(529 million pounds), a senior IMF official said.

Iraqi finances have been hit hard by the plunge of oil prices since last year as well as by the Islamic State insurgency. The government has projected a budget deficit of about $25 billion this year, in a budget of some $100 billion.

Aid from the IMF could ease the pressure and by increasing investor confidence, help Iraq raise money from other sources. Baghdad has said it plans to issue $5 billion of debt in its first international bond sale for nine years.

"Teams will work on the issue in coming weeks. We hope we can reach a conclusion relatively soon," Masood Ahmed, Director of the IMF's Middle East and Central Asia Department, said in an interview.

Ahmed said the aid would probably come in the form of a Rapid Financing Instrument (RFI) and would be "relatively small, about $800 million or so".

An RFI is a facility created by the IMF to provide quick financial assistance and economic policy advice to member countries with urgent balance of payments needs. An RFI loan should be repaid within 3-1/4 to five years, according to the IMF's website.

The RFI might pave the way in the longer term for a larger IMF lending programme for Iraq, if that were needed, Ahmed added. Such a programme could involve more extensive economic policy commitments by Baghdad.

Iraqi Finance Minister Hoshiyar Zebari told Reuters last week that Baghdad would obtain a sovereign credit rating to facilitate the bond issue. The government has also introduced or is planning measures including a local currency bond issue to banks, taxes on some consumer goods, and public wage cuts.

Ahmed noted that Iraq had started running down its international reserves and said its economy was likely to grow only marginally this year, after shrinking 2.4 percent in 2014.

"The finance minister and the prime minister are both very clear that they recognise there is a problem and they are committed to finding a way to address it, within the constraints that they face," he said.