The International Monetary Fund said its executive board approved a new three-year, $5.34 billion standby arrangement for Iraq to support Baghdad's efforts to deal with lower oil prices and ensure debt sustainability.

The IMF said in a statement the approval will allow for the immediate disbursement of about $634 million under the program. In July 2015, Iraq received about $1.24 billion under the previous rapid financing instrument program.

The IMF said that Iraqi authorities have pledged to maintain their currency peg to the dollar, reduce spending on inefficient capital expenditures whole protecting social spending. It said overhauling the management of public finances will put the government in a better position to combat the Islamic State militant group and cope with lower oil prices.

"The Iraqi economy has been hit hard by the double shock arising from the ISIS attacks and the sharp drop in global oil prices," IMF Deputy Managing Director Min Zhu said in a statement. "The policies put in place by the authorities to deal with this double shock are appropriate."

Zhu said that Iraq's accumulation of large external arrears to international oil companies and domestic arrears in 2015 was "unfortunate" and they should be paid down.

The program also requires Iraq to take significant steps to strengthen anti-corruption laws and to prevent money laundering and counter the financing of terrorism.-Reuters