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KUWAIT CITY, Dec 19: Experts and economists have warned of the consequences of giving in to economically irrational populist demands and random parliamentary bidding, and the resulting catastrophic financial consequences that the public treasury may be unable to bear and push Kuwait towards a serious financial impasse that threatens its economic standing and sovereign credit rating, reports Al-Qabas daily. Between a frustrating government’s inability to approve financial sustainability laws and a miserable failure to achieve tangible progress in the file of financial and economic reforms, the chaos of random parliamentary demands continues in light of the absence of economic logic in them and the lack of study of their financial cost, as if they suggest a destructive plan to drain the “generations” reserve, as the bill to cover Increases and financial claims will not be able to be covered by a budget at $200 per barrel of oil.
Reform programs While the experts pointed out the state’s limited ability to respond to ill-considered parliamentary demands with high costs, they stressed that all financial and economic data indicate that Kuwait’s finances are on the verge of explosion, and it is only a matter of time, in the absence of real, implementable reform programs accompanied by a strong will. To implement it on the ground, what increases the seriousness of the financial situation is that salaries and subsidies eat up about 80% of the country’s budget, in exchange for modest spending on capital projects, which is often faced with many obstacles that hinder its path.
They warned that the deficit for the next fiscal year 2024-2025 may reach 6.1 billion dinars at an optimistic rate of oil prices of around $80 per barrel, and rise to 9 billion dinars at a rate of $70 per barrel, at which point salaries, wages, and subsidies will constitute about 113% of the general budget revenues, and higher than that. For current expenses, without taking into account the cost of absorbing between 20,000 to 25,000 citizens coming to the labor market.
They reported that any cash spending in the form of increases or allocations that appear on the surface to be grants will not constitute any added value to the economy, but will evaporate in the market, which responds to every increase in a direct manner. An example of this is the increase in the housing loan, which was reflected in land prices in Kuwait. Chairman of the Board of Directors of Al-Shall Economic Consulting Company, Jassim Al-Saadoun, said in a statement to Al-Qabas that in Kuwait, the government is leading the competition in adopting populist policies that completely accelerate the country’s entry into a more severe contraction phase, coinciding with the deepening of the public finance crisis, and with an increase in the imbalance in pension funds.
He added, that public administrations in other countries worry and perhaps panic when they issue indicators that confirm that their performance is the worst within their region, with all the risks it entails for the near future, and they begin to formulate scenarios that determine the size of the cost if their policies continue as they are, and then they begin to chart a way out of it, which is except for Kuwait, which we have not heard from its officials of jealousy or concern for it, which would lead to a move or even a statement suggesting it is moving in that direction. Al-Saadoun pointed out that what the public administration is supposed to know if it cares about the future of its country is that the deficit for the next fiscal year 2024-2025, at the same current level of public expenditures, will reach 6.1 billion dinars at an optimistic rate of oil prices of around $80 per barrel, and will rise to 9 billion dinars when Average oil prices are around $70. At that level of oil prices, salaries, wages, and subsidies will become about 113 percent of the general budget revenues, and higher than that for current expenditures, and without taking into account the cost of absorbing between 20,000 and 25,000 citizens coming to the labor market, he said.
For his part, economic expert Muhammad Al-Qadi told Al-Qabas that about the issue of prices and high prices and the demands made by several representatives to improve the standard of living and combat high prices, we must consider the issue calmly and fairly for the citizens, the consumer, and the state’s budget and the extent of its ability to bear such demands with a careful and distant eye. Chairman of the Board of Directors of Hayat Investment Company, Dr. Nabil Al-Mannai, said: Anyone who monitors the rates of growth and increase in government spending during the last 10 years, in addition to the policies of subsidies, employment, and wealth distribution, including social safety nets and how to penetrate them, will find that the state’s finances are unsustainable. Researcher in Islamic economics, writer Faisal Al-Zamil, said: Sustainable development is characterized by continuity and thus resembles a highway with no signals or intersections. The flow of traffic in it with complete smoothness provides the state with great potential to diversify the source of income.
He went on to say, “I will stop at one axis of this continuity, which is trade exchange, which represented the main source of Kuwait’s economy before the advent of the oil era, and it is wise for it to be developed during this era to achieve the required diversification of sources of income, and this requires a “strong infrastructure” that is commensurate with developments. Large in the world of communications, financing systems, storage complexes and effective presence in supply chains.”
Former member of the Supreme Council for Planning and Development, Ali Rashid Al-Badr, stressed that economic sustainability does not require issuing new laws that obstruct development and expansion, but rather requires an effective and logical government economic development policy, through which it diversifies the sources of the national economy and saves it from the dangers of relying on one depleted source. In the medium and long term, it is subject to severe fluctuations. He added that Kuwait needs additional strong sources of income in addition to oil by creating and encouraging the establishment of national companies in multiple service fields that grow and expand abroad and exploit our human wealth, much of which is now being burned in administrative jobs, piling up in the towers of government institutions with little, even obstructive, productivity.
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