INTRODUCTION & BACKGROUND
Erbil Governorate, with a total population of 2.01 million people, hosts the capital of the Kurdistan Region of Iraq. The governorate, like the rest of the Kurdistan Region, has been deeply affected by recent waves of displacement resulting from the conflicts in Syria and the rest of Iraq, as well as a pervasive financial crisis affecting the public and private sectors of its economy.
Erbil Governorate has taken in Syrian refugees over the last 5 years. This displaced population has arrived as a direct consequence of the violent conflict in Syria or due to the economic opportunities that Erbil offered. When this influx started, the Kurdistan Region of Iraq enjoyed relative stability and economic progress. People seeking refuge thus entered a benign and even welcoming environment with both the Kurdistan Regional Government (KRG) and host community willing to support them.
The situation changed in 2014, given the evolving security and economic dynamics in the Kurdistan Region of Iraq resulting from both the Islamic State’s violent entry into Iraq and the economic downturn. The deteriorating security situation caused by the Islamic State’s take-over of large portions of western and northern territories in Iraq, including the country’s second largest city, Mosul, unleashed a severe displacement crisis within Iraq. Of the 3.4 million people internally displaced in the country, around 1.5 million are now in the governorates of the Kurdistan Region. This resultant 30% increase in population in just 2 years has put the region’s authorities under immense strain, particularly with respect to the provision of public services. Coupled with this, the current conflict in Iraq has also negatively impacted the economic outlook for the country, including the Kurdistan Region. Foreign investment has drastically decreased, trade routes have been disrupted and the dynamics within the labour market have been altered dramatically after the large inflow of people into the workforce.
Unrelated to the current conflict, but no less important, is the fact that the Kurdistan Region’s economy has also been directly and negatively affected by budget disputes between the KRG and Iraq’s Federal Government and decreasing oil prices. Prior to 2014, the vast majority of Kurdistan’s financial resources came out of the federal budget from Baghdad. This transfer came to a halt in 2014 in response to the Kurdistan Region’s attempt to sell oil independently. As a result, the KRG has received irregular and intermittent funds from Baghdad in the absence of a renegotiated revenue-sharing agreement. Because an adequate taxation system does not exist in Iraq or in the Kurdistan Region to complement public revenues, the KRG has been almost completely dependent on its own oil exports to cover costs. These revenues have been drastically reduced after international oil prices dropped by around 70% starting in mid-2014.
The national and regional economic challenges highlighted above quickly spread across the domestic economy in the Kurdistan Region. The economy is highly centralised around the government spending, from business sustainability to household income and consumption. Public employees, which form about half of the local workforce, have not received regular and timely payment of their salaries for 2014 and 2015. Pension, allowance, and public contractor payments also slowed over this time. This sudden lack of income for a large sector of the population has had ripple effects that are still being felt, particularly as the private sector is still too weak and underdeveloped to provide alternative employment opportunities and anchor the economy to weather these budget constraints.
Taken together, conflict, displacement, and a weak economy are negatively impacting government function, household resilience, private sector survival, and public services provision in the Kurdistan Region of Iraq, including Erbil Governorate. Solutions to redress the situation must come from a holistic analysis taking into account all the dynamics outlined above. This profiling exercise, hence, takes place within a complex environment, affected by many layers of external and internal shocks.