At a Glance

• The draft 2027 budget bill contains numerous fiscal constraints and operational obligations for the Kurdistan Region.

• The KRG delegation requested a 14.14% budget share, but Baghdad capped the Region's allocation at 12.70%.

• The bill completely prohibits the Kurdistan Regional Government from signing independent oil and gas contracts.

• Total Iraqi public expenditure is projected at 217 trillion IQD against 174 trillion IQD in revenue, leaving a 43 trillion IQD deficit.

The draft 2027 federal budget bill introduces major fiscal constraints and operational obligations for Erbil by capping the Kurdistan Region's allocation at 12.70% and making all funding strictly conditional upon Baghdad's centralized control over regional oil and non-oil revenues.

Key Statements and Focus Area

• According to the draft budget bill obtained by Channel8, the entire piece of legislation consists of 31 articles, with Article 10 specifically dedicated to regulating the financial relationship between Baghdad and the Kurdistan Region.

• Article 10 fixes the Kurdistan Region’s share at 12.7% of Iraq's total actual expenditure, which encompasses sovereign expenditures, operating expenses, and investment project expenditures.

• Furthermore, the clause mandates that following the exclusion of sovereign expenses, all financial entitlements between the federal government and the KRG from 2004 to 2026 will be settled. This historical settlement is valued at 12 trillion and 775 billion dinars, scheduled to be paid out over a three-year period.

Crucially, the continuation of federal funding to Erbil is strictly conditional upon the KRG's fulfillment of several major obligations outlined in the third section of Article 10:

• Paragraph A: The KRG must market a minimum of 400,000 barrels of oil per day through the State Organization for Marketing of Oil (SOMO) via Turkey's Ceyhan port, in coordination with the Ministry of Oil. This process will rely on monthly data provided by the Ministry of Natural Resources, which must be approved by the Federal Ministry of Oil and the Federal Board of Supreme Audit, in coordination with the Kurdistan Region Board of Supreme Audit.

• Paragraph B: If oil exports through the Ceyhan port or any other official border crossing are disrupted, the KRG is legally obligated to hand over the specified 400,000 barrels of oil per day directly to the Federal Ministry of Oil.

• Paragraph C: The KRG must hand over all non-oil revenues to the state treasury in accordance with the Amended Federal Financial Management Law No. 6 of 2019. This data will be audited by the Federal Board of Supreme Audit alongside the Kurdistan Region Board of Supreme Audit.

• Paragraph D: To settle the Kurdistan Region’s outstanding debts with the Trade Bank of Iraq (TBI) held at government and private banks, the Federal Ministry of Finance will establish a monthly installment schedule. These repayments will be deducted from the Kurdistan Region’s budget share starting in the 2027 fiscal year and completed over three years.

• Paragraph E: The Kurdistan Region must hand over all surplus produced gas to the federal government. Failure to deliver this gas will result in a deduction equivalent to its financial value directly from the region's budget share.

• Paragraph F: The KRG is strictly prohibited from signing investment or operational contracts with foreign or domestic companies regarding oil and gas, placing all energy sector management exclusively under the Federal Ministry of Oil.

• Paragraph G (Regarding Salaries): The Federal Ministry of Finance is only obligated to fund the Kurdistan Region's entitlements after the region fully implements Paragraphs A, B, C, E, and F. The KRG Ministry of Finance must submit a monthly trial balance to the federal Accounting Department to integrate it into the state's monthly accounts, serving as an accounting settlement for mutual oil and non-oil obligations. A secondary clause explicitly confirms that this entire mechanism is a prerequisite condition for the continuation of funding.

FYI

Beyond the energy and revenue mandates, Article 11, Paragraph 2 of the draft budget imposes a strict austerity measure, requiring all federal ministries, non-ministerial entities, governorates, and the Kurdistan Region to freeze all new hiring within their organizational structures, including centrally-funded directorates.

The draft also highlights Iraq's total outstanding continuous debt, which stands at 7.7 trillion dinars. Under this section, previous budget allocations from the Japan International Cooperation Agency (JICA) for ministry and Kurdistan Region projects are detailed at $360,840,000.

These funds cover infrastructure, water resources, oil, health, transport, and water/sewage projects across Iraq; however, only $58,240,000 of this continuous funding is earmarked specifically for Kurdistan.

Conversely, the bill maps out $8.4 trillion dinars in total new loans. Within this new debt portfolio, the Region is explicitly allocated portions of a fresh $700 million loan from JICA, securing $350 million to fund the second phase of a regional sewage project and $1 million designated for the KRG Ministry of Health.

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