The International Monetary Fund said Thursday that it is lending $5.4 billion over three years to cash-strapped Iraq, which has been hit hard by a sharp drop in oil prices.

In exchange, Iraq is being asked to reduce public spending, improve collection of tax and customs revenues and fight corruption and money laundering, said Christian Josz, head of the IMF mission in Iraq.

Josz spoke at a joint news conference in Amman with Iraq's finance minister and head of the central bank. The interest rate for the loan will not exceed 1.5 percent, said bank chief Ali al-Alaq.

Finance Minister Hoshyar Zebari said Iraq is also issuing $2 billion in international bonds this year. Iraq didn't issue such bonds last year due to high interest rates.

Iraq's oil-reliant economy has been knocked hard by plummeting oil prices in international markets. The drop has wreaked havoc on the country's national budget, financed almost entirely by oil revenues.

Large-scale land grabs by the extremist Islamic State group since 2014 exacerbated economic decline, forcing the Iraqi government to divert large sums to fighting the militants.

In 2016, Iraq has a budget of close to $90 billion, with a deficit of about $20.5 billion. The government hopes to narrow the spending gap with loans from local and international lenders.

Last year, Iraq secured $1.7 billion in loans from the World Bank and $833 million from the IMF.