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Analysis

Erbil Immersed in Heavy Debts, Economic Crisis

Wednesday 18 September 2019
Erbil Immersed in Heavy Debts, Economic Crisis

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Alwaght- Iraq’s equations still grapple with vast levels of political, economic, and social crises amid the country’s movement towards relative calm after the defeat of the ISIS terrorist group. The disarray among the political parties, the ongoing rift between the central government and the autonomous Kurdish region government, social crisis after five years of ISIS rule in parts of the country, the refugees return, the reconstruction challenges, and very importantly the heavy foreign debts are issues that are still heavy on an Iraq already exhausted by terrorism, war, and violence. 

Meanwhile, perhaps the most tangible challenge is the burdensome foreign debts both affecting the operations of the central government and the Kurdish Regional Government (KRG). According to figures, Iraq currently has $85 billion foreign debts, making it extremely hard for the cabinet to run the country. Still there seem to be rays of hope as the government works on expanding its oil production capacity and is capable of borrowing from international creditors, all making it not unlikely for Baghdad administration to manage the financial stress in near future. Still, there is a more troublesome issue: the $17 billion debts of the Kurdish region that seems to turn into a substantial crisis for the autonomous region in the near future. Erbil administration restrictions to get new sources of income considered, easing such a crisis looks much difficult for the KRG. 

Kurdistan region’s economy squeezed by heavy debts 

Over the past few years, there have been various reports of the autonomous region’s debts, many of them putting the sum at about $20 billion, mainly to the foreign countries and companies. Much of the debt is to neighboring Turkey. The region also received money from the Russian oil company Rosneft as prepay for future oil contracts. 

Euromoney, a prominent European banking and the financial institution, in a report published by its magazine estimated Erbil foreign debts to be around $17 billion. It additionally said that there is no financial transparency in the Kurdish region, making it hard to determine the accurate sum. The European institution warns that such an amount of debt for a region with about 5 million population equals 100 percent of the gross domestic production (GDP). It adds that if Erbil fails to solve the problem, it will grow larger. It notes that because Erbil government cannot sell bonds to obtain money from foreign investors without permission from Baghdad or borrow from international lenders, it will not be easy for it to use foreign finances to cover its debts and fund its home spending. 

Economy victim to failed pro-independence agenda 

Without any doubt, the most important factor inflicting such hard economic conditions on the Kurdish region is the ambitious plans for separation from Iraq driven by some Erbil leaders. They in 2013 adopted a proposal presented by Ashti Hawrami, the contemporaneous minister of natural resources of the local cabinet, and sold their oil independently through a pipeline connecting Kirkuk to Ceyhan port of Turkey. Following the decision, Baghdad government, under Prime Minister Nouri al-Maliki, cut off the 17 percent share of the KRG from the Iraqi annual budget as an initial reaction. As a follow-up, Baghdad reduced its relations in all areas to the lowest level. 

The ultimate blow to the bilateral relations came on September 25, 2017, when the KRG arranged a referendum of independence across northern Iraq. The Kurdish leaders choose the path of borrowing money from the oil companies to pay the wages of state employers as restrictions on oil sales made them feel the pinch. They also took from Ankara huge loans the repay of which is guaranteed by oil exports to the creditor. In the new situation, the international experts tell the Euromoney, the troublesome issue is that the Kurdish region has huge debts but still seeks to split from Iraq. This, they warn, hits hard its local economy. 

Thus, what looks quite crucial in the new conditions is a change of Erbil approach in its ties with Baghdad. Since Masrour Barzani assumed the post of prime minister in June, it seemed that Erbil began to show indications that it wants to review its approach to the central government. The Euromoney magazine cities a piece by Masrour published in an American newspaper. The PM suggests that the KRG tends to forget about independence and brace openness to closer ties with the central government, an approach deemed suitable for Kurdistan to get rid of the economic conundrum.

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Erbil Kurds Debt Iraq Crisis

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US Forces Destroy Own Airfield, Equipment as They Flee Northern Syria

US Forces Destroy Own Airfield, Equipment as They Flee Northern Syria