Kuwait welfare state is "unsustainable" says PM

Government spending may soon exceed oil revenues and lead to a real budget deficit by 2021, research warns

Kuwaiti Prime Minister Sheikh Jaber Mubarak al-Sabah.

Kuwaiti Prime Minister Sheikh Jaber Mubarak al-Sabah.

Kuwait's prime minister has called the Gulf Arab state's welfare system unsustainable and said the major oil producer needs to cut spending and the 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 on Tuesday.

"It is necessary for Kuwaiti society to transform from a consumer of the nation's resources to a producer," he said, according to excerpts published in local media on Monday.

The International Monetary Fund (IMF) and 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 may soon exceed oil revenues.

Sheikh Jaber has tended to keep out of the debate, but his comments suggest that the government could review the costly subsidies system, as suggested by the finance minister earlier this month.

Like other wealthy Gulf Arab countries, Kuwait 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 extra support for housing and food.

Generous spending programmes are often cited by analysts as one of the reasons why 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 said, citing the government programme, adding that the annual subsidies bill had reached more than KD5bn ($17.7 billion). The government has said previously that any changes to the subsidies system would not hurt Kuwaitis on low incomes.

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 percent of gross domestic product in the fiscal year that began in April from 33.4 percent 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 United Arab Emirates 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.

Members of Kuwait's ruling Al Sabah family hold top government posts and the emir has the final say in state matters but the elected parliament has the power to block legislation and put pressure on cabinet ministers through interrogation sessions known as "grillings".

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Posted by: Ahmed

This article states very clearly the core of the matter and that is basicly that this country has failed to diversify it's economy. To raise subsidies to current acceptable levels will send this nation in a tail spin, as the usual diversion to address the country's key issues, will be diverted by continuous 'grillings'in their Parliament. As a small country that has allowed it's Parliament to hyjack a nation by their lack of addressing key issues and continuously centering it's emphasis on trival matters has stalled the development path of this nation. How this nation can continue to provide the 'Kuwait Package' to it's nationals in the form of housing benefits, public sector employement, and a subsidized economy is no longer feesible. The sand has hit the fan! If they would have diversified the economy instead of centering on trival matters such as segregation, petty infighting, they could have been on par with GCC nations. Oh Well? You made your own bed, now lie in it!

Posted by: John

If Kuwait was truly serious about moving forward, they would move these 'grillings' to a separate forum, outside of Parliament. If Kuwait was truly serious about key issues facing their nation, then they would have more control over how they conduct business in that country. With foreign business laws stacked against me and the high corruption levels in the country, why would I go their to do business. You are correct in stating that diversification of their economy would be pivitol to this country moving forward, but all we ever read about Kuwait is a negative message from it's MP's that further isolate this nation. For example, a recent article on an initiative to test men at the airport for homosexuality targeting expats and foreign tourists, when this country could truly benefit from tourism. Look at their national carrier that flies in a very horrendious state of affairs, and the run down airport, with no metro project on the horizon. These are key issues, Kuwait!

Posted by: khaled

they need to change their currency pegging, it is too high and it is the only way it can increase its export economy.
subsidies doesn't benefit no one but the rich and since kuwaiti's have one of the highest incomes in the world doesn't make sense to continue providing rationed fuel, food? benefits of subsidies need to go to the needy of the country so it should be based on a persons or households income as is the case in nordic and commonwealth countries.

Posted by: jay

well giving huge pay rises to government workers causes inflation
the solution is simple phase out subsidies on petrol etc to drive traffic off the roads and solve 2 issues at once
secondly thin down the public service as 1 to one ratio for citizens is overburden and take away a gurantee of a job this will push the kuwaiti to take jobs in the private sector again deals with 2 issues
this is not rocket science but buying votes has raised the expectation become a tue democracy and control the budget
we have ruling members of the royal family as ministers involve the expats ets we would love to help but cant we have ideas to help

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