If the semi-autonomous government goes bankrupt, the war against the caliphate could go belly-up.
Iraqi Kurdistan’s fight against ISIS has for many Kurds been an existential battle central to their survival and that of their autonomous region in Iraq. However, with ISIS prevented from embarking upon Kurdistan’s major towns and cities, thanks to the efforts of the Kurdish Peshmerga forces and the U.S.-led military coalition against the jihadists, the Kurds face what their deputy prime minister, Qubad Talabani, describes as the “real existential threat”—the region’s economic crisis. If this situation does not improve soon, ISIS will be the least of its problems. Indeed, it is often overlooked that, as a result of the crisis, Iraqi Kurds are now found among the deluge of refugees and economic migrants from the Middle-East into Europe.
Sitting in an office in Sulaymaniah, and armed with a pen and whiteboard, Talabani, who is overseeing major economic reforms, explained to us how the Kurdistan Regional Government (KRG) faces an economic challenge of staggering proportions. Beginning in 2014, he describes how “we were hit with an economic tsunami which came in four waves.” The first of these came in February 2014, when the Iraqi government in Baghdad, which has been in dispute with the Kurds over a number of issues, unilaterally cut the KRG’s share of the federal budget.
This was followed by the emergence of ISIS and its foray into Iraq in June 2014, which led to increased security and military spending and was followed by a massive influx of 2 million refugees and internally displaced persons intofinal hit was the global drop in oil prices that began in mid-2014, which the KRG failed to plan for during its boom years of 2006-2014 when the price of oil hovered at around $100 a barrel.
Before recent reforms began to take hold the KRG was grappling with a monthly deficit of around $406 million per month. Government employees have suffered pay cuts and civilian staff are only paid every five months, while those working in the security services receive theirs every four. A senior Kurdish intelligence official involved with all aspects of the war on ISIS, from recruiting informants to covert special operations, told us that the crisis threatens to “stall the successful momentum against ISIS” that the Kurds and the international community have recently enjoyed.
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