“The world is suffering from the economic crisis that happened due to COVID-19 and the drop in oil prices,” Barzani said from Erbil on Friday evening. “We are facing more challenges, as Baghdad decided to cut the salaries of KRG employees after months of unrest in Iraq and the resignation of previous cabinet.”
But Erbil-Baghdad relations appear to be looking up under the leadership of Iraq's new prime minister Mustafa al-Kadhimi.
“We now have a common understanding with the new cabinet in Baghdad led by PM Mustafa al-Kadhimi on KRG employees’ salaries,” Barzani said.
Erbil is in “continuous efforts” to fix the outstanding issues with Baghdad, including KRG employee salaries, Barzani said.
“I call on the Kurdish MPs in Baghdad to unite and work for the sake of people in Kurdistan Region, and avoid working for their party or personal interests.”
In mid-April, Iraq's former Prime Minister Adil Abdul-Mahdi called on the finance ministry to halt budget transfers to the KRG and take back all budget sent since January 1, 2020.
Baghdad accused the KRG of failing to send oil in exchange for its share of the federal budget – an arrangement agreed to in December.
Eager to keep public sector workers on the payroll, a KRG delegation visited Baghdad late last month to hash budget cuts out with Baghdad. But with no agreement reached, the KRG announced it would pay the salaries of civil servants from the "limited financial resources" available.
KRG delegations have already made several visits to the new government in Baghdad over the past two weeks to put an end to the budget cuts. No agreement on the oil-for-budget deal has yet been reached.
Kurdistan Region economy in numbers
The KRG is in poor standing to pay off what Barzani announced as its $27 billion in debt, in part due to a lack of Kurdistan Region reserves and the budget cuts from federal government.
World oil price collapse has meant that Kurdistan Region monthly revenue has shrunk to a fraction of its usual total, with only $90 million dollars made in April – with just $30 million coming from oil exports.
“In previous months, when our oil revenues were over $700 million, more than $400 million was used to pay back debts and pay oil companies for their work in Kurdistan Region oil fields,” Barzani said., “while more than $300 million was used to pay salaries of KRG employees, along with the $383 million that Baghdad was sending.”
The fall in oil prices resulted from a standoff between energy giants Russia and Saudi Arabia, both of which flooded the market with cheap oil – causing the price per barrel to drop to its lowest level in years.
Moscow and Riyadh reached a deal on April 12 to cut oil production by 9.7 million barrels per day – equivalent to 10 percent of the world’s daily supply – for May and June. However, global demand will likely remain low for the foreseeable future as a result of the COVID-19 pandemic and the economic downturn it has sparked.
OPEC producers including Iraq agreed to continue the reduction until April of next year to stabilize the struggling oil market. Erbil has agreed to abide by the Iraqi government’s production cut pledge.
An end to short-term planning?
A focus on civil servant salaries has meant that previous Kurdistan Region governments - including government under the premiership of his cousin and current president Nechirvan Barzani – have failed to plan for the future.
“The previous Kurdistan Region cabinet did not draw up a solid plan for the future of the Kurdistan Region's economy,” Barzani said. “The previous KRG cabinet has only provided salaries for the public and failed to provide budget for state development and public projects.”
“More than 80 percent of the previous cabinet's KRG budget was used to pay employee salaries, and only 20 percent was used for developing projects,” Barzani said.
