Iraq's central bank on Tuesday said it started selling local bonds worth 1.5 trillion Iraqi dinars ($1.29 billion), as part of an effort to plug a government deficit caused by tumbling oil prices and the costs of fighting an Islamic State insurgency.

It is the first local bonds sale to the public since 2003, when Saddam Hussein was overthrown. Iraq already issues Treasury bills to domestic banks and has international bonds outstanding.

The two-year bonds are sold at an 8-percent annual discount rate, the Central Bank said in a statement. "Purchase applications from banks and citizens can be presented at the central bank directly," it said.

The bonds are sold on behalf on the Finance Ministry and come to maturity on March 14, 2018.

The issue is the first tranche of a 5 trillion-dinar bond plan announced by the finance ministry in January. Iraq already issues Treasury bills to domestic banks and has international bonds outstanding.

The central bank in March announced the local bonds will be sold between March 15 and April 15 to the public and to local lenders.-Reuters