Shafaq News/ The Kurdistan Regional Government (KRG) on Wednesday strongly criticized the Iraqi Ministry of Finance’s decision to halt funding for public sector salaries, calling it “unconstitutional, unlawful, and a form of collective punishment.”
During its weekly session, chaired by Prime Minister Masrour Barzani, the Council of Ministers affirmed that the Region had fulfilled all its obligations and submitted the required financial data transparently to the joint audit committee of both federal and Regional oversight bodies.
Prime Minister Barzani pointed to the 2025 agreement between the federal and Regional finance ministries, which ensures the disbursement of full monthly salaries throughout the year. He also referenced a Federal Supreme Court ruling that disputes over the Federal Budget Law must not be used to justify suspending salary payments, emphasizing the constitutional principle of equal treatment for all Iraqi citizens.
The Council described the recent federal decision as politically driven and warned against any suspension of salary payments in the coming months, stating that such measures unfairly
target the population of the Kurdistan Region.
The KRG resolved to formally brief the international community and diplomatic representatives on the legal, constitutional, and financial aspects of the issue, urging support for a resolution within the framework of Iraq’s constitution.
🇮🇶 The 3 Phases of the Iraqi Dinar Exchange Rate Reform
1. Closing the Gap Between the Official Rate and the Street Rate
✅ What does it mean?
The official exchange rate is set by the Central Bank of Iraq (CBI) for legitimate banking and trade operations.
The "street rate" refers to the rate in the informal market, which is often higher due to:
Limited access to dollars,
Weak enforcement of monetary controls,
A strong black market presence.
🎯 Goal:
Unify or closely align the official and parallel exchange rates to:
Improve transparency,
Reduce speculation,
Restore confidence in the national currency.
📉 Implications:
This phase requires:
Increasing official dollar supply,
Tightening anti-money laundering enforcement,
Improving regulation of informal markets.
It is a technically difficult but foundational step for economic stabilization.
2. Agreement with the IMF and Compliance with Global Standards
✅ What does it mean?
This phase ensures the Iraqi dinar complies with international financial standards, especially regarding:
Currency transfer transparency,
Anti-money laundering (AML),
Know Your Customer (KYC) regulations.
📋 Involves:
Collaboration with the International Monetary Fund (IMF).
Reforming the banking system:
Increase capital adequacy
,
Improve governance,
Enhance oversight and digital infrastructure.
🌍 Why is it important?
Achieving compliance allows Iraq to:
Regain international financial credibility,
Attract foreign investment,
Ensure full integration with the global financial system.
3. Engagement and International Integration
✅ What does it mean?
After stabilizing the exchange rate and meeting global standards, Iraq aims to actively engage with international financial markets and economic partners.
🌐 Involves:
Expanding financial inclusion (bringing more people and businesses into the banking system).
Encouraging foreign direct investment (FDI) in non-oil sectors.
Building bilateral and multilateral agreements for trade, finance, and cooperation.
Increasing the presence of the Iraqi dinar in international financial platforms (e.g., SWIFT, cross-border transactions).
🤝 Expected outcomes:
A more stable and attractive financial environment.
Increased use of the Iraqi dinar domestically (reducing dollarization).
Potential long-term appreciation of the dinar, backed by real economic reforms.
📌 Summary of the 3 Phases
Phase
Objective
Key Outcome
1. Close the exchange rate gap
Stabilize the official and street markets
Restore trust in the exchange system
2. IMF agreement & compliance
Meet global standards, reform banking
Boost international confidence
3. International engagement
Integrate Iraq into global economy
Attract investment & promote dinar use
Let me know if you'd like this turned into a slide deck, infographic, or simplified version for broader audiences.
Shafaq News/ As the Kurdistan Region's salary crisis resurfaces, alarms grow louder over the broader ramifications. The economic tension carries a potent political undertone that, if left unresolved, could destabilize Iraq’s political framework.
The dispute between Erbil and Baghdad reignited after the Kurdistan Region accused the federal government of "discrimination" in salary disbursement. The Region pointed to repeated delays in receiving dues despite earlier agreements. Baghdad countered by citing the Kurdistan Regional Government’s failure to deliver oil and non-oil revenues as stipulated in the federal budget law.
