Iraq's cabinet has approved a draft 2015 budget worth 123 trillion dinars ($103 billion) at the free market rate) which was made possible by better ties between Baghdad and the autonomous Kurdish region, but was constrained by plunging oil prices.

The budget, which envisions a deficit of 23 trillion dinars, will be presented to parliament after a committee headed by Prime Minister Haider Al Abadi fine-tunes some of the language at a meeting in the coming days, Finance Minister Hoshiyar Zebari told Reuters.

Iraq did not have a budget for 2014; the government of former Prime Minister Nuri Al Maliki failed to pass one following the deterioration of relations with Sunnis and Kurds.

By contrast, the 2015 budget is a symbol of growing goodwill between Baghdad and the Kurdish region as they both fight Islamic State militants known as ISIS.

"This is a breakthrough," the prime minister's spokesman Rafid Jaboori said of the spending plan.

Zebari said no figure was available yet for actual spending in 2014, but it was expected to be higher than the 123 trillion dinars of the 2015 budget - implying Baghdad has been forced into taking substantial austerity measures by the slide of global oil prices in recent months.

"Our economy suffered two major shocks in 2014: the rise of ISIS, which resulted in military confrontations, the loss of agriculture and displacement. The second shock was the drop in oil prices," he said.

The budget seals a financial arrangement between Baghdad and the Kurdish region that will see the Kurds export 300,000 barrels per day of oil from Kirkuk and 250,000 bpd from their own fields in return for a 17 per cent share of the budget.

Unlike previous budgets approved under the Maliki government, the 2015 plan does not list punitive measures to reduce the Kurds' share if they do not meet their export quotas for oil.

The budget was delayed from last month as oil prices continued to slide; it originally assumed an average oil price of $70 a barrel next year, but lowered that to $60. Brent crude is trading just above $60, down from $115 in June.

"We have a really difficult financial and economic situation," Zebari said. "The strategy was to present a real budget - to engineer our budget according to our actual revenues so that we will be able to meet our top priorities."

Zebari listed those as defence, oil, electricity and Iraq's internally displaced population, with more than 2 million people who lost their homes in the last year.

"They need to get back to their homes; they need basic services, reconstruction and security," Zebari said.

Defence alone is expected to take up 20 percent of 2015 budget expenditure. The state also has to ensure the payment of its civil servants, with more than 5 million state employees.

The government will finance the deficit through Treasury bills, government bonds and borrowing from local banks, the finance minister said.

In addition, Iraq plans on drawing funds from the International Monetary Fund through its Special Drawing Rights, and will introduce a tax on imported cars and cellular telephone SIM cards and the Internet.

The state is also withholding 15 per cent of high-level government salaries, which will be paid back when the country is more financially stable. Kuwait has agreed to defer Iraq's reparations for its 1990 invasion of its neighbour for one year.

Zebari said he expected oil prices to rise over 2015 and any surplus revenue would then be put into investment projects.-Reuters