Kuwait’s Finance Minister has warned the country will “inevitably” record its first deficit in nearly two decades within a few years.
Average growth government spending over the past decade has dramatically outpaced revenue growth, at 20.4 percent and 16.2 percent, Finance Minister Anas Al Saleh revealed on Tuesday, according to Kuwait Times.
Undersecretary of the Finance Ministry, Khalifa Hamada, said continued growth in spending would eventually deplete Kuwait’s foreign assets, currently estimated at KD146bn ($518bn).
More alarmingly, Hamada said while current spending had been rising, capital investment had decreased.
He conceded public wages and subsidies would have to be reformed.
Wages soared from KD3.2bn to KD9.5bn between 2004-2005 and 2012-2013, according to government figures.
The total value of subsidies also quadrupled from KD1.16bn to KD5.05bn during the same period.
The government has been discussing axing subsidies for expats, who make up two thirds of the population, and the richest citizens.
Kuwait’s revenues rely significantly on oil, increasing from 85 percent of the state’s total revenues in 2001 to 95 percent in 2013. Therefore the budget is incredibly tied to oil prices, which are hovering at more than $100 a barrel.
The government has calculated that if oil prices dropped to the unlikely level of $80 a barrel it would record its first budget deficit since the 1990s as early as next year.
If oil prices remained at the current level of $100 a barrel, Kuwait would record a deficit of KD635m in 2017/2018 and accumulate deficits totalling KD177.9bn by 2034/2035.
The government’s third scenario is based on the assumption that oil prices will rise to $120 a barrel, delaying a deficit until 2022/2023.
The dire forecasts are in line with international organisations such as the International Monetary Fund and the World Bank.
The IMF has warned Kuwait risks recording a deficit as early as 2017-18, based on OPEC oil price forecasts.
Despite the figures being known for some time, the government has done little to reform its budget. Few capital projects have been implemented, despite a massive $100bn programme including a new airport and port being announced several years ago.
Kuwait is the region’s only semi-democracy but its parliament has been hampered by a hostile opposition and repeated election annulments that have seen citizens go to the polls six times in recent years.
MPs on Tuesday said the government had failed to take any measures to reduce dependence on oil.
MP Youssef Al Zalzalah said the government presented similar figures to the National Assembly in 2004, but nothing had been done to improve them, Kuwait Times said.
MP Abdulhameed Dashti said the government proposed “mere rosy dreams” and did not implement its promises.
“The figures we have seen now show that we are headed to bankruptcy and we may consume our financial reserves within 10 years,” he was quoted as saying.
MP Jamal Al Omar said he feared Kuwait’s only significant source of income was at risk from new discoveries of shale oil and shale gas.
He said the government “does not deserve to manage the future of the country and its billions”.
“We have been graced with a fortune but we have a government that does not know how to manage it,” said Omar. “I believe we will be headed for a real economic catastrophe if oil prices drop.”For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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