provide an $833m loan to the Iraqi government as it struggles with lower oil revenues and the fight against Islamic State in Iraq and Syria (Isis).

The Washington-based organisation has reached a staff-level agreement that is expected to be submitted to the executive board for approval in July.

“The fund is ready to assist Iraq in its efforts to tackle the economic impact of the conflict with Isis and the decline in global oil prices,” says the IMF’s Carlo Sdralevich, who led a mission to Jordan to discuss the loan with Iraqi authorities.

“The armed conflict continues to strain the country’s resources and has created a humanitarian tragedy, with an estimated 3 million internally displaced people. The violence has also caused extensive damage to infrastructure and private sector assets,” he adds.

Iraq’s real GDP contracted by 2.1 per cent in 2014 and is forecast to only recover by 0.5 per cent this year despite increased oil exports, according to IMF estimates.

Lower oil prices have squeezed oil revenues, pushing Baghdad’s current account into a deficit of 8 per cent of GDP in 2015. The IMF says foreign assets declined in 2014 to $67bn.

“Under the pressure of high conflict-related spending and weak oil revenues, the budget deficit is projected to rise from 5 percent of GDP last year to about 17 percent of GDP in 2015, despite the non-oil tax measures envisaged in the 2015 budget and strict control of expenditures, including through the prioritization of investment projects,” says Sdralevich.

“We welcome the steps taken by the authorities to address these urgent challenges and support their request for IMF emergency assistance.”

Since seizing Mosul on 10 June 2015, Isis has continued to control large areas of the north and west of the country. Baghdad is currently undertaking a campaign to take back parts of Al-Anbar province after Isis’ successful invasion of the city of Ramadi on 17 May.