Iraq’s Kurds in economic crisis ahead of independence vote

BAGHDAD: A referendum on independence for Iraqi Kurdistan set for Sept. 25 comes as the autonomous region faces the worst economic crisis in its short history.

Plunging government income, the challenge of fighting Daesh and the cost of hosting hundreds of thousands of refugees have combined to punch a gaping hole in the Kurdistan Regional Government’s (KRG’s) budget.

“The KRG’s coffers are empty and it’s burdened with debts,” Ruba Husari, an expert on Iraq’s oil industry, told AFP.

The World Bank said in a recent report that the fiscal crisis and the security challenge posed by Daesh “have had a significant adverse impact on economic growth.”

The region has benefitted from an influx of investment since the 2003 fall of dictator Saddam Hussein in a US-led invasion.

It won a measure of autonomy in the 2005 Iraqi constitution and has been seen as an island of stability in a country plunged into anarchy.

The drowsy regional capital Irbil was transformed as investors built towers, plush buildings, shopping malls and hotels to host foreign executives on business trips.

All that collapsed in 2014 as the price of oil plunged, Daesh seized a tranche of northern Iraq abutting the KRG and more than a million displaced Iraqis and Syrian refugees fled to the autonomous region.

That was compounded by Baghdad’s decision to suspend payments to the KRG of 17 percent of Iraq’s national budget.

The transfers, worth some $12 billion (€10 billion), made up 80 percent of the region’s budget revenues. Wages, including those of peshmerga fighters, were slashed.

“The fiscal shock is severe,” the World Bank said.

It said the regional government has dealt with the cut in revenues by borrowing money, postponing projects, and delaying payments — including the salaries of government employees.

The combination of crises slashed GDP growth from eight percent in 2013 to three percent in 2014, the World Bank said in 2015.

A senior KRG official said that by the end of that year, public servants’ salaries had been cut by 60 percent.

For the past two months, the region’s 1.2 million civil servants and retirees have not been paid at all, he told AFP.