Kurdish Bond Plan: Financial Folly?

Returning from Baghdad in early December, the President of Iraqi Kurdistan, Nechirvan Barzani, reported that, while they had made progress the general financial situation that Iraq was facing – oil prices were dropping and the government had spent too much – meant that not all of the Kurdish requirements could be met. And that is apparently why the Iraqi Kurdish government will continue to seek alternative financing.

There’s also Article 106 of the Iraqi Constitution to consider – this says that Iraq’s federal government manages fiscal policy and funding right across Iraq. However up until now, Baghdad has played no role in Iraqi Kurdistan’s plans to borrow money.

“From a Constitutional standpoint, borrowing money is the job of the central government in Baghdad,” agrees Ezzat Sabir, who heads the Iraqi Kurdish Parliament’s finances and economics committee. “However the region’s government could find other legal ways of borrowing money, via the multi-national companies willing to invest in the region.”

There’s also a lot of concern among local financial experts about what the borrowed money will be used for. If it was used to pay back the salaries owed to civil servants, who haven’t been paid for several months thanks to Baghdad’s budgetary blockade, then that would be dangerous, says Mohammed Karim, the Chairman of Kurdistan's Economic Forum.

“We don’t know how the government would pay these loans back and this concerns us,” Karim says. “If the aim of borrowing money is to pay back government employees, that is going to result in an economic disaster.”

As Rizgar Xoshnaw, a Kurdish writer based in Washington, explained on the Kurdish-news-specialist site, EKurd Daily, “usually when a [government-issued] bond or debt financing is being discussed, the potential funds collected [are] used to expand the operations of the borrower that will result in money or income being generated as a result of this bond. But in the case of Kurdistan, the money that the [government] is looking to borrow is actually to pay the back salaries and expenses of the government; the money is not being put to work.”