The decision came after thousands of people took to the streets of Dohuk, the third-biggest city in the region, in early September over unpaid civil service salaries which they blamed on Baghdad.
On Sunday the federal government said in a statement it would disburse annually to Iraqi Kurdistan two trillion and one hundred billion dinars to be paid in three equal instalments of 700 billion dinars (more than $530 million).
The funds will be loaned by three state-banks and reimbursed by the finance ministry in Baghdad, the statement said.
This mechanism aims to "cover employee salaries, social welfare recipients, and retirees", it added, and the funds will be available from September.
Authorities in Baghdad and in Kurdistan have a month to "conduct an audit of the employee, social welfare recipient, and retiree numbers in the Kurdistan Region of Iraq", it said.
Iraqi Kurdistan has long accused Baghdad of not sending the necessary funds to pay civil servants.
Previously the region, thanks to its oil exports, had independent funding that partly covered salaries.
Since the end of March it has been deprived of this resource because of a dispute with Baghdad and Turkey, through which oil was exported.
In principle, Iraqi Kurdistan and Baghdad later agreed that sales of Kurdish oil would pass through the federal government. In exchange, 12.6 percent of the federal budget is allocated to Iraqi Kurdistan.
Earlier this month, Baghdad unblocked a package of 500 billion dinars (about $380 million) for the region's salaries, but the government of Iraqi Kurdistan 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".
Turkish strike kills 4 PKK members in northern Iraq: officials
Arbil, Iraq (AFP) Sept 17, 2023 -
A Turkish drone strike killed at least four members of the Kurdistan Workers' Party (PKK) in northern Iraq on Sunday, authorities in the autonomous Kurdistan region said.
"A senior official from the Kurdistan Workers' Party and three fighters were killed when a Turkish army drone targeted their vehicle in the Jal Mir region on Mount Sinjar," Iraqi Kurdistan's counter-terrorism services said in a statement.
The PKK has been waging a deadly insurgency against the Turkish state for four decades and the conflict has repeatedly spilt across the border into northern Iraq.
The Turkish army rarely comments on its strikes in Iraq but routinely conducts military operations against PKK rear-bases in autonomous Kurdistan as well as Sinjar district.
Ankara and its Western allies classify the PKK as a "terrorist" organisation.
Sinjar, the heartland of the Yazidi minority, is also home to a local Yazidi movement affiliated with the PKK - the Sinjar Resistance Units.
In a statement on Sunday, they confirmed the death of "three of our comrades" after a drone strike, which they attribute to Turkey, targeted their vehicle.
Ankara has set up dozens of military bases in Iraqi Kurdistan over the past 25 years to fight against the group.
At the end of August, seven PKK members were killed in northern Iraq in two drone strikes that coincided with a visit by Turkey's foreign minister, Hakan Fidan, to Iraq.
Both the federal authorities and the Kurdistan regional government have been accused of tolerating Turkey's military activities to preserve their close economic ties.
Although statements from Baghdad occasionally condemn Turkey's violation of Iraqi sovereignty and the impact of the strikes on civilians.
In the summer of 2022, strikes attributed to Ankara on a tourist resort in northern Iraq killed nine people, mainly vacationers from the country's south. Turkey denied any responsibility and accused the PKK of the attack.
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