To contain the escalating crisis, the federal government is expected to dispatch a financial advance to the Kurdistan Region within two days to ensure employees receive their salaries before Eid al-Adha (June 6-9). However, nothing has changed so far.
Economic War
Kurdish political analyst Mohammed Zangana describes the allocation of funds as “not charity toward the people of Kurdistan, but a constitutional and legal right.” He references the tripartite budget law (2023–2025) and a 2024 Federal Court ruling mandating salary payments from the federal treasury to the Kurdistan Region.
Zangana characterizes the ongoing situation as an “economic war waged by Baghdad against the region since 2014,” urging for a simple resolution: “separate the salaries of Kurdistan’s employees from political bickering and disputes.”
The agreement stipulates that the Kurdistan Region must send 400,000 barrels of oil daily to federal depots in exchange for employee salaries. However, those depots can handle no more than 80,000 barrels per day. “Even the amount sent hasn’t yielded a single cent,” Zangana notes, adding, “no agreement has been reached on the price per barrel.”
On the Kurdistan Democratic Party's threat to withdraw from the political process, Zangana believes the Coordination Framework (CF), a predominantly Shiite group that controls the Iraqi government, fully grasps the danger posed by such a move. “This is a warning to the Framework,” he asserts.
Zangana also highlights a “lack of will” from Baghdad to pass an oil and gas law, explaining that such legislation would grant provinces and regions constitutional autonomy under Articles 112 and 121 of the Iraqi Constitution. He foresees only temporary solutions ahead: “There won’t be any radical remedies—just patchwork until the elections.”
Financial Strain
Parliamentarian Mukhtar al-Mousawi, a senior figure in the Badr Organization, a movement within the Framework, expects the two sides to reach a “mutual understanding.”
“The Region’s recurring threats to withdraw from the political process whenever it faces liquidity issues and pressures the federal government—that’s not a sound approach,” he states in remarks to Shafaq News, urging the Region to “reorganize its affairs according to its own budget.”
Al-Mousawi explains that Iraq is currently navigating a financial crunch, and the 2025 budget has yet to reach Parliament. “Meanwhile, the Region resists accountability on how it manages oil and gas export revenues.”
Constitution and Oil & Gas Law
Ibrahim al-Sikani, a member of the State of Law Coalition led by Nouri al-Maliki, another CF group, strikes a balancing tone. “The Constitution governs all national matters from north to south, especially Kurdistan Region salaries and the ongoing oil and gas issues,” he tells Shafaq News.
He places the responsibility for salary payments squarely on Prime Minister Mohammed Shia al-Sudani. “The Coordination Framework is blamed because the shortfall comes from its nominee, Al-Sudani, but the Framework won’t tolerate any failure from the government toward the Iraqi people—north or south.”
Al-Sikani also discloses that the Framework has resolved to form a delegation to visit the Kurdistan Region and negotiate solutions, emphasizing that passing the Oil and Gas Law would eliminate recurring disputes.
He calls on Parliament to act, urging sessions to approve the law and the budget—still stalled in the Prime Minister’s office— “despite its direct impact on the lives of the Iraqi people.” “I urge al-Sudani to hold a parliamentary session to lay all the facts bare before the public.”
In this context, political analyst Aed al-Hilali appeals to all political blocs to engage in frank and direct dialogue with Kurdish representatives. “The salary issue is no longer bearable, especially with the Kurdistan Democratic Party threatening to boycott the political process, which could lead to the collapse of Iraq’s political system,” he cautions.
Still, al-Hilali voices cautious optimism, “The salary crisis may soon be resolved, but fundamental solutions remain necessary,” He outlines key steps forward—revisiting the Constitution and amending certain articles that “may help achieve lasting resolutions.”
FIREFLY:They're saying the exchange rate reform is officially enabled. This is on TV...They said the first step one was the closing of the gap between the official rate and the street rate...
They're telling us the official rate and the street rate are now getting close and that was the first phase.
Then they started to talk about...two more phases...
The second phase will deal with the IMF and double-checking to make sure the Iraqi dinar has met all the global standards and the final step...will be engagement.
