BAGHDAD (REUTERS) - Japan has agreed to lend Iraq up to 27.2 billion yen (S$337 million) to rebuild damaged electricity infrastructure, especially in areas recaptured from Islamic State of Iraq and Syria (ISIS), its Baghdad embassy said on Tuesday (Jan 10).

Tokyo also intends to sign off on another loan worth 21.5 billion yen for a project to repair a thermal power station in the southern province of Basra.

Iraq's economy has been hit by the plunge in world oil prices since mid-2014 and the country is expected to have a financing gap of 21 trillion dinar (S$25.5 billion) this year unless it can secure more funding, an IMF document obtained by Reuters last year showed.

The cost of fighting ISIS militants is another burden on the budget.

The loan was signed during a visit to Iraq by Japanese State Minister for Foreign Affairs Kentaro Sonoura.

An embassy statement said Japan intended to make additional contributions of approximately US$100 million for "humanitarian assistance and support for the stabilisation of liberated areas through international organizations."

Iraq is fighting with the help of a US-led coalition to drive ISIS militants from the north of the country.