The past year has done much damage to the economy of Iraqi Kurdistan. And late in 2014 the government of the semi-autonomous region decided it might be a good idea to borrow money from international lenders in
Iraqi bank notes: The Kurdish government wants more of these.
Despite the fact that the government of the semi-autonomous northern region of Iraqi Kurdistan and Iraq’s federal government in Baghdad recently came to something of an agreement on their outstanding financial arguments about oil and money, the Iraqi Kurdish still want to try and borrow money from outside of the country.
Toward the end of last year, the Iraqi Kurdish government approved a draft law that would allow the region to bring more money through lending. Even if the dispute between Iraqi Kurdistan and Baghdad was resolved, the region would still need extra money in order to catch up with all the damage done by what was described as a months-long “financial blockade” of Iraqi Kurdistan.
However the draft of this law was never forwarded to the Iraqi Kurdish Parliament and there is plenty of controversy still around it. Some of these are legislative, other issues are political and still further issues have been brought up by the private lenders that the Iraqi Kurdish have approached.
Iraqi Kurdistan’s Deputy Prime Minister, Qubad Talabani, has said that after lengthy discussions and legal consultations the region’s Cabinet had agreed that Iraqi Kurdistan could apply for international loans. However, he also noted, that getting permission from the region’s Parliament would take some time.
Returning from Baghdad in early December, the President of Iraqi Kurdistan, Nechirvan Barzani, reported that, while they had made progress the general financial situation that Iraq was facing – oil prices were dropping and the government had spent too much – meant that not all of the Kurdish requirements could be met. And that is apparently why the Iraqi Kurdish government will continue to seek alternative financing.
There’s also Article 106 of the Iraqi Constitution to consider – this says that Iraq’s federal government manages fiscal policy and funding right across Iraq. However up until now, Baghdad has played no role in Iraqi Kurdistan’s plans to borrow money.
“From a Constitutional standpoint, borrowing money is the job of the central government in Baghdad,” agrees Ezzat Sabir, who heads the Iraqi Kurdish Parliament’s finances and economics committee. “However the region’s government could find other legal ways of borrowing money, via the multi-national companies willing to invest in the region.”
There’s also a lot of concern among local financial experts about what the borrowed money will be used for. If it was used to pay back the salaries owed to civil servants, who haven’t been paid for several months thanks to Baghdad’s budgetary blockade, then that would be dangerous, says Mohammed Karim, the Chairman of Kurdistan's Economic Forum. “We don’t know how the government would pay these loans back and this concerns us,” Karim says. “If the aim of borrowing money is to pay back government employees, that is going to result in an economic disaster.”
As Rizgar Xoshnaw, a Kurdish writer based in Washington, explained on the Kurdish-news-specialist site, EKurd Daily, “usually when a [government-issued] bond or debt financing is being discussed, the potential funds collected [are] used to expand the operations of the borrower that will result in money or income being generated as a result of this bond. But in the case of Kurdistan, the money that the [government] is looking to borrow is actually to pay the back salaries and expenses of the government; the money is not being put to work.”
Iraqi Kurdistan had experienced a couple of golden years as its economy grew – during 2013 foreign investors apparently contributed around 60 percent of all investment in local projects. That percentage has fallen hugely in 2014 but as yet there are no definitive numbers as to how big the decrease is.
“Despite political tensions and security problems, Iraqi Kurdistan has been able to maintain its economic and security status,” insists Dara Jalil Khayat, the head of the Kurdistan Federation of Chambers of Commerce and Industry. “The threat of terrorism and the cut-off of the Kurdish region’s share of the federal budget have challenged economic growth here though. And this has made the region contemplate new measures in order to keep the economy going,” he says.
For now the idea of borrowing money from international lenders remains a controversial subject in Iraqi Kurdistan. There are also plenty of unanswered questions. Such as: How much money needs to be borrowed? Where will it be spent – on growth-enhancing projects or to pay back debts? And what impact can corruption have on these loans?
Both those who support the idea of borrowing and those who oppose it are agreed on one thing: The Iraqi Kurdish government must be able to answer these questions before this plan can go any further.