Iraq’s Mechanisms to Reduce the Kurdistan Region’s Share

2026-02-04 09:24:31

🔻 Iraq’s budget data (2005–2025) reveal a major structural flaw that poses a serious threat to the financial stability of the Kurdistan Region.
🔹 The Kurdistan Region contributes approximately 8.7 trillion IQD annually to financing Iraq’s sovereign expenditures.
🔹 The most “shocking” figure relates to public debt: the Region is obligated to pay 1.6 trillion IQD annually, yet receives only 62.4 billion IQD in return. In other words, it pays 26 dollars for every 1 dollar it receives.
🔹 The “actual expenditure” trap – a collective punishment: Baghdad has adopted an “actual expenditure” mechanism instead of fixed allocations. This means the Region does not receive its share unless projects in central and southern Iraq are implemented. As a result, the Kurdistan Region’s budget and public-sector salaries become tied to the completion rate of projects in Basra or Anbar.

Iraq’s budget data (2005–2025) expose a major structural imbalance that threatens the financial sustainability of the Kurdistan Region. This occurs through the unchecked expansion of so-called “sovereign expenditures” and the adoption of the “actual expenditure” mechanism, which together have altered the Region’s constitutional entitlements—leaving them merely numbers on paper, while in practice they are cut or reduced before ever reaching the Region.

1. “The Sovereign Cleaver.”

The Kurdistan Region contributes 8.7 trillion IQD annually to Iraq’s sovereign expenditures. In 2005, these expenditures were very limited, covering only core state institutions (the Presidency, Parliament, Ministries of Foreign Affairs and Defense).
However, in the 2023–2025 budgets, sovereign expenditures expanded dramatically, reaching nearly 47.4 trillion IQD annually. This growth was not only quantitative but also qualitative, as many major budget items were reclassified under the “sovereign” label to deduct them upfront from the Kurdistan Region’s and provinces’ shares.

2. Shocking Debt Equation: Pay 26, Receive 1

The most striking figure concerns public debt. While the Region is required to pay 1.6 trillion IQD annually—representing 12.67% of Iraq’s sovereign debt service—it receives only 62.4 billion IQD from loan allocations.
In simple terms, for every 1 dollar the Region receives in loans, it pays 26 dollars to service federal debt spent elsewhere in Iraq.

3. The “Actual Expenditure” Trap – Collective Financial Punishment

Baghdad replaced fixed allocations with the “actual expenditure” mechanism. The Region does not receive its share unless projects in central and southern Iraq are implemented. Consequently, the Kurdistan Region’s budget and salaries are effectively tied to project execution in provinces such as Basra or Anbar.
This constitutes collective financial punishment, contradicting Article 121(Third) of the Iraqi Constitution, which mandates allocations based on population and needs—not on how much federal ministries spend elsewhere.

First: Sovereign Expenditures in Iraq’s Budgets (2005–2025)

Comparative budget tables reveal massive increases in expenditures, especially sovereign ones, which now form a substantial portion of the budget and are deducted before revenue sharing.

Analysis

Sovereign expenditures increased not only in amount but also in scope. Between 2008 and 2021, 81 additional items were classified as “sovereign”:

2005–2010 (Administrative phase): Sovereign spending limited to symbols of state authority. The Region’s financial share was relatively large.
2011–2018 (Security and oil phase): Oil contract costs and export expenses were added as sovereign expenditures, reaching up to 15 trillion IQD annually.
2019–2025 (Debt and centralization phase):
1. Debt service: Interest and installments on loans taken for projects in central and southern Iraq classified as sovereign and deducted from the Region’s share.
2. Security forces: Budgets for the Popular Mobilization Forces (PMF) and Counter-Terrorism Service fully classified as sovereign.

Major Sovereign Components

Oil production/export costs: 15.8 trillion IQD annually.
Public debt service (interest + principal): over 12.3 trillion IQD annually.
Total estimated sovereign expenditures: 47.4 trillion IQD annually (minimum estimate).

Second: The Kurdistan Region’s Share Before Deducting Sovereign Expenditures

Total federal budget: ~199 trillion IQD annually.
If 12.67% were applied to the total without sovereign deductions, the Region would receive ~25.2 trillion IQD annually.
Actual allocated share after deductions: ~16.5 trillion IQD annually.
Difference (~8.7 trillion IQD) represents the Region’s indirect contribution to sovereign expenditures.

Third: Public Debt – What the Region Pays vs. What It Receives

Contributions

The Kurdistan Region contributes 12.67% of Iraq’s total public debt service, amounting to ~1.6 trillion IQD annually, covering debts to:

World Bank
IMF
JICA
U.S., Italian, German loans
Paris Club and bond obligations

What the Region Receives

JICA loan for water projects: $46 million
World Bank loan: $2 million
Small, unspecified shares from federal loans
Total received: ~$48 million (≈ 62.4 billion IQD)

Net Result

The Region pays 1.6 trillion IQD and receives 62 billion IQD—a 26:1 imbalance, creating an annual deficit of ~1.55 trillion IQD in the debt balance.

Fourth: “Actual Expenditure” and Its Impact on the Region’s Share

Baghdad adopted “actual expenditure” instead of approved allocations, undermining the Region’s financial mechanism.

Definition

Under Article 11(Second) of the budget law, the Region’s share is calculated based on actual federal spending, not approved budget figures.

Financial and Political Impacts

The Region does not receive its fixed monthly entitlement (~1.37 trillion IQD), but an amount dependent on federal ministries’ actual spending elsewhere.
Any federal austerity or liquidity crisis automatically reduces the Region’s share.
If a project in Basra or Anbar stalls, citizens in the Kurdistan Region lose their corresponding budget share—creating chronic financial uncertainty.