Standard of living lower in Kurdistan than rest of Iraq for first time: study

ERBIL, Kurdistan Region - For the first time since the Iraq War in 2003, the standard of living in the Kurdistan Region is "considerably" lower than the rest of Iraq, according to a fresh report by the World Food Programme (WFP).

The survey, conducted in May, shows that the previous two-digit growth has collapsed with the economy now facing around -6 percent shrinkage in 2016.

The economic growth in Kurdistan Region between 2007 and 2014 fluctuated around 7 percent to 10 percent but it stagnated after the double shock of the ISIS offensive and plummeting oil prices, coupled with economic sanctions from Iraq's central government.

The report was compiled in collaboration with the Offices of Statistics in Kurdistan and Iraq.

"The data show that people's purchasing power is considerably lower in Kurdistan’s cities than that of people in Iraqi cities," said Sirwan Muhammad from the office of statistics in Erbil.

"The food purchasing power in Kurdish cities has shrunk by nearly half since 2014," he added.

Muhammad said that, although only a small percentage are below the poverty line in Kurdistan, the majority of people are just above the line and run the risk of falling below if the poor economic conditions continue for another year.

The Kurdistan Region, which is currently dealing with 1.8 million refugees and displaced families from war zones in Iraq and Syria, has struggled to offset its colossal deficit by selling oil independent of Baghdad.

 

But the dramatic free fall in global oil prices -- from nearly $140 per barrel in July 2013 to the current prices hovering between $35 and $50 -- has had a devastating impact on the KRG's finances.

Iraq has relatively been able to manage its own deficit, partly through international loans and using its reserve assets abroad. Baghdad has also frozen the monthly $1 billion budget to the KRG since February 2014 and injected it into its economy. 

The KRG has also completely suspended all its investment projects, which accounted for some 30 percent of its overall budget, according to the office of statistics. "The negative impact of that on the growth has been substantial," Muhammad noted.

"The growth was nearly 7 percent in 2014 despite the war and refugees. But when the KRG stopped its investment projects, the growth fell almost 5 percent" he said.

To cope with the fiscal crisis, the KRG introduced unprecedented monetary policies and austerity measures last year, with immediate effect on public salaries that were cut in half for most middle-income earners.

The government has said it will pay back the outstanding amount of the salaries to some 1.5 million government employees when oil prices rise again, as the exports stand for over 90 percent of KRG revenues.

The Kurdistan Region, like the rest of Iraq, has only limited taxing regulations for employees, meaning the KRG can hardly rely on these to finance its expenses.   

The KRG announced an economic reform in cooperation with the World Bank earlier this year to stabilize the economy, which is expected to take three years before any visible outcome, according to authorities.