Decision announced after thousands of people protest over unpaid salaries.
Iraq’s federal government is giving the administration of the semi-autonomous northern Kurdish region more money to allow it to pay salaries.
Sunday’s decision was announced three days after Prime Minister Masrour Barzani of the Kurdistan Regional Government (KRG) visited Baghdad to ask for more funds to be released to the region, which is suffering a shortfall in revenue.
The federal government said in a statement that it would disburse 2.1 trillion dinars ($1.6bn) annually to the region to be paid in three instalments of 700 billion dinars (more than $530m) each.
The statement said the funds will be loaned by three state banks and reimbursed by the Ministry of Finance in Baghdad to “cover employee salaries, social welfare recipients and retirees”, it said. The funds are to be available starting this month.
Authorities in Baghdad and Erbil have a month to “conduct an audit of the employee, social welfare recipient and retiree numbers in the Kurdistan Region of Iraq”, it said.
Thousands of people had protested in Dohuk, the third-biggest city in the region, in early September over unpaid civil service salaries, which they blamed on Baghdad.
The KRG has long accused Baghdad of not sending it enough money to cover all its needs, especially since the regional administration lost its independent oil export revenue, which had partly covered salaries and government expenses.
That income evaporated at the end of March because of a legal dispute between Baghdad and Turkey, where Kurdish oil is exported. Baghdad argued that the Kurdish government does not have the right to make its own trade deals.
The KRG and Baghdad later agreed in principle that sales of Kurdish oil would pass through the federal government. In exchange, 12.6 percent of the federal budget is to be allocated to the KRG.
This month, Baghdad had unblocked 500 billion dinars ( $380m) for KRG salaries, but the KRG said it was not enough.
Masrour Barzani, the region’s prime minister, welcomed Sunday’s decision, calling it a “fruitful agreement” to “cover [civil servant] salaries”.
“I thank our compatriots for their patience, their determination and their unshakable trust in the government,” Barzani said in a statement.
He also telephoned Iraqi Prime Minister Mohamed Shia al-Sudani to thank him for his support.