Thursday, November 2, 2023

Iraq-Kurdistan Tensions Expose Fragile State of Nation’s Economy, 2 NOV

Iraq-Kurdistan Tensions Expose Fragile State of Nation’s Economy

In the heartland of Mesopotamia, where the Tigris and Euphrates rivers gave birth to some of the world’s first civilizations, modern-day governance continues its fragile dance. Amidst the economic and political tensions that have become the leitmotif of Iraq’s post-Saddam era, the latest act unfolds between the Federal Government of Iraq and the Kurdistan Regional Government (KRG). The plot: a delayed payment of 450 billion dinars to the Kurdistan Region’s bank account for the salaries of government employees.

A Dissonant Interlude

The KRG, which shoulders the responsibility of reimbursing public sector employees in the region, has long awaited a package of 700 billion Iraqi dinars from Baghdad. This recurrent delay in payments strikes a discordant note, undermining previous agreements crafted between the regional and central governments. The frustration is palpable, echoing through the corridors of power in Erbil, the capital of the Kurdistan Region.

In a previous attempt at harmony, the central government had dispatched 700 billion dinars to Erbil in September to cover salary payments. But, disputes between Erbil and Baghdad disrupted the financial symphony, halting the transfer. The encore: an agreement by the Iraqi government to transfer 2.1 trillion dinars to the Kurdistan Region to cover three months’ worth of unpaid salaries.

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Declining Dinar: A Crescendo of Concern

Superimposed on the salary delay discord is the concern over the depreciating value of the Iraqi dinar against the US dollar. The implications reverberate beyond the government and employees, affecting everyday life. Pensions are dwindling, the Iraqi market is trembling, and the public’s faith in the government and the central bank is eroding.

Some parliamentarians have sounded the alarm, calling for novel measures to stabilize the currency. A rapid decline in the value of the dinar in recent days has provoked criticism of the government and the central bank’s lackluster response to control the exchange rate.

The Banking System: A Fugue of Mistrust

A crucial element in resolving the currency crisis is restoring public confidence in the banking system. An estimated 85% of the issued monetary mass in Iraq currently resides outside the banking system, with people hoarding money outside of banks. The impact is profound: it hampers the role of banks in driving economic development through their lending policies.

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The Central Bank has issued a circular urging banks to simplify procedures and create incentives to attract depositors. However, this initiative faces a formidable obstacle – the overarching lack of trust in the banking system. Overcoming this skepticism is fundamental to encouraging people to deposit their money in banks.

One potential solution lies with the Deposit Insurance Company, established to guarantee public deposits in the event of a bank collapse. The company needs to enhance its performance, actively market its activity, provide guarantees to depositors, and distribute official papers explaining the deposit insurance policy.

Simultaneously, the fluctuation of the dollar exchange rate needs to be addressed. Stability is key to reducing chaos and mistrust.

Long-term Harmonics: Local Production and Twin Policies

For a long-term resolution, experts recommend supporting local production to reduce the demand for the dollar for import purposes. They also suggest creating a clear map of the relationship between the demand for hard currency and the capacity for increasing local production to cover these demands. This involves understanding import destinations and harnessing opportunities for local growth. Furthermore, aligning monetary policy with fiscal policy can control commodity prices and financial transfers, providing a stable rhythm to Iraq’s economic symphony.

In conclusion, the ongoing economic and political tensions between Baghdad and Erbil have resulted in delays in salary payments for government employees in the Kurdistan Region. The declining value of the Iraqi dinar against the US dollar further complicates the economic landscape. Stabilizing the economy and improving the value of the currency requires a symphony of measures, from restoring public confidence in the banking system to implementing long-term strategies that support local production.

https://bnn.network/breaking-news/economy/iraq-kurdistan-tensions-expose-fragile-state-of-nations-economy/

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