The Kurdistan Region of Iraq (KRI) needs to cut civil service positions and redistribute expenditure to infrastructure and other services, according to a report drawn up to help pull the area out of economic crisis.
The World Bank report said the economy needed to be stabilised by diversifying it away from oil without heightening socio-political fragility.
Close proximity to conflict in Iraq and Syria and an influx of 1.8m refugees have combined with an existing downturn to pressure the KRI economy, the bank said.
In the last three years the regional government has almost halved spending while since 2014 the poverty rate among Kurdish communities has doubled.
The report recommended rebalancing the economy by cutting excess civil service positions and redistributing expenditure on infrastructure, education, and health services.
The bank also said policies should be developed to support the private sector and enable SMEs to grow.
The financial strain of providing public goods for refugees as well as the native population means there is a budget shortfall of $1.4bn.
“The Kurdistan Region of Iraq has strengths and opportunities to get the economy out of crisis,” said Ferid Belhaj, World Bank director for the Middle East.
“These include large natural resources, fertile agricultural land, a young and entrepreneurial population and a central and, so far, a relatively stable location on major trade routes.”
He said the region could also rely on a government that was prepared to implement reforms and well-disposed international donors.