Iraq and the World Bank signed a $350 million loan agreement on Sunday to fund emergency reconstruction in towns recaptured from Islamic State militants, a deal Baghdad said marked the first international help to rebuild areas devastated by war.

Finance Minister Hoshiyar Zebari said around a third of the money would go towards repairing roads and bridges, with a similar amount allocated to restoring electricity networks, water and sewage.

Iraq faces a budget deficit of up to $20 billion this year as it grapples with low oil revenues and the heavy cost of war with Islamic State insurgents.

The militants hold much of north and west Iraq, but have been driven out of parts of Diyala and Salahuddin provinces north of Baghdad by Shi'ite militia, Kurdish peshmerga and Iraqi security forces, backed by U.S.-led air strikes.

The extensive damage from those battles has left the Iraqi government, whose revenues have been battered by the halving in world oil prices, appealing for international help.