Kuwait prefers cau­tion in eco­nomic re­forms

The Pak Banker - - OPINION - Jasim Ali

OF the Gulf coun­tries, Kuwait is em­brac­ing eco­nomic re­forms prompted by the plunge in oil prices on a rather cau­tious note. Cer­tainly, there is a valid rea­son for this, namely the de­sire to strike a com­pro­mise be­tween the cab­i­net and elected par­lia­ment. Not sur­pris­ingly, MPs in Kuwait like to be viewed as de­fend­ing the well-be­ing and pros­per­ity of the gen­eral pub­lic, es­pe­cially na­tion­als. On their part, min­is­ters keep point­ing out that any cut in sub­si­dies would not af­fect the wel­fare of lo­cals. By com­par­i­son, de­ci­sion-mak­ers in most of the other GCC states are noted for ef­fi­ciency in in­tro­duc­ing needed eco­nomic re­forms. Un­doubt­edly, the ex­tra­or­di­nary drop in oil prices over the past 20 months - and with no end in sight - is driv­ing the steady beat of eco­nomic re­forms across the Gulf. Mea­sures adopted by the likes of Bahrain in­clude cur­tail­ing sub­si­dies granted to food­stuffs, pe­tro­leum prod­ucts and util­i­ties and in­creas­ing the fees for gov­ern­men­tal ser­vices.

Cer­tainly, ur­gent re­forms are es­sen­tial for Kuwait given the pro­jected short­age for fis­cal year 2016-17, which starts in April. Rev­enues and ex­pen­di­tures are set at $24.4 bil­lion and $62.2 bil­lion, re­spec­tively. The pro­jected deficit stands at $40.2 bil­lion af­ter adding an an­nual amount re­lat­ing to oil rev­enues for the ben­e­fit of fu­ture gen­er­a­tions. This trans­lates into a sub­stan­tial fig­ure, mak­ing up more than 60 per cent of the en­tire bud­get. In fact, rev­enues could only cover 71 per cent of gov­ern­men­tal salaries and re­lated costs, in turn es­ti­mated at $34.2 bil­lion. Un­like the de­lib­er­a­tions on ear­lier bud­gets, leg­is­la­tors ap­pre­ci­ate the fact the time is not ripe press­ing for ad­di­tional ben­e­fits to lo­cals while de­bat­ing the new fis­cal year re­quire­ments. Sub­si­dies re­main sub­stan­tial, amount­ing to $9.5 bil­lion and rep­re­sent­ing more than 15 per cent of to­tal spend­ing. Con­se­quently, com­pre­hen­sive en­ergy re­forms can­not be ruled out. One choice would be to em­u­late prac­tices of other Gulf states like the UAE and Saudi Ara­bia. Re­flect­ing the drop in prices, num­bers for the new fis­cal year com­pare un­favourably with some of the ear­lier ones. In ret­ro­spect, the 2015-16 bud­get was ap­proved with pro­jected rev­enues and ex­pen­di­tures of $40.7 bil­lion and $64.5 bil­lion, re­spec­tively. Still, of­fi­cial fig­ures for fis­cal year 2014-15 were stag­ger­ing with in­come of $71.4 bil­lion and spend­ing of $77 bil­lion. The Kuwaiti econ­omy is no­tably de­pen­dent on the pe­tro­leum sec­tor, in turn gen­er­at­ing 88 per cent of bud­getary rev­enues, 85 per cent of ex­ports and 40 per cent of GDP. Clearly, the well-be­ing of the econ­omy is at the mercy of de­vel­op­ments in the in­ter­na­tional oil mar­ket.

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