Public sector salaries devour 80% of oil income at 88%

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Growth to slow … GDP up 2.6% in ’23

KUWAIT CITY, April 2: The Banker magazine has reported that after lackluster performance since 2019, due to the COVID-19 pandemic and lower global oil prices, the Kuwaiti economy grew strongly in 2022 on the back of a recovery in both energy production and prices, reports Al-Rai daily. The sources added that after the growth contracted by 8.9 percent in 2020 – the largest decline in the Gulf region – the country’s economic growth recovered to 1.3 percent in 2021 and 8.7 percent in 2022, according to International Monetary Fund data.

The growth is likely to slow in 2023, reflecting lower external demand and oil production cuts under the “OPEC Plus” agreement, while gross domestic product is expected to rise only 2.6 percent – a rate lower than the average forecast for the economies of the region. The magazine pointed out that 85 years after the country’s first commercial well was drilled in the Burgan field, Kuwait’s economic fortunes are still intertwined with the fluctuations of the global oil market, noting that the country possesses about 7 percent of the world’s oil reserves.

Oil revenues represent about half of Kuwait’s gross domestic product and nearly 90 percent of government export revenues, while attempts to diversify its economy have yielded little in comparison to neighboring Gulf countries. For several years, Kuwait in particular has suffered from an increasingly unsustainable public sector wage bill that has stifled productivity in both the public and private sectors. In addition, it showed that the ongoing political stalemate between the National Assembly and the government resulted in a lack of effective policy-making, particularly with regard to major economic reforms.

The Banker indicated that the Kuwaiti government, for several decades, was satisfied with distributing oil revenues to its citizens by providing job opportunities in the public sector and generous subsidies. However, with diversification efforts largely halted, and the National Assembly proving resistant to major reforms, state spending on its citizens has swelled to the point where it now consumes the majority of government spending in light of the continuing budget deficit. “While the rise in oil prices in the aftermath of the Russian- Ukrainian war may lead to a surplus for the first time in 9 years, lower prices may lead to a deficit next year,” say sources. The draft budget for the fiscal year 2023/2024 shows revenues of 19.5 billion dinars, compared to expenses of 26.3 billion. While oil is set to account for 88 percent of government income this year, 80 percent of the spending is allocated to public sector salaries and subsidies.

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