ERBIL, Kurdistan Region – The Kurdistan Region’s share from Iraq’s 2014 budget is 9.9 percent, a report by the autonomous Kurdish enclave’s Change Movement (Gorran) says, as Erbil continues efforts to win the 17 percent allocation specified in the constitution and resolve other oil and budget disputes with Baghdad.
The report titled “Analysis Report of the 2014 Budget Bill of Iraq and the Share of Kurdistan Region,” and sent to the Kurdish parliament by Gorran, provides a detailed examination of the Iraqi budget.
It estimates the Iraqi budget for this year at more than 164.5 trillion Iraqi Dinars, exceeding the 2013 budget by 27 trillion ID.
National income in 2014 is estimated at about 139.6 trillion ID, with a deficit of some 20.8 billion ID.
The budget expects oil revenues to come from selling 3.4 million barrels per day, higher than the 2.9 million bpd specified for 2013, according to the Gorran report.
The Kurdistan Region needs to pump out 400,000 bpd in 2014, while in 2013 it was required to produce 250,000 bpd. The budget stipulates all Iraqi oil revenues – including Kurdistan’s – to be deposited in the Development Funds of Iraq (DFI) in the United States.
The International Monetary Fund (IMF) has warned that the Iraqi budget contains “a structural problem” for relying too heavily on oil revenues, making it vulnerable to oil price variations.
The major portion of the budget – some 99.5 trillion ID -- is allocated for governance, with only about 59.3 trillion ID going to investment, the report says. It shows that 36 percent of the Iraqi budget is allocated for investments, while international standards call for investments between 65-70 percent.
The limited investment budget is expected to negatively impact the improvement of social services and economic infrastructure, which are major public demands.
The Kurdish share of the budget, after subtracting sovereign and governance costs, is 17 percent of the total, or about 16.5 trillion ID. That is 2.46 trillion ID higher than in 2013. Erbil’s share comes from 15.4 trillion ID from the total Iraqi budget, and 933 billion ID from Kurdistan’s share in the funds allocated to the Development Project of the Iraqi Governorates.
Gorran notes that the 2014 budget lacks any economic vision. It contains no initiatives to boost local production, decrease imports, create jobs and improving income for Iraqi citizens.
It adds that the bill is focused more on improving military and political strength, containing steep rises for governance, security and defense expenditures, and relatively small outlays for the agricultural and industrial sectors.
Defense and security expenditures take up 23.2 trillion ID of the budget, while agriculture outlay is a paltry 4 trillion ID. This means that the security and the defense expenditures are seven times greater than the agricultural sector. Industry receives only 415 billion ID – 14 times less than for defense and security.
Gorran notes that the Kurdish share of the budget is calculated after deducting governance and sovereignty costs. This means that Kurdistan’s share will fall with every increase in the governance and sovereign expenditures. However, Kurdistan has its own share in governance and sovereign expenditures as well.
Sovereign costs in 2014 equal about 47.5 trillion ID. The 17 percent Kurdish share is calculated after subtracting this amount from the total budget.
Erbil should receive 17 of the allocation for governance costs. Part of this budget was not given to Kurdistan in the past, especially the costs of electricity production and pilgrimage to Mecca.
In 2012 the Kurdistan Region should have received 289 billion ID from the central government for fuel supplies and electricity generation, but this never happened. In 2013, the same expenditures totaled 302 billion ID, but were again withheld.
In 2014, about 12.6 trillion ID is allocated for governance expenditures. The Kurdistan Region constitutionally deserves more than 2 trillion ID, but is not expected to receive it.
Some articles in the budget bill are considered harmful to the Kurdistan Region if implemented, such as article 10, which is related to local Kurdish revenues.
It states that domestic Kurdish revenues will be identified and calculated by audit agencies in Erbil and Baghdad, requiring the Kurdistan Regional Government (KRG) to send the amount to Baghdad on a monthly basis.
“If Kurdistan Region failed to send its domestic revenues to the federal central bank, the central government shall subtract that money from the budget of the Kurdistan Region,” according to a clause in the article, which was contained in previous budgets and can be activated by Baghdad at any time.
The Kurdistan Region has sent its revenues to the central bank in the past, but Baghdad has not agreed to the calculations.
The same article also holds the KRG or any other governorate responsible for damage to any telecommunications facilities, including Internet cables.
That means that the KRG could be penalized for damage done by companies owned by – or close to -- the Kurdish political parties.
Article One of the bill states that 400,000 bpd will be produced by the KRG, and that Baghdad will determine fines if that target is unmet, meaning that the Kurdish budget will suffer every time there is a dispute over production with the central government.
At $100 a barrel, the production target should contribute $14.6 billion (17.5 trillion ID) to the Iraqi budget, whereas the allocated budget for Kurdistan is 16.4 trillion ID.
Article 9 states that, “the expenditures of the guards of Kurdistan Region (Peshmarga) such as salaries, arms, and other necessities will be provided by the central government in a way that will not violate the Iraqi constitution.”
Since 2007, this article has been repeated in the Iraqi budget laws in various ways, without being implemented. According to the estimates, the central government owes more than 10 trillion ID to the Ministry of Peshmarga.
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