They are not giving us a date or details just the plans on currency rates plans...
FRANK: This education is now at the point where it's ready to show you what they have been talking to you about. You are so close. This currency report blew me out of the water. It's outstanding!
The Liquidity Problem: Between the Central Bank's Response and the Effects of the Rent Model
Dr. Haitham Hamid Mutlaq Al-Mansour
Macroeconomic policy faces a liquidity and financing problem that directly impacts various aspects of economic and living life. The roots of this problem lie in accumulated structural imbalances that make it difficult to achieve sustainable financial stability. The declining capacity of the productive base has limited the accumulation of fixed capital and the contribution of real non-oil sector output, favoring near-total reliance on oil revenues, which constitute more than 90% of state revenues, to pay for imports.
Because Iraq's traditional economic equilibrium cycle is virtually non-existent, liquidity management will be constrained by oil revenues. This situation makes the general budget's performance vulnerable to the shocks of fluctuating global oil prices, causing immediate financial crises manifested in the difficulty of financing projects and delayed payments for operational expenditures.
In the face of this challenge, the Central Bank's efforts to address it stand out through steps to reform the banking system and enhance banks' ability to manage liquidity by promoting financial inclusion, increasing banking sector productivity, creating a healthy competitive environment, and strengthening the banking system's ability to address risks.
To sustainably address the liquidity and financing shortages at the strategic level, real technical reforms and an investment-attractive climate are required. The future of liquidity, therefore, depends on the ability of macroeconomic policy to unshackle rents, implement radical reforms in financial management, stimulate productive sectors, and direct spending.
Therefore, the liquidity shortage represents a complex phenomenon that goes beyond a temporary shortage of liquidity. It reflects deep structural imbalances in the financial and monetary structure, which requires an analysis that explores its structural roots, as follows:
The expansion of government spending in multiple directions, the most dangerous of which is the continued and clearly flabby employment within government institutions, and the failure to control, rationalize, and discipline spending within the constraints of basic budget items.
This requires a genuine boost to private sector growth and freeing it from the "crowding-out effect."
The rentier nature of the economy, its overwhelming reliance on rentier revenues in the general budget, and the limited diversification of revenue sources outside this sector have reinforced the budget's dependence on fluctuating revenues from this sector, leading to a persistent government deficit.
The banking system's reduced flexibility in stimulating savings and deposits, which in turn reduces the ability of Iraqi banks to absorb liquidity from individuals in the form of deposits and savings.
The limited stability of the investment environment due to bureaucracy and legal gaps discourages investors from investing in important sectors, particularly infrastructure projects, which can generate external savings for investment activity, increase real GDP growth rates, and raise the level of fixed capital formation.
Implications of the growth of the informal economy: The informal economy is estimated to represent approximately 34% of GDP in the parallel currency market, controlling approximately 40% of dollar transactions. This increases the leakage of liquidity outside the formal economy's income cycle, which is targeted by budget allocations.
Iraq's 2023 budget amounted to approximately 198.9 trillion dinars, with a deficit of 65 trillion dinars, while the 2024 budget reached 211.8 trillion dinars, with a deficit of 84 trillion dinars. The 2025 budget was allocated due to the decline in global oil prices. Iraq exports approximately 100 million barrels of oil per month, and its price fluctuates, ranging between $68 and $72 last year. During the first 11 months of 2024, oil revenues amounted to 119 trillion dinars, at a monthly rate of approximately 10 trillion dinars, which was used to cover operating expenses. This exacerbated the growing government deficit, which is reflected in limited liquidity to cover budget expenditures, leading to an increase in government debt as the deficit grows.
It can be concluded from the above that technical measures, despite their importance and rapid response in the monetary and financial sectors to address the liquidity problem, remain limited as a long-term strategy for sustainable financing unless they are accompanied by deep, gradual reforms in the financial and real sectors that address the roots of the structural crisis and create a new formulation for the development financing approach. This approach works to develop a path for generating added value for the non-oil GDP and planning policies to develop this sector, increasing its productivity and exports while reducing imports by the same percentage.
The future of long-term development financing in Iraq depends on the economic system's ability to recover from a "rentier model" to a "diversification model." link