Iraq plans to issue $2 billion worth of international bonds in 2016 with World Bank guarantees for up to half that amount, its central bank governor said on Wednesday.

The move comes after high yields forced the government to halt a bond issuance earlier this year.

Ali Al-Alak predicted in an interview with Reuters that the new bond's yield would be "much less" than the 11.5 per cent demanded by investors during a roadshow in Europe and the US in September, but did not speculate further.

"It will be $2 billion but they (the World Bank) will guarantee let's say 40 or 50 per cent of that," Alak said. "That will open the market more - make it wider - to attract more investors."

He said Baghdad had factored the bond into next year's budget in order to finance a fiscal deficit estimated at $21 billion out of a roughly $95 billion budget.

The extremely high yields demanded for an initial $2 billion US dollar-denominated issue earlier in the year would have been financially burdensome for Iraq, a major Opec oil exporter.

Baghdad, which is battling Islamic State militants and faces shrinking oil revenues due to low crude prices, had said it needed the proceeds of the bond to pay salaries and fund infrastructure projects in the oil and gas, electricity and transportation sectors.

Iraq hired three top global banks to arrange the sale, Citigroup, Deutsche Bank and JP Morgan Chase, but many institutional investors baulked at the risks.

A source close to the deal said the government has asked the same banks to prepare a roadshow for next year's issuance.

Mudher Saleh, a top economic adviser to Prime Minister Haider al-Abadi, said the yield would depend on the extent of the World Bank's involvement.

Guaranteeing 75 per cent, for example, would drop the yield to 5 or 6 per cent, he said. He did not provide an estimate for a guarantee of 40 to 50 per cent.

Standard & Poor's has assigned Iraq a B-minus credit rating, six notches below investment grade, saying security and institutional risks were among the highest of any sovereign it assesses, on par with Egypt and above Greece.

Iraq agreed last week to a programme which would have the International Monetary Fund monitor Baghdad's economic policies as a basis for a possible funding programme in 2016. - Reuters