GOVERNMENT READIES MASSIVE PRIVATIZATION PROCESS – CB warns on rating, policy shift
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KUWAIT CITY, March 13: Kuwait’s central bank governor has warned that authorities may have to change monetary policy if the government does not act urgently to cut a budget deficit caused by low oil prices. Mohammad Al-Hashel said the legislative and executive branches of the government needed in the next two months to prove to the rest of the world that public finances were sustainable, Finance Minister Anas Al-Saleh told state news agency KUNA on Sunday.
If this does not happen, “it will reflect negatively on the credit rating of the State of Kuwait because of the negative consequences on financial institutions, and then it may affect monetary policy,” Hashel was quoted as saying.
The central bank governor did not elaborate on how monetary policy might change, but the Kuwaiti dinar, which is pegged to a weighted basket of the currencies of major trading partners, has been under pressure in the foreign exchange market since late last year. The finance ministry projected in January that because of low oil prices, the government would run a deficit of 12.2 billion dinars ($40.7 billion) in the fiscal year starting on April 1, nearly 50 percent higher than the deficit estimated for the current year, after government contributions to the sovereign wealth fund. Earlier this month, Moody’s Investors Service put the credit ratings of four Gulf oil exporters including Kuwait on review for a possible downgrade, citing the impact of cheap oil.
His Highness the Amir has called for budget cuts and better management of spending but, with the most independent Parliament in the region, it has been slower than several neighbouring states to introduce austerity policies. The government is getting ready for the biggest privatization process in the history of Kuwait as it intends to privatize 60 percent of public sector companies, reports Annahar daily quoting sources. Sources confirmed the government has approved the proposed amendments to the Privatization Law and the proposal will be referred to the National Assembly soon.
Sources said the revised law expanded the list of public sector companies which are allowed to be privatized including those operating in the health, education and oil sectors. On the other hand, the Supreme Council for Planning and Development amended its view on fuel subsidies as it will most likely grant an undisclosed number of liters to citizens to help them cope with the soaring prices.
It is also expected to approve the proposed charges for electricity and water in accordance with consumption rate, sources added. The parliamentary Finance and Economic Affairs Committee has finalized the debate on economic reform and rationalization of subsidies in the presence of the ministers of Finance, Planning and Electricity.
In a statement after the committee meeting on Sunday, Committee Rapporteur MP Mohammad Al-Jaber described the government’s plan on economic reform as ambitious since it includes longawaited reforms. He said the government suggested many ways to rationalize public spending and diversify income sources. He explained Kuwait is under study for two months with regards to its credit rating, warning that the absence of a clear economic reform plan will decrease the country’s rating and this is risky for the local economy. He stressed the need to speed up the implementation of economic reforms in order to prevent decline in Kuwait’s global credit rating.
He said the committee has asked the government keep the people informed on the real situation concerning subsidies and the prices of gasoline, electricity and water. He disclosed the government is expected to submit the final plan on subsidies before the Parliament starts discussing this issue. He added 11 projects will be implemented under the Build- Operate-Transfer (BOT) within this year and the next, affirming the citizens will be partners in 50 percent of these projects. Meanwhile, Minister of Finance and acting Oil Minister Anas Al-Saleh revealed the government presented its paper on support measures for medium term financial and economic reforms to the committee.
He explained the paper consists of six main points — financial reform, redefining the State’s role in the national economy, increase the contribution of the private sector in economic activities, participation of citizens through the ownership of enterprises, improvement of the labor market and civil service system, legislative and institutional reforms, and support reforms. He added this paper contains 41 projects — 23 are short-term financial reforms, 13 are medium-term and five are from short to medium-term.
On the other hand, Rapporteur of the Legal and Legislative Committee MP Ahmed Al-Qudiabi confirmed that they unanimously approved a bill to add a new paragraph to Article 31 of law number 35 /1962 on electing members of the Parliament. He went on to say the committee rejected another bill on amending the entire law due to suspicion of constitutional violation.
On the mechanism of voting, Al- Qudaibi said the committee endorsed a bill submitted by MP Ahmed Mutei on allowing a voter to choose two candidates instead of one. The lawmaker clarified that his proposal aims to give voters more options, considering the big number of candidates in each constituency. Moreover, the Legal and Legislative Committee approved the request of the Public Prosecution to lift the immunity of MP Abdul-Hameed Dashti in order to interrogate him on the State security case filed by the Embassy of Saudi Arabia in Kuwait for allegedly offending the Kingdom and its leadership and inciting the public against it during his interview with Syrian Television.
In another development, MP Ahmed Al-Qudaibi has criticized the delay in issuing the executive bylaw for the Anti- Corruption Public Authority Law, as two months have passed since its enactment.
He argued that the board of trustees should have been formed by now, citing Article 72 of the law stipulates issuance of the executive bylaw within two months after its ratification. He asserted HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah signed the law on Jan 24, 2016 and it was published in the official gazette on Feb 1, 2016 but until now the executive bylaw has not been issued and the minister of justice has yet to name members of the board of trustees. He warned such delay will not be in favor of the minister of justice and the State considering the purported financial and administrative violations.
The World Bank supports reform steps that have been taken by Kuwait and view them as of utter significance for attaining development objectives, said the WB Office Director in Kuwait. In an interview with KUNA, Dr Feras Raad said the package of measures, declared by Finance Minister Anas Al- Saleh, aim to accomplish short and medium- term reforms at the political and financial levels, namely regarding privatization, entrepreneurship, labor market, investment environment and businesses.
Explaining significance of these plans, Raad said they are necessary fo re-define role of the public sector in the national economy, preparing the State and the society for interaction within a new economic environment that is not based on oil in the long run, also noting that such reforms need to be accomplished hastily, due to record decline of oil prices. The chief of the local WB bureau expressed support for the State scheme to rationalize subsidies, for such an approach is compatible with the WB principle that governments’ support should be for persons who deserve the backing, and not commodities and services.
Moreover, subsidies impact negatively on the state budget and its financial sustainability in the long run. Projected Kuwait budget deficit for upcoming fiscal year stands at $40 billion; and this a new burden for the government that can only be tackled through borrowing or withdrawing from the general reserves, elaborated Raad in the interview with the Kuwaiti media network, KUNA.
Explaining further, he said subsidies contribute to creating “unsound customs in the society namely encouragement of excessive spending,” adding that support for oil by-products lead to negative impact on the environment due to mounting usage of fuel-powered vehicles. Moreover, the WB backs endorsing new economic regulations, namely added tax value, profit fees, rules on the public tenders and defaulting.
Such legislations, in addition to others on establishing the single gateway for registering companies, upgrading the custom and investment sectors and trimming bureaucracy, will improve the business environment, and help in creating new work opportunities particularly in the private sector. “The (current) public employment policy is actually a mechanism for distributing the oil wealth to the citizens,” Raad opined, also expressing his belief that it lured 90 percent of the national labor force to the government sector.
He called for tackling this defect, urging citizens to work in the private sector and create what he called a new mechanism “to re-distribute the national wealth to the nationals.” On sectors that can be utilized in the diversification approach, he mentioned the commercial and logistical ones, in addition to light industries, small and medium enterprises, namely ventures in modern technology, information and communications.
In contrast to the defects he mentioned, Raad shed some light on successful aspects, such as establishment of oil byproducts companies, setting up the next generations fund, projects by the Public Investment Authority which has successfully hiked the general reserves to $500- 600 billion.
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