“IT is time to act because the deficit is increasing due to decreasing oil revenues” — This is the message or rather the warning from the biggest financial body to our Kuwaiti government. Kuwait has been advised to bring order to its financial house; otherwise its ratings will be downgraded, similar to what happened recently to Bahrain and Oman.
This warning to our government came from one of the biggest rating agency in the world namely Moody’s. It stressed that the government, if it is serious, must act and apply some of the recommendations of the International Monetary Fund (IMF) and the World Bank.
Despite the large number of studies carried out by the global financial institutions, one is yet to witness any major changes in our fiscal policy, which can revive the economy and minimize the huge deficits ranging between KD 6 billion to KD 8 billion in Kuwait’s annual budgets.
Last week, our finance minister declared a six-point economic reform plan which includes privatization of some government-owned agencies such as the airport, some affiliates of the oil sector such as Liquefied Petroleum Gas (LPG) plant, transportation and marine authorities. Such plans are in order but when will they be applied? This is the challenge and the reason why international agencies are not optimistic about our government’s intention to implement the plans, even though it is the right course to take.
The recent increase in the prices of fuel, electricity and water in many Arabian Gulf countries was applied within 24 hours’ notice, but we in Kuwait are still debating and discussing about reaching some weak compromise concerning this issue. This clearly indicates the seriousness of other countries in the region in proceeding with economic reforms without wasting time. On the other hand, the matter is still under discussion in Kuwait regarding when and how to go ahead with the plans or whether it is better to wait until next year. No one knows what the need is to wait for another nine months, when the revenues are running dry and the international rating agencies are running out of time.
The government’s six-point reform document includes 41 short-term and medium-term programs which are aimed at boosting non-oil revenues, cutting down public expenditures and reducing budget deficits. It also recommends allowing joint private and public ownership of certain industries, as in the case of the ownership of Kuwait National Petroleum Company (KNPC) in the 1960s, or the fully private company like Kuwait Oil Tanker Company or the current joint venture EQUATE with Dow Company.
Indeed, Kuwait can come up with great ideas and ventures but we lack in ability for implementation. This is why the international rating agencies sent the message to bring order to our economical house or we will end up being downgraded like some other Gulf countries. Having no income to cover our expenses indicates that Kuwait will decline and continue to do so for the next 3-4 years. We have to either come up with genuine solutions or end up facing the downgrade. The deficit is huge and within the range of KD 6-8 billion. This is bound to increase if we continue to eat from our reserves and offer nothing.
The challenge we are facing is — increasing deficit and decreasing income if oil prices continues to stay below the level of $50 per barrel. This means we are unable to meet our budget, which, therefore, is our concern.
By Kamel Al-Harami
Independent Oil Analyst