KRG official: 2016 could be even harder for Kurdistan, despite reforms

An economic boom spawned shopping malls and hotels that transformed the face of the Kurdistan Region. Photo: Judit Neurink. ERBIL, Kurdistan Region – The new year will see a series of ”major economic reforms” to stimulate the Kurdish economy and manage the growing budget deficit, the head of Kurdistan’s coordination office said.
But Nuri Usman also warned that 2016 could be an even harder year for the Kurds than fiscal 2014-15. “Undoubtedly, 2016 will be the year of reforms and we have taken measures in every government sector,” Usman said in a Rudaw TV debate on Saturday. He cautioned that the state of Kurdish economy “will probably get worse before it improves.” Referring to the Kurdistan Regional Government’s (KRG) rising budget deficit -- which has persisted for three years in a row – he said: “There is a risk that 2016 will be even harder than 2014-15.” The debt is partly due to plunging oil prices and a refugee crisis triggered by Kurdistan’s war with ISIS, which began in August 2014. Following Baghdad’s decision in February 2014 to freeze Kurdistan’s share of national revenues -- estimated at $1 billion a month -- the KRG has largely relied on oil sales and other domestic earnings to finance its colossal expenses including the wages of 1.4 million civil servants. With plunging global oil prices that have gone from around $130 in 2013 to $31 in December 2015, the KRG has been forced to take giant loans to finance delayed payments to employees -- a a total of 878 billion dinars (about $730 million) a month, according to Kurdish lawmaker Firsat Sofi, who is also a Rudaw columnist.
The KRG should start collecting proper taxes and eliminate special bonuses to former top employees, Sofi suggests in his Rudaw column, after preparing the first draft of an austerity plan for the parliament.

With over 10 percent annual growth, especially since 2007, the Kurdish economy experienced a boom period that stretched from 2005 to late 2013, predominantly funded by the oil revenues from the central government in Baghdad.

A major reconstruction effort in the region had attracted foreign and domestic investors with tax breaks and other incentives.

Kurdish economic professor Latif Kareem, who has often criticized the KRG for being “too generous” and “too dependent on oil,” told Rudaw that the only way out of the crisis for Kurdistan is if oil prices rise to $70 or $80 per barrel.

“And it is indeed very difficult to reach those levels again at the moment as oil countries keep producing,” Latif said, explainining that the Kurdish government lacks the institutions and the expertise to manage such crises.

“Our government received money in one hand from Baghdad and gave it away in salaries with the other hand, we never thought about crises and now we don’t know how to manage one,” he said.

The KRG says it will increase oil exports to nearly 1 million barrels per day in early 2016 from the current 650,000 bpd. It announced earlier it will be able to finance monthly payments to civil servants from January 2016.