Boomerang loan: Britain gives Iraq £10bn to spend...in Britain

The loans, which can only be spent with British firms, will be disbursed over a 10-year period.

The agreement was made between British and Iraqi officials in Baghdad, where a memorandum of understanding was signed.

Projects in the provision of water, sewage facilities, electricity, healthcare and transport were outlined in the MoU.

"This loan is exclusively allocated to British companies," Iraqi Acting Finance Minister Abdul Razzak al-Essa told a news conference at the signing ceremony. Interest rates will be set when the contracts are agreed, the minister said.

"For the United Kingdom this is a further evidence of the bilateral support that we are giving and continue to give to Iraq, to help Iraq move forward to recover from the ravages of Daesh (Islamic State)," British ambassador Frank Baker said.

Over a decade after the Anglo-American invasion that deposed long time dictator Saddam Hussein, Iraq's infrastructure is still poorly funded and managed.

Over a decade after the Anglo-American invasion that deposed long time dictator Saddam Hussein, Iraq's infrastructure is still poorly funded and managed. 

Profits from crud oil sales have also been siphoned away by officials, further weakening government finances in times when oil prices have fluctuated to new lows.

The 2014 drop in oil price came as IS swept across Iraq and took vast swathes of land, displacing over three million people.

Current efforts to capture the IS group's 'capital' of Mosul have also proven hugely disruptive for Iraq's civilian population.

The battle for the city, which has raged on for over 100 days, has displaced over 200,000 people as fierce street-to-street fighting ensue between pro-government forces and IS militants.

Aid agencies estimating that around 750,000 people remain in the city, which is the IS group's last major Iraqi stronghold.