As Baghdad freezes budget transfers, KRG's cash crisis deepens, threatening ability to pay salaries

Committee chair expresses optimism for resolution
Chair of the the Kurdistan Parliament's Economic and Finance Committee in Muhammad Saadadin (File)

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SULAIMANI — Chair of the Kurdistan Parliament's Economic and Finance Committee Muhammad Saadadin on Sunday (April 26) assured public sector workers that officials were working to resolve a major budget dispute with Baghdad, the effects of which could have a devastating impact on the finances of the Kurdistan Regional Government (KRG) and its ability to pay salaries.

The dispute stems from the KRG's failure to meet its obligations under the 2019 federal budget law by refusing to send 250,000 barrels of crude oil per day to Baghdad for export. Despite this, the federal government continued to send budget transfers to the KRG so that it can pay public sector salaries, as required by the law. Instead of sending the oil to Baghdad, Erbil sold the oil independently, in part to service its massive debt burden.

According to a document dated April 16 and signed by Secretary-General of the federal Council of Ministers Hameed al-Ghazi, those payments appear to have stopped, representing a significant escalation of the dispute and a sign that Baghdad's patience with Erbil's stalling tactics has run out.

Citing the KRG's failure to live up to its obligations under the law, the letter freezes money deposited by the federal government in an account in the Bank of Iraq in Erbil that would have gone to salary payments and authorizes an audit of the KRG's finances from 2004 to 2018.

Erbil and Baghdad have been negotiating over how to implement the 2019 budget since it passed fifteen months ago, with the latest meeting of that cycle scheduled for Sunday.

Over the winter, the two sides reached a preliminary budget agreement that would have seen oil transfers begin in January, but it was never implemented because of the Council of Representatives inability to pass a 2020 budget amid political, social, and coronavirus-related disruptions.

“There is a difference in the political decisions the federal government made previously and the document that the Secretary-General of the Council of Ministers signed now,” Saadadin said, appearing to complain about the change in tactics by federal officials.

“The problem between the Kurdistan Region and Baghdad is related to the mechanisms and policies in implementing the 2019 budget plan and there is a misunderstanding concerning the article related to the 250,000 barrels and the Kurdistan Region’s budget share,” he added.

By cutting off budget transfers to the KRG, the federal government action seriously compounds the looming financial squeeze caused by plummeting oil prices and threatens Erbil's ability to make payroll.

Saadadin, however, expressed optimism that the disagreement would be resolved soon and transfers would resume.

(NRT Digital Media)