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Tue 2 May 2017 10:08 AM

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Kuwait reforms to focus on government cuts, not the public's wallet

Finance minister explains why the country’s economy must diversify, and he makes the case for reforms

Kuwait reforms to focus on government cuts, not the public's wallet
(Yasser al-Zayyat/AFP/Getty Images)

Kuwait’s government is preparing to unveil a fresh package of fiscal reforms to shrink the country’s budget deficit and reduce its dependency on oil revenues.

But any fiscal tightening will hit the government – not the public – and no further subsidy cuts are planned, according to finance minister Anas Khaled Al Saleh.

The first version of the National Program for Fiscal and Economic Sustainability (FES) was published in March 2016 and includes measures such as subsidy cuts, which had already been partially implemented.

A revised version, based on progress made in the past year, is set to be published in the coming weeks. In an exclusive interview with Arabian Business, Al Saleh said its focus is on achieving greater efficiencies within government — “tightening belts within the house rather than touching the pockets of citizens”.

Kuwait fell into deficit in 2015 for the first time since 1999 and has forecast the shortfall at $25.9 billion for the 2017-18 fiscal year. Meanwhile, hydrocarbons make up more than 90 percent of Kuwait's state revenues.

Al Saleh said: “There is no doubt we are faced with a fiscal deficit after many years of comfortable surplus ... As a minister of finance there are two main challenges I have to wake up to and deal with every day.

“The first is the short-term challenge, to close down the deficit, and the other is the medium to long-term one, diversifying the economy.

“We still have 90 percent of our revenues coming from oil. Like many GCC states, we are oil dependent and this is definitely not sustainable. But we are dealing with it now and we are dealing with it even if the oil price goes back up to $100 per barrel.

“We have a set of reforms we are now revamping to be more efficient. We’ve been in contact with industry associations from accounting, law, economics and other sectors to take long-term views on what is required, because we have to build up a consensus that reforms are necessary.”

The five-year plan to 2021 sets out measures focussed on reducing government expenditure and improving the business environment. Specific decisions included imposing tighter fiscal constraints on government entities, such as a ban on signing leases for new office space, and capping departmental budgets.

The government is also seeking to boost the private sector through public-private-partnerships, removing capital requirements for new businesses, and an insolvency law.

The first stage of the programme has started to yield positive results, such as $3.6 billion in savings for 2015/16, according to the Ministry of Finance.

Al Saleh told Arabian Business that as far as shrinking the deficit was concerned, top-down government rationalisation would bring about significant fiscal change.

“There is so much tightening we can do within the system that would pay us more [than revenue-raising measures such as the GCC’s value-added tax (VAT)],” he said.

“The procedures we are issuing in the new plan include more efficient tightening that will not hurt our tummies too much, but hopefully make sure we do not overeat.”

To read the full interview with Anas Khaled Al Saleh, finance and deputy prime minister of Kuwait, click here.

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