The Economics of Federalism in the Iraqi 2012 Draft Budget

It should be clear that in seeking a federal status, many governorate politicians outside the KRG (such of those of Salahaddin) are probably envious of the generous allocations to the KRG in the budget. This in turn highlights the numerous problems related to the discrepancies between how centre–periphery relations are described in the Iraqi constitution and how things actually work. Constitutionally speaking, there should be a central government role in areas of shared government such as health and education. However, in these areas the Kurds actually maintain full sovereignty and do not pay for central government services. They are able to do this because their autonomy (and institutional capacity) has evolved gradually since 1992. If Salahaddin and Basra were to become federal regions in the near future, they would have to build their own health and education sectors from scratch if they were to maintain the Kurdish argument about paying for “sovereign expenses” only.

The budget signals a central government intention to deliver more of the same in 2012: Generous allowances to the Kurds and a relatively centralised government formula for the rest of Iraq south of Kurdistan. Is it realistic to predict the secession of Kurdistan when their current 6.7% of the Iraqi oil production gets closer to the 17% rate with which their share of the expenditure budget is currently determined?

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