Last year, a successful Kuwaiti businessman explained to Pat Lancaster how he believed government subsidies should and must be cut for the good of the economy. Now Kuwait’s Prime Minister has added his voice to concerns the country is squandering its’ precious resources
Kuwait’s prime minister has called the oil producing nation’s welfare system unsustainable and added that spending should be cut, along with consumption of its natural resources.
In some of the strongest comments yet from a senior government official on Kuwait’s rising spending bill, Sheikh Jaber al-Mubarak al-Sabah said a “transformation” was needed to avoid future problems.
“The current welfare state that Kuwaitis are used to is unsustainable,” he said in the introduction to a government programme sent to lawmakers ahead of the opening of parliament. “It is necessary for Kuwaiti society to transform from a consumer of the nation’s resources to a producer,” he added.
The International Monetary Fund (IMF) and a number of other Kuwaiti officials, including the finance minister, have repeatedly warned against rising government spending in OPEC member Kuwait, one of the world’s richest nations per capita.
Government spending, it was warned, may soon exceed oil revenues.
Sheikh Jaber has previously tended to keep out of the debate, but his comments suggest the government could review the costly subsidies system, as suggested by the finance minister earlier this month.
Like other wealthy Gulf Arab countries, Kuwait (below), does not tax earnings and provides a generous welfare system for its citizens. All residents, including foreigners, benefit from subsidised petrol, cheap electricity and water, while Kuwaiti nationals get additional, extra support for housing and food.
Generous spending programmes are often cited by analysts as one of the reasons the region has largely escaped Arab Spring-style unrest, with citizens accepting some political and social curbs in return for a comfortable life. The government’s four-year programme says that if spending continues to rise at the current rate, Kuwait will have a real budget deficit by 2021, something which “threatens national and social security and the stability of the country”.
The government seeks to “rationalise” subsidies to make sure they reach people who need help the most, local media reports said, citing the government programme, adding that the annual subsidies bill had reached more than 5 billion dinars ($17.7 billion). The government has said previously that any changes to the subsidies system would not hurt Kuwaitis on low incomes.
In a conversation last year, a successful Kuwaiti businessman in his 60s explained to Pat Lancaster how he believed that while subsidies should and must be cut for the good of the economy, a programme of re-education should also be considered to make the public more aware of their personal shortcomings.
“I was born in the 1950s”, Ibrahim explained. “As a result I can remember many of the wonders, our younger generations take for granted, becoming part of my everyday life- running water in every home, modern bathrooms and electricity – we valued them because they enhanced our lives so enormously.
“But to younger generations what we regarded as luxuries are now commonplace, they have always had them and they have always been free. People must be taught that they are not free. There should be a massive public campaign in Kuwait to make people aware that waste is selfish and wrong, too many people just do not think.
“For example, I know a wealthy family of four who left the air conditioning running in their their large villa, when they went to London for a month last summer. To me, waste on such a scale is almost sinful, to them it was nothing. The house was nice and cool when they arrived home – as it had been for the previous 30 days when they were away. The government must take some responsibility for this grotesque lack of awareness that our country’s resources are being squandered on a massive scale.”
The IMF has said Kuwait’s current fiscal position is sound, with the budget surplus is forecast to drop to a still very robust 27.4 per cent of gross domestic product in the fiscal year that began in April from 33.4 per cent in 2012/13. However it has warned that government expenditure is set to exceed oil revenues by 2017/18, raising the risk from any sustained drop in oil prices, which account for nearly all of the country’s revenues.
Kuwait has lagged peers like the UAE and Qatar in competitiveness and foreign investment. It has the most open political system in the Gulf Arab region but infighting and bureaucracy have slowed an economic development plan, announced in 2010, aimed at diversifying the oil-reliant economy.
The country’s political system may make it difficult for the government to push through economic reforms that are unpopular with voters. Any government attempt to cut subsidies for citizens would likely cause a strong backlash in parliament from lawmakers who often campaign to raise benefits.
The Middle East magazine gratefully acknowledges input from Gulf Business magazine