Kuwait issues budget deficit warning
KUWAIT CITY, Kuwait
KUWAIT’S finance minister warned yesterday that the oil-rich Gulf state will face a certain budget deficit because growth in spending has outpaced a rise in public revenues.
“A budget deficit is inevitable… as the average annual growth in public spending was 20.4 per cent during the past decade against a 16.2 per cent average rise in revenues,” mostly from oil, Anas al-Saleh told a special debate in parliament on government policy to diversify income sources.
“This is not only the view of the government but also that of the International Monetary Fund, the World Bank and other institutions,” the minister said.
Finance ministry undersecretary Khalifa Hamada explained spending had soared mainly because of a sharp rise in public wages and subsidies on services and commodities. Dependence on oil income also increased.
Between 2005 and 2013, government wages increased from US$11.4 billion (8.3 billion euros) to US$33.8 billion, a massive 25 per cent annually on average, he said.
Subsidies also rose more than fourfold, from US$4.1 billion to US$18 billion during the same period, an annual growth rate of 23 per cent, Hamada said.
At the same time, oil income share in public revenues grew from just 85 per cent in 2001 to as high as 95 per cent in 2013, boosting Kuwait’s heavy dependence on oil, the official said.
Oil income rose from US$45.9 billion in 2005 to US$106 billion last year.
Hamada said if oil prices remain at the level of around US$100 a barrel, Kuwait will post its first budget deficit estimated at US$2.3 billion in 2017/2018 fiscal year. By 2035, the country is estimated to accumulate deficits worth as high as US$633 billion.
The scenario will be much worse if the oil price drops, he said.
Hamada insisted it was impossible for the state to sustain growth in wages and continue subsidies, urging major cuts.
Earlier this month, the IMF warned Kuwait to contain a rapid rise in public wages
and subsidies to safeguard
the economy against oil
price shocks.
The IMF said general subsidies, particularly on electricity and fuel, constitute a massive seven per cent of GDP and as high as a quarter of spending, which was around US$70 billion last fiscal year.
Kuwait has boasted a budget surplus in each of the past 14 fiscal years, helping to increase its sovereign wealth fund to over US$500 billion, local media said.