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Tue 24 Jun 2008 09:25 AM

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Kuwait raises wages in inflation fight

Gulf state boosts salaries, increases size of fund helping struggling Kuwaitis repay personal debt.

Kuwait said on Monday it would boost salaries for its citizens after parliament demanded action, threatening the Gulf Arab state's efforts to fight soaring prices.

The OPEC oil producer, which has already a massive welfare state, is grappling with record inflation that hit 10 percent in February and March, propelled by rising housing and food costs.

The government approved a proposal by parliament to raise monthly salaries by 50 dinars ($188) for Kuwaiti employees in the public and the private sector with an income of less than 1,000 dinars, Commerce and Industry Minister Ahmad Baqer told state news agency KUNA after a cabinet meeting.

Parliament's finance committee had earlier demanded the hike, which comes just a few months after the previous cabinet increased salaries for Kuwaiti state employees by 120 dinars in February to soften the impact of inflation.

Demands for another raise prompted the cabinet to quit and the Gulf state's ruler Sheikh Sabah Al-Ahmad Al-Sabah to call fresh elections for May.

The government also agreed to parliament's plan to boost a fund meant to help Kuwaitis repay personal debts to 500 million dinars from a previously planned 300 million dinars, Baqer said.

The previous government established the fund in December to avert lawmakers' demands for a large state buy-out of personal consumer loans.

Naser Al-Nafisi, general manager at the Al-Joman Center for Economic Consultancy in Kuwait, said the loan move and salary increases would increase inflation.

"They should support needy families, many people don't need another salary increase," he added.

Central Bank Governor Sheikh Salem Abdul-Aziz Al-Sabah told Reuters last week the government should contain spending to help tackle inflation in the world's seventh-largest oil exporter.

Kuwait raised expenditure to 18.9 billion dinars for this fiscal year due to the February salary increase, with newspapers saying another hike would cost 400 million dinars annually.

Al-Qabas newspaper said deputies had demanded around 17 billion dinars worth of benefits in 113 motions submitted since parliament reconvened earlier this month after the elections.

Windfall revenues from soaring oil prices have left Kuwait with a budget surplus of around $43 billion.

While the government has been trying to diversify the economy to prepare for when oil runs out, parliament has been pushing it to spend the surplus and has resisted efforts to scale back the welfare state.

"Parliament is pushing for popular demands," said Monica Malik, regional economist at EFG-Hermes in Dubai.

"Paying off private debt would give the wrong signal, that people don't have to pay back loans, which would further spur credit growth."