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Mon 23 Jun 2008 11:10 AM

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MPs demand Kuwait boosts spending

Gov't facing growing pressure to increase state spending, threatening Gulf state's efforts to fight inflation.

Kuwait's government is facing pressure from parliament to increase state spending yet again, threatening the Gulf Arab state's efforts to fight inflation.

The OPEC oil producer is grappling with record inflation that hit 10 percent in February and March, propelled by rising housing and food costs.

Parliament's financial committee agreed late on Sunday to demand a 50 dinars ($188.3) increase in monthly wages of state employees who earn less than 1,000 dinars, deputy head Naser Al-Sanaa who chairs the panel told newswire Reuters.

The 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 parliamentary committee also wants the government to boost a fund meant to help Kuwaitis repay personal debts to 500 million dinars from previously planned 300 million dinars, Al-Sanaa said.

The previous government established the fund in December to avert MPs' demands for a large state buy-off 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 following 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 the era 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." (Reuters)