KRG develops means test as public spending tumbles

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The Kurdistan Regional Government (KRG) of Iraq is developing a proxy means test (PMT) to target subsidies and benefits as it acts to cut spending and reduce the number of people on the government payroll, the World Bank says in a report published yesterday.

The report was commissioned following a request for assistance from KRG Prime Minister Nechirvan Barzani in February 2016 .

It also draws on Kurdistan Region of Iraq 2020: A Vision for the Future report published in 2013.

The report says the immediate priority is stabilising the economy without further increasing sociopolitical fragility.

“…actions related to changes and increases in income taxes; phasing out and lowering subsidies on petroleum, electricity, wheat, and on agricultural inputs have the potential to adversely impact less-well off households,” the World Bank says about the government’s fiscal adjustment programme. “In addition, given the size of the public sector, which employs individuals of varying education levels, some of the proposed reforms to the civil service, such as rationalisation of public sector employment, could adversely affect the less-well off.”

The World  Bank calls for a poverty and social impact analysis into the effect of the reform program. It says the welfare  benefit targeting used by the KRG does not consider the poverty line or the size of the household leading to high leakage.

“The transfer of ID 150,000 is allocated to beneficiary household regardless of size of the household nor its status, as defined relative to the poverty line or consumption level,” the report says. “Cash transfers use broad social categories instead of more effective targeting mechanisms to determine eligibility which explains why the majority of the poor do not benefit from this program. As such, only 11 per cent of the bottom quintile currently are receiving the cash transfer.”

The World Bank says the PMT will be used for deciding the allocation of welfare benefits.

“This targeted safety net system will be underpinned by a unified registry, and transparent and fair governance and grievance mechanisms,” the report says.

The World Bank report says the small size of the private sector is a major deficiency. The pensions and social insurance system in KRI is not sustainable, suffers from low coverage, and is inefficient. Only around 50 per cent of people above the age of 65 in KRG are receive a benefit from the pensions system and they are mostly retired public sector employees.

The report says the World Bank is facing a deep fiscal crisis, security and social problems brought about by the conflict with the Islamic State in Iraq and Syria (ISIS) group and the resulting influx of Syrian refugees and Iraqi Internally Displaced Persons (IDPs). It says it needs to reduce its dependence on the oil sector and promote the private sector.

The KRG is also facing a severe financial challenge due to lower oil prices and the failure to reach agreement with the central government of Iraq about the distribution of oil export income.