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UPDATE: IMF Grants Iraq $1.8B To Meet Econ Crisis - Official

AMMAN (Dow Jones)--An Iraqi central bank official said Monday that the International Monetary Fund will provide the war-torn country $1.8 billion to help it emerge from the global downturn.

"The money is to support liquidity and to improve growth of the Iraqi economy," central bank advisor Mudher Kasim told Dow Jones Newswires on the sidelines of an IMF-Iraq meeting in the Jordanian capital, Amman.

Kasim said that the money is expected to be spent on infrastructure projects. A massive budget deficit, estimated at nearly $19 billion this year, is adding to pressure on the government to try to find new sources of financing.

In addition, the IMF and Iraq are close to finalizing a deal for a $5.4 billion standby loan. It would be paid back in two installments over five years at an interest rate of just above 1%, he said.

Earlier, Iraq's central bank chief told Zawya Dow Jones on the sidelines of a central bankers meeting in Abu Dhabi that a financing deal with the IMF could be finalized at the organization's annual meeting in Istanbul starting Oct. 6.

Kazim said that inflation in September is expected to hover in the same level as the previous month. Iraq's August inflation soared to 10.8% compared with around 7% in July driven by decline in agriculture production and soaring foodstuffs prices.

The advisor said Iraq's non-oil sector economic growth is seen at 5% during the first nine month of this year.

The central bank has issued $2.6 billion worth of treasury bills to finance much needed power projects, Kasim said. He said the bank had rejected more calls from the government to issue further treasury bills to finance other projects.

(Dania Saadi in Abu Dhabi contributed to this story.)

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