Iraq’s cabinet has approved a $2bn international bond issuance to plug the 2016 budget deficit, Prime Minister Haider al-Abadi’s office has announced.

The US government will guarantee $1bn of the issuance.

The remaining $1bn will be issued at market prices.

Iraq cancelled a $6bn international bond issuance in 2015 after investors offered yields of around 11 per cent. This was due to the sharp fall in oil prices, and poor progress in recovering territory held by Islamic State in Iraq & Syria.

Iraq is rated B- with a negative outlook by the UK’s Fitch Ratings, and B- stable byt eh US’ Standard & Poor’s. This is well below investment grade.

The IMF approved a $5.34bn loan over three years to Iraq in July 2016, to help cover an $18bn funding gap.

Iraq is projected to run a fiscal deficit of 14 per cent of GDP, or ID26026bn ($22.5bn) in 2016, according to the IMF. This is despite increasing its oil output to around 4.5 million barrels a day in 2016, according to OPEC figures.

Iraq already has gross debts 75.8 per cent of GDP.