IMF urges fur­ther sub­sidy re­forms

Kuwait Times - - FRONT PAGE -

KUWAIT: Kuwait must en­act fur­ther sub­sidy re­forms to trim its bud­get deficit re­sult­ing from low oil prices de­spite po­lit­i­cal sen­si­tiv­ity, the In­ter­na­tional Mon­e­tary Fund has said. Post­ing its first bud­get short­fall of $15 bil­lion last fis­cal year fol­low­ing 16 years of sur­pluses, OPEC mem­ber Kuwait has adopted a se­ries of aus­ter­ity mea­sures rais­ing the prices of fuel, power and wa­ter. The state lib­er­al­ized diesel and kerosene prices last year and re­cently hiked the cost of petrol, caus­ing a po­lit­i­cal cri­sis that led to par­lia­ment be­ing dis­solved and calls for a snap elec­tion.

But even with these mea­sures, Kuwait will need a mas­sive KD 35 bil­lion ($116 bil­lion) to fi­nance its deficit over the next six years, the IMF said in a re­port re­leased late Tues­day. In spite of the govern­ment re­form mea­sures, Kuwait’s “fis­cal and ex­ter­nal ac­counts have de­te­ri­o­rated markedly”, it said. “Fur­ther sub­sidy re­form is crit­i­cal.”

The re­port en­cour­aged “the au­thor­i­ties to move ahead with their plans to fur­ther ra­tio­nal­ize en­ergy sub­si­dies”, es­ti­mated at close to $7 bil­lion in last year’s bud­get. It also called for con­trols on the wage bill and for rais­ing non-oil rev­enues. Ear­lier this year, Cabi­net ap­proved a com­pre­hen­sive plan aimed at sub­sidy re­forms, eco­nomic di­ver­si­fi­ca­tion and con­trol­ling the wage bill, which ac­counts for al­most half of public spend­ing.

But the plan was fiercely op­posed by the pre­vi­ous par­lia­ment and also by a ma­jor­ity of can­di­dates run­ning in polls slated for Nov 26. Ac­cord­ing to lo­cal me­dia, the govern­ment plans to end sub­si­dies by 2020. To meet bud­get fi­nanc­ing needs, Kuwait has drawn down bil­lions of dol­lars from its $600-bil­lion sov­er­eign fund. It has also re­sorted to bor­row­ing and plans to is­sue do­mes­tic and for­eign bonds worth $16.6 bil­lion. Kuwait is pro­ject­ing a deficit of $29 bil­lion this fis­cal year.

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