World Bank to lend Iraq $1.7 billion - finance ministry

BAGHDAD, July 2 (Reuters) - The World Bank will provide loans totalling $1.7 billion to Iraq, the finance ministry said, as the country struggles with low oil revenues and a costly military campaign against Islamic State militants.

It said $1 billion would take the form of a development policy loan, without specifying what the money would fund.

A $350 million loan would go towards reconstruction in parts of the country recaptured from Islamic State fighters. Those include Diyala province, northeast of Baghdad, and the area around the city of Tikrit which was retaken three months ago.

Another $350 million would finance a road project linking the southern oil city of Basra to the Gulf port of Umm Qasr, the ministry said in a statement following a meeting on Wednesday between Finance Minister Hoshiyar Zebari and World Bank representative Robert Bou Jaoude.

Iraq has projected a budget deficit of around $25 billion this year, in a budget of roughly $100 billion. It is planning a $5 billion bond issue to help cover part of that deficit.

A month ago it reached agreement with the International Monetary Fund for an $833 million loan programme. (Reporting by Dominic Evans; Editing by David Holmes)