KUWAIT CITY, Dec 7: Kuwait’s government is showing a willingness to push forward fiscal reforms including subsidy cuts needed to support its currency in an era of low oil prices, a senior IMF official said. Gulf states, including Kuwait, traditionally relied on petrodollar revenues to fuel public sector spending and social programs, but the slump in the oil price since the middle of last year has forced governments to make difficult decisions to reign in significant budget deficits.
Kuwait’s budget for the year that began on April 1 projects a deficit of KD 8.18 billion ($27 billion), after the transfer of 10 percent of the revenues to the Future Generations Fund, part of Kuwait’s sovereign wealth fund. There now seems to be a “willingness” to introduce reforms on subsidies and boost the country’s fiscal position, Prasad Ananthakrishnan, IMF mission chief to Kuwait, told reporters in a conference call. “Authorities will go very gradually to ensure that the people who deserve those subsidies are not affected,” Ananthakrishnan said.
They may cut fuel subsidies first, as no legal changes are required, but electricity and water require legislation and may be introduced later, he said. The Kuwaiti government is studying whether to raise fees for its services as part of a wider project that aims to rationalise spending, review subsidies and diversify sources of revenue, finance minister Anas al-Saleh told the local al-Rai newspaper, in a report published on Nov 22. The Kuwaiti dinar fell sharply against the US dollar in the forward market at the end of November, bankers told Reuters on Nov 24, reflecting a shortage of dinars in the cash market amid low oil prices.
“There has been slightly slower growth in profit and credit, but the Kuwaiti banking system is still flush with liquidity sitting in the central bank,” Ananthakrishnan said. “At this point in time, there is no issue, but definitely as oil prices go down and there’s no adjustment in the fiscal system, there should be some tightening,” Ananthakrishnan added. Given the structure of the Kuwaiti currency peg, which is tied to a basket of currencies including the US dollar, it is doing well in delivering monetary stability and enough reserves, he said. In the longer term, however, given potential trade shocks, fiscal consolidation will be needed to support the currency, he added.
Kuwait must take economic, financial and commercial measures to curb the negative impact of the continuous oil price decline on its budget, says Chairman of the parliamentary Priorities Committee MP Yusuf Al- Zalzalah.
In a press statement, Al-Zalzalah pointed out there is no sign of oil price hike in the next two years as per the reports of international institutions that monitor energy prices throughout the world. He stressed the need for Kuwait to take the abovementioned measures considering the global oil price decreased to as low as $40 a barrel. He said the entire world is currently looking into traditional alternatives to oil while investments will be pumped in to renewable energy. He affirmed Kuwait is not far from this field since Kuwait Institute for Scientific Research (KISR) is now working on the solar energy project in Al-Shaqaya field. He asserted, “It is presumed that a new strategy will be laid down to deal with economic and financial changes, as well as to ensure the best quality of life for citizens without discrimination in line with the latest developments in the world.” He claimed the government has been unable to lay down workable financial and economic strategies. He explained the capital market usually mirrors the economic performance and situation of countries, asserting it is illogical that the government has yet to present a clear vision to address the continuous deterioration of the performance of Kuwait Stock Exchange (KSE). “When the performance of bourses in countries that respect financial markets deteriorates, their governments usually look into the causes and find appropriate solutions but this is not the case in Kuwait.
This is a manifestation of the government’s failure to correct the current situation of the national economy and to achieve the aspirations of citizens,” he added. On the other hand, Al-Zalzalah said the real estate market is one of the most attractive investment channels in Kuwait, taking into consideration the reduced risks and positive yield in the sector. He also emphasized the importance of the real estate sector as it is a safe investment alternative considering the unstable oil prices in the region and the deterioration of financial markets.
In another development, MP Mohammed Tana Al-Anazi has unveiled his plan to present another grilling request against Minister of Social Affairs and Labor Hind Al-Sabeeh who survived the first interpellation last month. He forwarded questions to the minister on the allegation that she walked out of the International Day for the Disabled celebration in Jahra on Dec 3. He disclosed the minister arrived in the venue at 6:00 pm although the invitation sent to her stated that the event would start at 7:00 pm. He said the minister allegedly left the venue when she found out that the governor of Jahra was not there and the audience was small even though she was supposed to represent HH the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al- Sabah.
He wants to know if the minister was informed about the time the event was supposed to start. If yes, why did she arrive at the avenue an hour early only to walk out before the arrival of the host, guests and residents of the province? Did the team in her office ask the organizers to start the celebration earlier? Why did she walk out of the event considering she was the representative of the Amir? On an unrelated issue, MP Faisal Al- Duwaisan expressed his willingness to support the plan of MPs Hamdan Al- Azmi and Rakan Al-Nisf to grill the health minister. He revealed he met some of those who have solid evidence against the minister, alleging some employees and officials have been supplying the ministry with low quality machines made in China through their companies. On the formation of an inquiry commission to investigate medical errors that led to the death of some citizens recently, Duwaisan considers this step a temporary solution. He urged the minister to prepare complex and technical answers to the grilling points rather than political responses. He added there have been irregularities in the tenders and contracts signed by the ministry, affirming all these issues will be including in the grilling motion.
By Abubakar A. Ibrahim Arab Times Staff and Agencies