Kuwait may review subsidies policy, says minister

International Monetary Fund has repeatedly urged reforms to Kuwait's subsidies system
Kuwait may review subsidies policy, says minister
(Photo for illustrative purposes only)
By Reuters
Mon 21 Oct 2013 04:52 PM

Kuwait may review its subsidies policy, the finance minister said in a televised interview on Monday, adding that financial support should only go to those who need it in the wealthy oil producer.

The International Monetary Fund has repeatedly urged reforms to Kuwait's subsidies system, which along with wage hikes has contributed to a steep rise in government spending. All residents benefit from subsidised petrol and cheap electricity, while Kuwaiti nationals get extra support for housing and food.

"There is the possibility of reconsidering the subsidies," Finance Minister Sheikh Salem Abdulaziz al-Sabah told pan-Arab news channel al-Arabiya, when asked whether Kuwait would review subsidies, including those for petrol and electricity.

He said the government would review "all kinds of subsidies" in an attempt to tackle structural imbalances in the state budget. Such a review would not affect the "vast majority" of Kuwaiti citizens, he added without giving details.

In a statement later on Monday, Sheikh Salem said the Gulf state would not cut benefits for Kuwaitis and that the al-Arabiya interview had merely discussed a study to "evaluate and rationalise" subsidies.

The government does not want to harm the living standards of low-income citizens, state news agency KUNA quoted him as saying.

Sheikh Salem told al-Arabiya that he expected Kuwait's budget surplus in the fiscal year to March 2014 would be slightly less than it was last year.

He said earlier this month that the budget surplus fell to KD12.7bn ($44.8 billion) - equivalent to 24.7 percent of gross domestic product, one of the highest levels in the world - for the fiscal year that ended in March.

A former central bank governor, Sheikh Salem has repeatedly criticised high government spending in Kuwait, which like other wealthy Gulf Arab countries does not tax earnings and provides a generous welfare system for its citizens.

Any government attempt to cut subsidies for citizens would likely cause a strong backlash in parliament from lawmakers who often campaign to raise benefits.

Kuwait's subsidies "engender wasteful consumption and need to be targeted", the IMF said after an annual consultation with the country in September.

"A gradual alignment with international prices while ensuring that a social safety net is in place, would in the long run increase overall efficiency and generate more fiscal space."

The IMF added that such changes would need to come with a communications campaign to raise public awareness about the cost of subsidies and the benefits of reform.

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