‘Kuwait’s huge cash reserves allow it to conduct reforms’ – IMF chief urges Gulf to adapt to sustained oil price drop

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KUWAIT CITY, Nov 8, (Agencies): International Monetary Fund’s Chief Christine Lagarde said in remarks published on Sunday that Kuwait is privileged with enormous financial reserves, which allow the country to conduct gradual economic reforms, especially by directing surpluses to productive spending.

She added in an interview with daily newspaper, “Al-Qabas,” that there is a dire need for the government to take serious steps towards economic reforms, especially following the decline in oil prices, calling on the country’s competent authorities to take the right measures in increasing the non-oil revenues.

Lagarde also called on the government to impose taxes on commercial profits, as extra profits are expected, despite any low rates of taxes price, as “tax payers benefit from the government offered services, and thus should contribute to covering costs.” Reforming the public financial policy is the key tool for adjusting with the oil prices decline, Lagarde said, stressing on importance of setting strategies to adjust the general budget situation.

“The citizens would understand the reasons behind such financial measures in the light of oil prices decline,” she affirmed.

Despite

Kuwait budget registered a deficit which is less than a number of other Gulf Cooperation Council (GCC) countries, and it is still fulfilling financial surpluses despite the falling oil prices, and has large financial reserves, she said.

Such reserves should immediately be invested in expanding the non-oil revenues, and to reorganize the national economic structure, she added.

She called on the GCC countries to increase the diversity of economic activities, as by 2020, a total of two million citizens will enter the Gulf labor market, however regarding the “general financial restrictions that limit the employment opportunities in the public sector, the private sector should contribute in facing such challenge”.

Lagarde added that the diversity of economic activities in the Gulf region requires reorganizing the available incentives for companies and national workforce, indicating that investment and good production in the local market entails less risk and more profits for companies compared to exports.

The continuation of jobs availability in the public sector leads to reducing any incentives to getting employed in private sector or stablishing personal projects in the business sector, she said.

Kuwait needs to take extra measures to improve the business atmosphere and boost the competence spirit, besides redirecting the general spending and following up with the implementation of labor market reforms, she mentioned.

Such reforms will tackle the fuel prices, salaries, in addition to warranted measures such as increasing taxes on companies, imposing added value taxes, besides fees on lands and real estate.

Lagarde will visit Kuwait this week to attend the World Islamic Financing Conference, which is organized by the IMF in cooperation with Kuwait Central Bank, due next Wednesday.

Lagarde warned Sunday that global energy prices could remain low for years and urged Gulf countries to adjust their budgets.

Speaking in Qatar’s capital Doha after meeting ministers and officials from the six-nation Gulf Cooperation Council (GCC), Lagarde warned that the countries could no longer rely on revenues from oil and gas.

“We believe that the price of oil will probably persist at the level where it is for a number of years and as a result all GCC countries should undertake some degree of fiscal adjustment,” she said at a press conference.

She said the IMF believed growth across GCC countries would fall from 3.2 percent this year to 2.7 percent in 2016.

Lagarde also said that export revenues would be $275 billion (256 billion euros) lower this year than in 2014 because of low energy prices.

The price of oil has dropped by more than half since the beginning of 2014, with Brent crude, the international benchmark, trading Friday at $47.42 per barrel for December.

Lagarde said adjustments should include “firm control” on spending, particularly on public sector wages, and encouraging private sector growth.

“Well-planned fiscal consolidation strategies need to be put in place as soon as possible and communicated so that people understand how the adjustment will take place,” she said.

She said the “size and urgency of this adjustment” varied for countries across the GCC, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Most of the six oil exporting nations in the Gulf Cooperation Council have put in place prudent fiscal policies, and those that haven’t can learn from those that have, International Monetary Fund chief Christine Lagarde said on Sunday.

Slashed

Lagarde made the remarks in a statement after a meeting with senior GCC economic officials in Doha. The plunge of oil and gas prices since last year has slashed governments’ energy revenues, saddling most with big deficits.

Lagarde said all the GCC countries needed to adjust their budgets further to cope with low oil prices in the longer term, and that most had introduced fiscal policies which would allow them to make those adjustments from a position of strength, limiting the impact on their economic growth rates.

“Those who have not done it can certainly learn from those who have,” she said without naming individual countries.

She also urged GCC countries, including Saudi Arabia and the United Arab Emirates, to introduce a regional value-added tax as soon as possible, since even at a low rate it could raise considerable revenues. That reform should not be delayed, she said.

Lagarde said governments needed to cut the growth of their current spending.

“Given the new fiscal realities, there is not room for public wage bills to grow further. We have to face that reality.”

Meanwhile, falling energy prices in world markets must push the Gulf Cooperation Council (GCC) member states to take effective procedures for promoting their financial policies, Qatar’s Finance Minister Ali Sherif Al-Emadi said.

Al-Emadi’s statement came in his address to the opening of a joint meeting for the GCC Financial and Economic Cooperation Committee and the Monetary Agencies and Central Banks Governors’ Committee in Doha Sunday. Chief of the International Monetary Fund (IMF) Christine Lagarde attended.

Changes

The meeting comes amid significant economic and financial changes that necessitate further GCC collective work in all fields, together with enhancing cooperation with the world’s leading institutions, IMF on top, he said.

He added that the IMF would offer the meeting a host of key reports on its outlook for economic prospects and challenges facing the GCC, focusing on energy and the impact of expected global economic growth on the region.

The world leading financial institution will also offer views on related issues such as reform of fuel prices system and tax policy in the GCC, as well as designing policies to withstand reversals on the world markets.

In light of the falls in oil and gas prices worldwide, the minister stressed the need to set specific goals for the GCC financial policies. These will include diversification of sources of income in no-petroleum sectors, boosting efficiency of capital expenditure and curbing spending.

According to Al-Emadi, the GCC states have taken a host of pre-emptive measures over the past period to diversify economic activities and consolidate the private sector’s participation in all fields, which led to a noticeable rise in growth in non-oil sectors.

The Kuwaiti delegation to the GCC meeting, led by Deputy Prime Minister and Minister of Finance Anas Khaled Al-Saleh, includes Governor of the Central Bank of Kuwait (CBK) Mohammad Al-Hashel and senior officials from the ministry and the bank besides the General Administration of Customs.

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