Tags: oil | austerity | Kuwait | incompetent

Kuwait $40,000-a-Head Surplus Makes Austerity a Hard Sell

Monday, 10 February 2014 09:54 AM

Kuwait’s budget surplus adds up to almost $40,000 per citizen, one reason it’s hard to convince people like Nouf Mohammed that the government should spend less on services and subsidies for her.

Mohammed, a 36-year-old accountant, says she’s been waiting 12 years to get the state-provided house she’s entitled to, and finds education and health care so inadequate that the government should focus on improving them instead of saving more. “There’s no development, our money is wasted in a disorganized way,” she said.

Kuwait is stepping up efforts to persuade the public that it can’t afford to maintain one of the world’s most generous welfare systems. A committee set up to examine public finances advised the government to use social media to warn of a “terrifying future” if spending isn’t trimmed.

Mohammed’s objections are widespread among Kuwaitis, though, and often voiced in a parliament that enjoys powers not matched in the Gulf’s other absolute monarchies. Underlining the obstacles to change, lawmakers are pressing a bill popular with the public, and opposed by the government, that would increase child and housing allowances.

There are also widespread allegations of corruption, which would need to be addressed before the public could be won over to belt-tightening, according to Jassim Al-Saadoun, the head of Kuwait-based Al-Shall Economic Consultants. He said he’s been warning of the need for spending reform for two decades.

‘Gaining Momentum’

That argument is now “gaining momentum,” Al-Saadoun said. “But the problem is one of mismanagement, not diagnosis. Who is willing to take the unpopular decisions? I’m not sure this government can.”

International Monetary Fund projections offer support for both sides of the argument. They show that Kuwait’s fiscal position is strong even by the standards of the Gulf oil monarchies. Its surplus was 34 percent of output in 2012, more than double that of Saudi Arabia or the United Arab Emirates.

On the other hand, the IMF predicts a deterioration that’s faster than all Gulf peers, a shift of about 19 percentage points between 2012 and 2018, almost double the Gulf Cooperation Council average.

The IMF has repeatedly urged Kuwait and the other five GCC countries to reduce subsidies as spending rises. Saudi Arabia, which like Kuwait is trying to diversify an oil-reliant economy, announced slower spending growth in its 2014 budget. The IMF predicts that the Saudis will join GCC members Oman and Bahrain in posting deficits by 2018.

‘Terrifying Future’

Kuwait yesterday reported a surplus of 14.3 billion dinars ($50 billion) in the first nine months of the fiscal year that ends March 31. That’s about $40,000 per citizen, based on the latest Kuwait population figures. The surplus typically narrows in the final quarter as spending rises. National Bank of Kuwait in January estimated a fiscal surplus of 11.8 billion to 13.3 billion dinars.

Spending is due to rise 3.2 percent next year, enough for an official committee to warn of a “terrifying future for the general state budget in the next few years if financial waste continues as is without a serious stand.” According to the committee report, salaries, benefits and subsidies account for 87 percent of oil revenue in the 2014/15 budget. The state depends on oil for more than 90 percent of its income.

The committee, set up by Kuwait’s Supreme Council for Planning and Development, called for “reconsideration of expenditure and subsidies” in a report published Feb. 2 by Kuwaiti newspapers, which said the government approved it. Finance Minister Anas Al-Saleh told the cabinet last month that measures are needed to curb spending.

Subsidy Review

Another committee is reviewing subsidies that include free health care and education for citizens, and cheap fuel and energy for all residents. Kuwait’s Public Authority for Civil Information says there are 1.25 million Kuwaiti nationals out of a total population of 4 million.

The committee also said the government should examine whether lawmakers, who have championed bailouts of indebted citizens, have the right to pass laws that deplete public funds.

Saleh Al-Jasser, a state-employed engineer, said Kuwaitis “are hostile to even discussing this matter.”

“Corruption is everywhere and money is being handed out to foreign countries without any reference to public opinion,” he said by phone. “So if the government is dealing with public funds in this way, why do you ask me to be reasonable and make sacrifices to support the government?”

Kuwait has pledged $4 billion to Egypt since the army toppled an Islamist government last year.

Over and Over

Opposition by lawmakers has delayed initiatives including a $110 billion development plan. That’s led to slower growth than in the rest of the GCC. Last year, Kuwait’s economy expanded 0.8 percent, compared with 3.6 percent for Saudi Arabia and 4 percent in the U.A.E., according to the IMF.

For the government to implement a “proactive reform program” would be “somewhat surprising, given Kuwait’s slow record for policy making and the comfortable fiscal position,” said Liz Martins, Dubai-based senior Middle East economist at HSBC. Such a move could also revive political tensions, she said.

Kuwait’s ruler dissolved parliament in 2011 and called for elections after a dispute over graft allegations sparked unprecedented anti-government protests.

Khalid Al-Sahli, a 30-year-old financial industry worker, says he views subsidy cuts as “one solution but not the first thing” the government should do, and doubts whether action will be taken.

“Kuwaitis feel the government is incompetent and they know the same problem is discussed over and over again,” he said.

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Kuwait's budget surplus adds up to almost $40,000 per citizen, one reason it's hard to convince people like Nouf Mohammed that the government should spend less on services and subsidies for her.
Monday, 10 February 2014 09:54 AM
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