Erbil, Asharq Al-Awsat—This year has not been a kind one for the Kurdistan region in Iraq. The year began with a financial dispute with Baghdad, when Iraq’s federal government canceled the region’s share of the Iraqi budget and refused to pay its public sector workers’ salaries. Then-prime minister Nuri Al-Maliki’s government accused the Kurdistan Regional Government (KRG) of exporting oil independently of Iraq’s state-owned oil company, SOMO—something it alleged was tantamount to smuggling.
As the year went on, the dispute dragged on, with Erbil insisting it had a right to control its oil exports—especially in light of its budget share being canceled—and Baghdad refusing to shift on its position. All the while, the people of the Kurdistan region suffered amid some of the worst economic conditions in recent years.
Then, in June, there was a complete game-changer: the Islamic State of Iraq and Syria (ISIS) began a stunning advance across northern regions of the country, taking Iraq’s second city, a number of crucial oil facilities—which included the country’s largest refinery—and threatening to storm both Baghdad and Erbil.
The events forced Nuri Al-Maliki out of office and Baghdad and Erbil to start talking once again. A deal was worked out shortly after between the KRG and the newly appointed government of Prime Minister Haider Al-Abadi allowing the Kurdistan region more control of its oil exports, with Baghdad also agreeing to pay back what it owed the KRG.
Taking over as head of the KRG’s Finance Ministry in June, Rebaz Mohammed Hamlan was faced with the unenviable task of quickly sorting out the region’s troubled economic situation and enacting a series of short-term, and no doubt unpopular, austerity policies.
Asharq Al-Awsat spoke to Hamlan about the recent financial dispute with Baghdad, how it has affected the Kurdistan region, and the KRG’s plans for managing its economy in the future.
Asharq Al-Awsat: There has been an economic crisis in Kurdistan since the beginning of the year. Has the problem now been solved?
Rebaz Mohammed Hamlan: The Kurdistan region has been through a very difficult and complicated period. Since the beginning of 2014, the federal government in Baghdad cut off our 17-percent share of the national budget, and with that a serious economic crisis began in the region. And after the entry of ISIS into Iraq during the beginning of last June, the crisis became much worse, and has affected all segments of the Kurdistan region’s population.
With the expansion of the fight against ISIS, the region was faced with a large wave of refugees, with the number of those entering the Kurdistan region now reaching 1.5 million people. This created great pressure on the region economically, mainly through our spending on the Peshmerga forces battling ISIS along a 650-mile (1,050-kilometer) stretch of land and the cost incurred as a result of the refugees—in terms of spending on food, water, tents, medicine and security for them . . .
After that, we were able to reach a deal with Baghdad which allows us to export 150,000 barrels of oil per day (bpd), in exchange for Baghdad sending us 1 million US dollars until this December 31 . A delegation from the region including the KRG’s High Committee for Oil Gas and led by Prime Minister Nechervan Barzani then visited Baghdad to meet with Iraqi Prime Minister Haider Al-Abadi. We reached a new agreement, which we will begin implementing from the start of January 2015.
So, yes, this year, whose final days we are now in, has been an extremely difficult one for the Kurdistan region, but the KRG and its people were able to pass through it successfully.
Q: How much has the KRG spent on refugees in the region?
We have spent a total of 45 million dollars from our oil revenues on the refugees. In addition to spending from budgets earmarked for other ministries such as the Interior, Health and Education ministries, which all provide services for the refugees . . .
Q: And how much has the KRG spent on the Peshmerga’s fight against ISIS?
So far we have spent 70 million dollars. This amount doesn’t include any spending on weapons because all our weapons have been received as a result of help from foreign countries.
Q: Are there any guarantees that the agreement reached with Haider Al-Abadi’s government for 2015 will succeed?
Erbil and Baghdad both needed this agreement. For, as you know, we are both in a war against ISIS right now. But it was Baghdad that betrayed Erbil first, and cut off our share of the budget. When they [in Baghdad] talk of our exporting oil, they forget that this only began last May, whereas Baghdad cut off our share of the budget in January. But after the new government of Haider Al-Abadi was sworn in, Baghdad began to look more realistically at the situation, and then we both drafted this agreement.
In terms of guarantees for its success, well, really, there are none; there is nothing to guarantee it will succeed or fail. In the end, like I said, we both needed this agreement. Baghdad has a huge budget deficit, and it can reduce this by allowing us to export 250,000 bpd, in addition to its exporting some 300,000 bpd through our pipeline. In exchange, the Kurdistan region will be able, through the return of its share of the budget, to reduce the negative effects of this economic crisis we are experiencing.
Q: How much oil will you be able to export during 2015?
Right now we are able to export 400,000 bpd, but we need to very quickly reconsider our oil policy in light of the falling prices. So the KRG’s High Committee for Oil and Gas will meet during the start of the new year to put forward a new plan for our oil exports taking into account the new prices. And we believe we can definitely raise our exports for 2015.
Q: Does the Kurdistan region currently have any debts?
Yes, we do have debts, but these are internal and not owed to any other countries. They are mostly related to increasing liquidity levels for banks in the region, paying [public sector workers’] salaries, and reducing the general lack the region is currently experiencing. But we have a coherent plan for paying these debts on a monthly basis after we begin implementing our new agreement with the Baghdad government.
Q: How big is your share of the new Iraqi budget for 2015?
Baghdad earmarked 15.3 billion dollars for the Kurdistan region in 2015 from the new Iraqi budget, which totals 123 billion dollars.
Q: According to the information we have, Baghdad owes the KRG money from 2014 . . .
This is correct. During our meetings with Prime Minister Abadi, we decided that this agreement [for 2015] would be the first among many, and we will meet again during the year to work out all the sticking points from 2014 . . . what they owe us, and what we owe them; and we will decide on a number. Right now Baghdad agrees that it owes us 16 trillion Iraqi dinars [14 billion dollars].
Q: If you were to face the same problems you had with Baghdad in 2014, will the KRG be able to manage its economy on its own without relying on the federal government?
Well, the Kurdistan region has just gone through a very difficult economic situation. And when I took over as finance minister on June 20, we began to take control of things in the Ministry, especially reducing our expenditure, and adopting austerity measures; otherwise we could not have managed the situation. We also had a large budget deficit to deal with.
I don’t think we can really say that we will be better [economically in the coming period] than we have been in past years; however, we do have a plan for the next year which will improve things and will help us reduce spending and better manage our imports and exports. I hope the Iraqi government will not repeat what it did previously in terms of cutting off our share of the budget and public sector workers’ wages, because this will have a negative effect on the internal, national element; because, after all, we are a part of Iraq.
Q: What steps are you taking to have an economy independent from that of the rest of Iraq?
We will be giving a lot of attention during the next year to a number of projects which have been put on hold. We will also be doing all we can to encourage foreign investment into the region . . .
As for the oil sector, we are looking to increase our production and export activities to their highest possible levels in order to help us meet the economic needs of the Kurdistan region. Kurdistan will have, during the next year, a much more stable economy than it did in 2014, and having an independent economy is definitely one of our main priorities.
This is an abridged version of an interview originally conducted in Arabic.