KRG PM Barzani announces 'partial restoration' of payments from Baghdad amounting to 320bn IQD

Deal reached after call with Kadhimi

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SULAIMANI — Kurdistan Regional Government (KRG) Prime Minister Masrour Barzani announced in a late-night tweet on Sunday (August 16) that Iraq’s federal government has agreed to resume limited budget transfers for the next three months, after it cut payments in April.

“After a call with [Prime Minister Mustafa al-Kadhimi] today, I am pleased to announce that Baghdad has agreed to pay IQD 320bn [$268.2 million] monthly as a partial restoration of our share of the federal budget,” Barzani said in a tweet that included his personal initials.

“We are in agreement on both parties’ constitutional rights and duties, and dialogue will continue,” he added.

The terms of the deal were released later on Sunday to NRT by a source in Kadhimi's office and confirmed by a source in the KRG.

Transfers of 320 billion Iraqi dinars will be sent to Erbil in August, September, and October.

Meanwhile, federal and KRG officials will work to unify customs and accounting procedures at the land and border crossings in the Region and to bring Regional tariffs and systems into line with federal ones, a process that will be overseen by a joint technical monitoring team. Two points in the deal specifically mention federal laws as the foundation upon which the unified system will be based.

Another point mentioned that, after the agreement comes into effect, an external contractor may be brought in to conduct accounting procedures. The KRG already uses an external auditor for its oil industry.

While it will not entirely resolve Erbil's significant financial difficulties, the deal will likely be seen as a welcome development by the cash-strapped KRG, the Kurdistan Region’s investors, and its beleaguered public sector workforce.

Under the terms of the 2019 Federal Budget Law, which passed the Council of Representatives in January 2019, the Region is supposed to receive 12.67 percent of the budget, in return for transferring 250,000 barrels of crude oil per day to Iraq’s oil marketer for export. The KRG never sent any oil, but the federal government was nevertheless obligated to send money monthly to pay for public sector salaries under a provision of the law and did so for fifteen months.

The timing of Baghdad’s decision to cut off budget transfers in April came at a time of acute economic pain for the Region, which was facing the collapse of global oil prices and the effects of the coronavirus pandemic, giving the federal government significant leverage to seek a comprehensive budget agreement that would resolve many of the long-running disputes that have plagued relations between the two governments.

During the spring, federal and KRG negotiators met several times, but have not held face-to-face talks since late-June, with a scheduled trip scrapped in July.

Nevertheless, discussions continued, with control over customs procedures at the Region’s crossings with Iran and Turkey taking on increased prominence amid Kadhimi’s push to reassert centralized state control over Iraq’s border points and reduce smuggling and revenue expropriation by political parties, tribes, and militias.

For many in the Kurdistan Region, however, the news raises hopes that they will be paid this month.

Since February, Erbil has only paid public servants twice: in May and in July, when it cut nearly a quarter of the take home pay of employees making more than 300,000 Iraqi dinars ($251) per month.

The government is the Region’s most important employer, supplying incomes for hundreds of thousands of people. Erbil’s failure to live up to its obligations has sparked several rounds of protests and labor strikes, in particular by doctors and traffic police.

It is estimated that the KRG requires 894 billion Iraqi dinars ($749.3 million) to pay its public sector wage bill, about half of which, 452 billion dinars, had been supplied by Baghdad before April. The 320 billion Iraqi dinar figure is a significant reduction from that level, suggesting that much remains to be done before a comprehensive budget agreement can be reached between Erbil and Baghdad.

Beyond what it owes to its people, the KRG also carries significant foreign and domestic debt and has delayed payments to international oil companies operating in the Kurdistan Region.

The newly announced infusion is far from sufficient to pay the government’s full obligations, but the cash and the prospect of further talks will take some of the pressure off for now.

(NRT Digital Media)

This story was updated at 5:35 p.m. EBL