Iraqi Kurdistan economy suffers amid budget dispute with Baghdad

Article Summary
The economy of the Iraqi Kurdistan Region has suffered from the effects of the budget dispute between Baghdad and Erbil.

Iraq’s Kurdistan Regional Government (KRG) has disclosed for the first time the negative consequences that the economy of the region has been suffering from, after the central government cut the annual financial allocations approved under the constitution. This step resulted in a decline of the volume of foreign and domestic investment of $7 billion during the first half of last year, and $1 billion this year, while the trade rate fell by half.

“The import and export rates fell to 50% over the past six months, i.e. their lowest rate, due to the political conflict, the postponement of the formation of the regional government and the failure of the central government to send the annual budget to the region,” said Yassin Rashid, an official in the Kurdistan Investors Union.

Following the adoption of a new investment law, the region has attracted large amounts of capital from Arab and foreign countries to its cities, which are now deemed to be the most prosperous and open to the global economy compared to the rest of Iraq’s cities.

“The bankruptcy of banks, the delay in paying salaries, the cessation of projects, the failure to adopt the Iraqi budget and the delay of credits to contractors are the main reasons behind the decline of import and export by 50% compared to the first half of last year,” he added.

Rashid said, “There are other reasons that led to the deepening of the economic crisis, including the intensification of the conflict between Baghdad and the Kurdistan Region, the delay in forming the government and the financial instability in neighboring countries.” He said, “A delegation from the Investors Union will visit Kurdistan Region President Massoud Barzani in the coming days to discuss the economic conditions of the region.”

The city of Sulaimaniyah witnessed in the past two days protests and road blocks on the part of government officials to condemn the delay in disbursing salaries.

The Ministry of Finance and Economy in the region announced that a US diplomatic delegation representing the US Embassy in Baghdad and its consulate in Erbil visited the headquarters of the ministry in order to closely monitor the economic and financial situation and the crisis of Baghdad’s abstinence from sending the budget to Erbil.

The ministry said in a statement, “The economic adviser to the US Embassy in Baghdad, Robin Matthewman, met with the representative of the Kurdistan Region’s Finance Minister Rashid Tahir to discuss the economic situation and the conflicts between the central government and the KRG, which result from the central government’s abstinence from sending the budget and salaries of employees to the region.”

“Tahir highlighted the problems, most notably the lack of commitment of the Baghdad government to the constitution and the use of the budget as a pressure card on the region,” the statement added. It further stated, “It has been years since the Baghdad government last sent the region’s budget, which amounts to 17% of the general Iraqi budget. Instead, the central government was deducting up to 6% of the allocated 17% under the pretext that it was deducting the sovereign and governing expenditure from this percentage, which negatively affects the recovery of the infrastructure of the region’s government.”

The KRG pointed out, “Baghdad cut off the funds allocated to the salaries of state employees, which led to a crisis in liquidity and an inability to pay salaries, which, in turn led employees of ministries and official departments to wage protests and sit-ins.”

The origin of the dispute is the lack of agreement between Baghdad and Erbil on ways to export Kurdistan’s oil to foreign markets and including it in the general budget for this year. Baghdad is demanding the region to export 400,000 barrels of oil per day through the Iraqi State Oil Marketing Organization (SOMO) and deposit the relevant revenues in an account in the Central Bank of Iraq-Development Fund for Iraq based in New York, otherwise it would deduct the equivalent amount from the region’s share in the general budget. Erbil rejected this demand and deemed it as sheer political pressure. It has instead offered to export 100,000 barrels per day, but this proposal was, in turn, rejected by Baghdad and has not been applied so far.

Leader of the Kurdistan Alliance Najeebeh Najib said in a statement to Al-Hayat, “It has been three months in a row that the [state] employees of the region have not been paid. Moreover, the lack of liquidity has led to a state of recession at the level of trade and services. This, in turn, caused a suffocating crisis in the markets and a decline in imports. It has also instilled concerns about any further degeneration of the situation.”

“This crisis will be soon over, as the Baghdad government has fabricated it to use it as a pressure card and win the elections, which are over now,” Najib predicted.

For his part, Barzani said in a TV interview concerning Baghdad’s continued withholding of financial allocations, “Those who are reducing the Kurdistan budget will pay for such [a] decision. If they believe that reducing the budget and blackmailing us would prevent the Kurds from demanding their legitimate rights, then they are wrong.”

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