IRBIL, IRAQ —
He said his name was "Freedom."
Left hand on the wheel of his sand-colored taxi, he reached up with his right to open the compartment above the rear-view mirror while driving through the streets of Irbil, the main city in Iraq's Kurdish region. Glancing at the cars in front, then at the mirror, he grabbed his ID card out of the compartment and showed it. "Police," he said.
"Freedom" explained that the Kurdistan Regional Government had not paid the police in four months and he was driving a taxi to make ends meet. The Peshmerga fighters, he said, had not been paid in three months.
Peshmerga commanders and government officials admit the security forces’ salaries are typically paid late, with some not receiving a salary for months at a time. Like "Freedom," many Peshmerga fighters also moonlight as taxi drivers on their days off.
“The current economic situation is dire, because of the dependence on oil revenues and, to some extent, neglecting other sectors of the economy,” acknowledged Latif Wahid, an economist charged with presenting the government with economic options.
Iraq gets 95 percent of its revenue from oil exports, monies that are supposed to flow in from around the country to the central government, then be allocated back out to Iraq’s governorates and Kurdistan.
A dispute between Irbil and Baghdad over how much money should be shared, aggravated by Irbil's independent sales of oil to the international market, has led Baghdad to cut Kurdistan’s portion of the national budget by as much as half.
That, coupled with the drop in international oil prices, the constant threat of Islamic State militants, a flood of displaced people, refugees from the war in Syria and the inherent weaknesses of a largely cash economy and inflated public sector, have hit the nascent economy hard.
Concrete skeletons of unfinished buildings are reminders of what was once a promising future for Irbil. Work on schools, hospitals and railways has been suspended. Tourists have fled. Young, educated Kurds are following in their steps.
“Our politicians didn’t expect such a crisis to happen,” Wahid said. “We should have laid down some of the basic infrastructure for an economy which would gradually move away from oil revenue.”
Potential for instability
Kurdistan is still a relative haven of stability within Iraq. According to numbers provided by the office of Kurdistan’s prime minister, Nechirvan Barzani, overall reported crime levels are low, there is a very open attitude to foreigners and there are no militant groups based in the region that target foreigners.
More than 2,800 foreign companies are registered in Kurdistan. Yet, one area that has been largely ignored is the banking and financial sector, making Kurdistan a largely cash economy. For some, that has meant having a courier fly into Irbil’s international airport with a large briefcase full of cash.
Roger Guiu, a research fellow with the Middle East Research Institute, cautioned that a prolonged economic crisis could lead to social protests.
“We are exactly in the worst case scenario: ISIS, low oil prices, cold war between Baghdad and Irbil — the last thing you need is social unrest in Kurdistan,” he said.
Officials insist the budget shortfall will not affect their fight against the Islamic State extremists.
“I have to survive even if I cannot pay my soldiers. They can [fight] without a salary also,” said economist Sahib Esa, a former Kurdish minister of state in Iraq now based in the Kurdish prime minister’s office in Irbil.
Front line against IS
The Peshmerga and the Kurdistan security forces on the ground are currently holding down a more than 1,000-kilometer front line against Islamic State extremists, known as ISIS, or ISIL, with the help of a barrage of coalition airstrikes.
Paying the Kurdish security forces is a sensitive point: Irbil insists those salaries should come from the central Iraqi government, while Baghdad says the money should come out of Kurdistan’s regional budget. Exact numbers are not readily available, but according to one report, the region spends more than 10 percent of its budget on the military — one of the highest rates in the world.
Esa said it was up to the international community to help Kurdistan financially.
“We have to survive. If we connect our defense only to a salary, then all the people will have to go home, and what happens then? ISIS will be on the border with Europe," he said. "So the international community has to support that; it is their duty to do that.”