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Baghdad Holds Solution to Ending Economic Paralysis in Iraqi Kurdistan

Baghdad Holds Solution to Ending Economic Paralysis in Iraqi Kurdistan

Sunday, 18 February, 2018 - 06:45
The economy in Iraqi Kurdistan has suffered due to ongoing political disputes with Baghdad. (Reuters)

The Iraqi Kurdistan region witnessed during the past decade remarkable economic development in wake of the 2003 collapse of the former regime in Baghdad.

That period witnessed a period of prosperous trade with Iraq to reach tens of billions of dollars annually. The real estate sector in the region’s three provinces, most notably Irbil, witnessed a sharp rise in real estate prices, even exceeding those in the world’s most famous capitals.

Experts said that the economic boon could be attributed to the dozens of foreign and Arab investments that were attracted to the Kurdish market. They benefited from facilitations provided by the regional government, which included tax exemptions and property ownership rights.

This positive investment atmosphere helped boost the economy at the time and improve living conditions in the region by creating thousands of job opportunities, reviving the private sector and attracting foreign capital.

This consequently led private sector companies to limit their dependence on foreign labor.

This general revival in Iraqi Kurdistan however was followed with a gradual decline with mounting political disputes with Baghdad starting mid 2013.

This culminated with the Iraqi federal government’s decision in 2014 to completely cut Kurdistan’s share of the annual budget, said the regional government.

This was followed with Kurdistan’s war against the ISIS terrorist organization and the flow of refugees from Iraq and Syria that topped 2 million. This dealt a strong blow to the already fragile economy in the region.

This forced dozens of investment companies to quit the region within only two years. Hundreds of local firms also filed for bankruptcy amid a sharp rise in foreign debt that reached nearly 22 billion dollars, said parliamentary and semi-official sources from the region.

This was all coupled with the local government’s inability to pay pubic employee salaries, which it was forced to cut back by 75 percent since 2015. This weakened the individual’s purchasing power, especially since several citizens ran out of their savings.

As the economic crisis enters its fifth year, economy professor at the Catholic University in Irbil Dr. Salahaddin Kako told Asharq Al-Awsat that the primary cause for this poor situation is the government’s inability, for more than three years, to pay employee salaries.

In addition, he said that the purchasing power is determined by the level of a person’s income and the prices of goods in the market. The purchasing power will naturally decrease with the drop in salaries. He noted however that the prices of goods have remained stable and at times even dropped.

Kako explained that Kurdistan’s economy could be revived if the Iraqi federal government agreed to dispense public employee salaries, which will in turn improve living conditions.

Foreign debt, he said, can be paid through various means, such as proposing attractive investment opportunities.

An oil sector employee said that prior to the economic crisis in Kurdistan, he used to earn $1,200 a month, which allowed him and the five members of his family to live comfortably.

When the company he was working for decided to quit Kurdistan, he was left with a monthly salary of barely $200.

“I was no longer able to buy a kilogram of meat per month,” he lamented.

Many locals believe that key to ending the crisis lies in Baghdad’s hands and in resolving its pending disputes with Irbil.

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