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Kurdistan’s Road to Independence: Building a New Economic Structure

June 27, 2017

By Tara Shwan
http://www.nrttv.com/EN/birura-details.aspx?Jimare=6548

As the people of the Kurdistan Region prepare to head to the polls on September 25, 2017, in a historical referendum on Kurdistan's independence, we compare the economies of Iraq with other nations and ask, “What economic structure would a sovereign Kurdistan take?" While economists broadly classify economies as being capitalist, socialist, communist, and mixed, there are deeper lessons to be found on how each central government collects revenue and allocates expenditures.

The economic system of Iraq follows a social economic model. As is the case with the Kurdistan Region, the rest of Iraq also suffers a deep economic crisis caused by overdependence on oil as 95% of its economic revenue. As oil prices sharply declined globally, Iraq’s lack of industry diversification has crippled its ability to develop alternative sources of revenue. The key difference between the Iraqi central government and the Kurdistan Regional Government (KRG) is that:

Iraq is a sovereign country with its own monetary policy. As such, Iraq has access to treasury reserves in the Central Bank of Baghdad and is able to borrow money from other global entities, such as the World Bank, to manage their economy. Not only has the Kurdistan Region received no disbursements from the Central Bank since 2014, but also the KRG cannot negotiate directly with the IMF and global development finance institutions, because Kurdistan isn’t a sovereign country.

The followings are examples of how other countries around the world have adapted different economic models to reflect the unique conditions of their respective countries. It is important to note that each of these countries’ expenditures exceeds their revenue – and the ability to borrow money to invest in their own economy is a critical factor in their ability to finance GDP growth.


The United States Economy:

The United States is the world's largest economy and second largest when adjusted for purchasing power parity (PPP). Its mixed economy (capitalist with socialist elements) has maintained a stable GDP growth, moderate unemployment rate, and high levels of research and capital investment. The U.S. has abundant natural resources, a well-developed infrastructure, and high productivity. The U.S. is the world's largest producer of oil and natural gas. It is one of the largest trading nations and the world's second largest manufacturer, representing a fifth of the global manufacturing output. The U.S. not only has the largest internal market for goods, but also dominates the global service industry. Of the world's 500 largest companies, 128 are headquartered in the U.S. The U.S. consumer market is the largest in the world and the world's largest and most influential financial market. The New York Stock Exchange is by far the world's largest stock exchange by market capitalization. Foreign direct investment in th U.S. totals almost $2.4 trillion, while U.S. investment in foreign countries totals over $3.3 trillion.

Revenues: US $3.0 trillion (individual income tax, 46.2%; social insurance, 33.9%; corporate taxes, 10.6%; other, 9.3% in 2014)

Expenses: US $3.5 trillion (Social Security, 24.3%; defense, 17.2%; Medicare, 14.6%; unemployment and other income security, 14.6%; Medicaid, 11.7%; interest, 6.5%; veterans, 4.3%; education and training, 2.6%; other, 4.2% in 2014)

Sources: CIA World Fact Book, IMF.


The Economy of China:

China's socialist market economy is the world’s second largest by nominal GDP and the world's largest economy by PPP, China's public sector accounts for a bigger share of the national economy than the private sector. China is the world’s largest manufacturer and exporter of goods. China is also the world's fastest growing consumer market and second largest importer of goods in the world. As the largest trading nation in the world, China is the leading driver of international trade.

Revenues: US $2.1 trillion

Expenses: US $2.3 trillion (2014)

Sources: CIA World Fact Book, IMF


The Economy of Japan:

Japan’s economy is the third largest in the world by nominal GDP and the fourth-largest by PPP. Japan is the world's third largest automobile manufacturing country. It has the largest electronics goods industry, and is often ranked among the world's most innovative countries. Manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical instruments, hybrid vehicles, and robotics. Japan is the world's largest creditor nation. Japan typically runs an annual trade surplus and has a considerable net international investment surplus. As of 2015, 54 of the Fortune Global 500 companies are based in Japan.

Revenues: US $1.739 trillion (2013)

Expenses: US $2.149 trillion (2013)

Sources: CIA World Fact Book, IMF.


The Economy of India:

India’s economy is the seventh largest in the world measured by nominal GDP and the third largest by PPP. The long-term growth prospective of the Indian economy is positive due to its young population, corresponding low dependency ratio, healthy savings, investment rates, and increasing integration into the global economy. The Indian economy has the potential to become the world's third largest economy by the next decade, and India has the one of fastest growing service sectors in the world with an annual growth rate of above 9% since 2001. India has become a major exporter of IT, business process outsourcing (BPO), and software services. The IT industry continues to be the largest private sector employer in India.

Revenues: US$480 billion

Expenses: US$570 billion (2016)

Sources: CIA World Fact Book, IMF.


The Economy of Turkey:

The economy of Turkey is defined as an emerging market economy and newly industrialized country. Turkey is among the world's leading producers of agricultural products; textiles; motor vehicles, ships and other transportation equipment; construction materials; consumer electronics and home appliances.

Revenues: US $225 billion (2015)

Expenses: US $234 billion (2015)

Sources: CIA World Fact Book, IMF.


The Economy of Saudi Arabia:

Saudi Arabia has an oil-based economy with strong government control over major economic activities. Saudi Arabia possesses 18% of the world's proven petroleum reserves, ranks as the largest exporter of petroleum, and plays the leading role in OPEC. The petroleum sector accounts for almost all of Saudi government revenues and export earnings. Most workers, particularly in the private sector, are foreigners.

Revenues: US $162 billion (2015)

Expenses: US $260 billion (2015)

Sources: CIA World Fact Book, IMF.


Conclusion

The people of the Kurdistan Region lack authority to break from Iraq’s ineffective economic structure and determine their own future. The clearest path for the Kurdistan Region to recover from the economic crisis is through independence. Once Kurdistan gains its independence the region can build a more diversified economy and sustainable tax based model. Kurdistan is blessed with resources beyond oil. An independent Kurdistan could build the international support needed to finance the investments in infrastructure and human capital needed to diversify and strengthen its economy.