Kuwait prefers caution in economic reforms
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.