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Wednesday , June 16 2021

End of economic reforms as Kuwait sets 71% of budget for salaries and subsidies

Deficit to hit record high of KD 9 billion

Kamel Al-Harami Independent Oil Analyst

The blueprint for the budget of next year starting from April is bad news. Deficit will increase along with salaries and subsidies, as well as expenses for future infrastructural projects such as new schools and hospitals and for maintaining the existing projects, besides creating new jobs for 241,000 Kuwaitis who are waiting for jobs – a number to increase by about 20,000 each year.

The main figures in our new budget are total revenues of KD 14.78 billion, of which oil revenues are KD 13 billion, and total expenditures of KD 22.5 billion, of which salaries are KD 12 billion and subsidies KD 4 billion, constituting about 71% of the budget. The most interesting figure is that the oil price must be $81 per barrel to balance our budget. Oil will definitely not reach this number this year and surely not in the near future.

The government in partnership with the Parliament are the main reason for the continuation of the employment-related deficits since the year 2014. No one is able to take any serious actions in this regard, such as reducing subsidies , privatizing government sectors, and ensuring most of the Kuwait oil companies, which can be managed better and with more efficiency, are removed from the government’s hands.

The government is not serious in taking any serious action, and our MPs are afraid of not being reelected if they tell the truth and confront the core of our economic situation with oil prices that are falling and will further fall to maybe below $50 a barrel. But again, nobody seems to care. Ofcourse, there is a reason behind our government’s ignorance or carelessness concerning the increase in the deficit over the last six years. It is aware of our Sovereign Wealth Fund (SWF), which is worth about $650 billion. So, it counts its annual interest income and ignores the deficit.

It knows that it can also borrow from outside financial institutions and international banks using our SWF as collateral or using our huge oil reserve valued between $ 35 and $40 per barrel as guarantee. The least the government can do is reduce the amount spent on subsidies from its current value of KD 3.9 billion by 50 percent by increasing the prices of water, electricity and fuel, which are the cheapest in comparison to our Arabian Gulf neighbors that were ahead of us three years ago, or the food subsidies for providing us with rice, sugar, cooking oil, cheese, lentils, chicken or even ground meat, which was recently introduced, at lower costs.

The solution is at hand – reduce the deficit and move forward – if we as individuals were more active and called for economic reforms. This alas will not happen until we see our children on the streets looking for jobs. Today we have 240,000 Kuwaitis without a job. What will happen in the next few years when this number reaches one million? Most likely, next year this time, we will be saying and writing the same thing, except for an increase in the deficit and the expectation for the oil price to be $90 per barrel in order to balance the budget. However, balancing the budget is not expected to happen during our time, and will remain a long-term dream.

By Kamel Al-Harami Independent Oil Analyst

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