Kuwait budget deficit hits KD 1.094 bln – IMF urges reform

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DUBAI, Sept 22, (Agencies): Kuwait’s budget deficit in the first five months of its fiscal year stood at KD 1.094 billion ($3.62 billion) after a deduction for the Future Generations Fund, the finance ministry said on Tuesday in a statement carried by Kuwait News Agency.

The deficit from April 1 to Aug 31 stood at KD 361.38 million before the 10 percent contribution of KD 733.50 million to the Future Generations Fund, part of Kuwait’s sovereign wealth fund, the statement said.

Finance Minister Anas Al-Saleh told reporters on Sept 15 that Kuwait plans to issue bonds in local currency by the end of the year to help bridge its budget deficit.

Kuwait’s Parliament in July approved a state budget for the current 2015-16 fiscal year, which begins on April 1, that envisages a budget deficit of KD 8.18 billion because of low oil prices.

However, the actual deficit may not turn out to be nearly as large. The size will depend on oil prices, while Kuwait has in the past often underspent its budget because of bureaucratic red tape and tensions between the cabinet and parliament that have slowed economic projects. This could also limit the deficit.

The fall in oil prices over the past months and the anticipated deficit in state budget have special importance to the current visit by a delegation from the International Monetary Fund (IMF) to Kuwait.

During the regular annual visit, the delegation renewed their recommendations on state finances amid rising concern over challenges to the local economy, as huge financing is needed for infrastructure and other projects.

The IMF recommendations and proposals were made during a joint panel discussion, attended by World Bank (WB) director in Kuwait Dr Firas Raad. The event focused on subsidy reforms, taxes and the anticipated budget deficit.

The drop in oil prices offers a good opportunity for conducting reforms in the structure of the Kuwaiti economy, IMF’s Deputy Division Chief, Middle East and Central Asia Department Ananthakrishnan Prasad, also chief of the Fund’s mission in Kuwait told KUNA on Monday.

He added that the IMF advised the country for introducing a 10-percent tax on local and foreign companies’ profits, while abolishing all other taxes and fees.

There is already a 15-percent tax on foreign firms, while local ones pay fees to certain institutions such as the Kuwait Foundation for the Advancement of Sciences and the Zakat House, as well as supporting labor.

The proposed tax would make KD 500 million ($1.65 million) to KD 800 million available for public finances, he noted.

On introducing a value-added tax (VAT), Prasad said that it is left to the Gulf Cooperation Council (GCC) states to decide when it should be applied and on what goods and commodities.

It was reported that GCC countries will introduce a five-percent VAT but nothing was confirmed, he said.

In the meantime, Prasad referred to the subsidy system in Kuwait as “unjust”, where people with high income are the ones who benefit the most from it.

A rapid remedy is needed so that subsidy would reach those who deserve it, he said, calling for establishing social safety networks. For him, lifting subsidy directly from some goods is the best way for a reform.

Prasad told discussions held last week on the sidelines of the annual Euromoney conference that Kuwait was the world’s first country in terms of offering subsidy, according to 2010 statistics. He noted that Arab countries as a whole offer 40 percent of the world’s subsidy.

Kuwait offered subsidy worth $287 billion in 2011, about 12 percent of the total GDP of all Arab countries, and about 32 percent of the government’s revenues.

He stressed the dire need for a mechanism while considering subsidy on fuel, to define prices and connect them to the international levels.

For his part, director of the WB Kuwait office Dr Raad said that they have worked with 20 countries in designing subsidy reforms and establishing social safety network.

In a statement, he stressed the significance of realizing; that in Kuwait, subsidies are too generous and have helped enhance the government’s role in employment.

In general, subsidies in the GCC countries benefit expatriates more than nationals, he noted.

If the Kuwaiti crude oil price stabilizes at $45 per barrel (pb), the budget deficit would reach KD eight billion, and a no deficit budget required the oil price to be at least $73 pb, Deputy Prime Minister and Minister of Finance Anas Al-Saleh told the Euromoney last week.

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