UPDATE 1-Iraq budget deficit seen at 11.9 pct of GDP in 2016 - minister
* Low oil revenues, bloated payroll strain finances
* Baghdad negotiating loan with Qatar National Bank
* Eurobond, IMF loan possible funding tools in 2016 (Adds QNB loan)
BAGHDAD, Oct 21 (Reuters) - Iraq's fiscal deficit is expected to hit 11.9 percent of economic activity in 2016, the finance minister said on Wednesday, as the country struggles to fund fighting against Islamic State in the face of dropping crude prices.
The government's budget proposal, which awaits parliamentary approval, envisages expenditure of 106.9 trillion dinars ($95 billion) with a 23.5 trillion dinar shortfall, Hoshiyar Zebari told reporters.
Baghdad is currently facing a budget deficit of about $22 billion, out of a budget of roughly $105 billion.
More than 70 percent of expenditure will be used to pay salaries and pensions of the country's bloated public sector.
Oil is expected to account for more than 80 percent of Iraq's fiscal revenues in 2016, even as crude prices have more than halved in the past year.
"Next year will not be an easy year. According to the estimates ... and the current price of oil, we expect it to be a difficult year for us," Zebari said at the ministry's headquarters. Continuación...