13/08/2016

Kuwait is gradually moving towards addressing key challenges related to the state of its public finance in an environment of low oil prices. Other Gulf countries have moved faster in assuming — not necessarily popular — steps designed to check governmental spending like reducing subsidies for petroleum at the retail level.

In Kuwait, a compromise is essential between the appointed government and elected parliament. Not surprisingly, MPs try to get the best possible deals for their constituents. In reality, Kuwaiti legislators have a track record for demanding more rather than less benefits like bonuses for nationals to help cope with living expenses.

Recently, the authorities decided to reduce the amount of subsidies extended to petroleum products as part of efforts to streamline budgetary resources. Accordingly, the cost of low-octane petrol was increased by 41 per cent to $0.28 a litre; also, that for high-grade petrol was raised by 61 per cent to $0.35 a litre. The price for ultra-petrol — or the environmentally-friendly low-emission fuel — was higher by 83 per cent to $0.55 per litre.

The government is targeting energy subsidy in particular and for good reasons. They remain sizeable and constituted nearly 7.2 per cent of the GDP in 2015.



Raising tariffs

Similar to the practice in the UAE, a committee in Kuwait is empowered to review prices every month and make adjustments as deemed necessary in line with prevailing prices in international markets.

In another move, the government has opted to raise tariffs for electricity and water for businesses plus foreign residents, effective from September 2017. Clearly, the long grace period is designed to grant the concerned parties an opportunity to make needed adjustments. If any, the recently-disclosed results for fiscal year 2015-16 which ended in March extend valid reasons for undertaking such steps for the first time in two decades. The budget recorded a deficit of KD4.6 billion (Dh55.9 billion) or $15.3 billion; nonetheless, the figure is considerably lower than the projected $27.2 billion.

Lower than actual shortage was managed following a fall of 14.8 per cent of total spending to $60.5 billion. In reality, Kuwait is known for spending below the budgeted level partly reflecting the lengthy approval procedures by the legislature.

Yet, total revenues dropped by 45 per cent to $45.2 billion on the back of low oil prices. Oil income stood at $40.1 billion, down by more than 46 per cent from fiscal year 2014-15. The average oil price for Kuwaiti oil was below $42 a barrel.



Most oil-dependent

On a positive note, lower oil prices helped with decreasing the significance of petroleum income from 95 per cent to 89 per cent of total revenues. Nevertheless, the Kuwaiti economy stands out for being the most oil-dependent amongst GCC countries.

The budget for fiscal year 2016-17 which started in April projects revenues and expenditures of $24.4 billion and $62.2 billion, respectively. However, the actual numbers would most likely change, notably the spending elements in order to check the level of budget deficit.

But Kuwait still enjoys satisfactory sovereign ratings, like that of Aa2 for long-term issuer granted by Moody’s. However, recently, Moody’s assigned a rare negative outlook for the economy due to doubts surrounding implementation of fiscal and economic reforms.

Kuwait’s strong sovereign wealth fund provided comfort for the stakeholders like exporters and creditors. According to the SWF Institute, Kuwait maintains a notable $592 billion of these funds, the sixth highest worldwide.

The writer is a member of parliament in Bahrain

Jasim Ali - Gulf News