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Wednesday , November 14 2018

Time for economic reform in Kuwait as oil prices collapse – Cut subsidies and hike fuel and electricity

Kamal Al Harami
Kamal Al Harami

TODAY, the selling price of Kuwait’s crude oil is $28 a barrel. This is 17 percent less than $45 – the price stated in our budget for this fiscal year. It means loss of  $42.5 million per day, $1.2 billion per month or $14 billion per annum which is equivalent to KD 4 billion. We are already behind our revenue target and the State will incur further deficits in its annual budget – to reach more than KD 8 billion or $24 billion. Everything is bad news and all is leading towards withdrawal or liquidation of our overseas investments. We are witnessing a difficult time and we will face a crisis if the oil price decline continues for several years.

To reach breakeven in our current budget, we have to achieve selling price of $70 a barrel which is not going to happen next year nor the following three years. As a result, the government should start taking the lead in terms of steps which will not hurt anybody’s pocket and anyone living in Kuwait. For example, an increase in gasoline price of KD 3.5 per week for 100 liters and introducing consumption pro rata for electricity or per house quota. Any household with more than one member has to pay higher rate than the single household, etc. This is in addition to introducing a system based on consumption, leaving the current electricity rate untouched for single house owners. Considering that about KD 2 billion of the budget is directed to subsidies, which include fuel, electricity, water and food; this item could easily be reduced without causing much discomfort to any of us.

Economic reforms are needed and must be done with proper intentions, clear objectives and transparency. The government should start by taking firm decisions. It must have an economics minister whose portfolio is not combined with the Ministry of Oil. It is now time to act accordingly while allowing the oil minister to focus on reforms rather than being bothered with the complexity of oil sector affairs.

The government has its own ways and tools for the privatization of some of its assets which should be sold to the private sector and then relieve itself from unnecessary expenses. The process will not be easy. It requires hard work, commitment, dedication and consistency.

Oil prices will not improve in the coming years. With 80 percent of our current budget allocated for salaries and government subsidies, there are no encouraging signs for reforms. Reducing subsidies is much easier and more beneficial rather than cutting salaries. Economic reform is the only solution to the huge budget deficits in the coming years.

Email: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

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