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Kuwait, one of the world’s richest petrostates, is running out of cash

Bloomberg September 2 | Updated on September 15, 2020 Published on September 02, 2020

The pandemic and shift towards renewable energy threaten to keep prices depressed

 

When Kuwait’s then-Finance Minister Anas Al-Saleh warned in 2016 that it was time to cut spending and prepare for life after oil, he was ridiculed by a population raised on a seemingly endless flow of petrodollars. Four years on, one of the world’s richest countries is struggling to make ends meet as a sharp decline in energy prices raises profound questions over how Gulf Arab states are run.

Al-Saleh’s long gone, shifting to other cabinet positions. A successor, Mariam Al-Aqeel, moved on in January, two weeks after suggesting Kuwait restructure a public-sector wage bill that’s the single biggest drag on state finances. Her replacement, Barak Al-Sheetan, warned last month there was not enough to cash to pay state salaries beyond October.

Slow to adjust big-spending habits as oil revenues fall, the Gulf states are hurtling towards a moment of economic reckoning, prompting renewed debate over the future of nations that for decades bought popular loyalty with state largesse.

 

“We are going to wake up one day and realise we went through all our savings, not because we did not check our bank statement but because we looked at it and said, its probably a bank glitch, and then bought the latest Rolex,” said Fawaz Al-Sirri, who heads Bensirri political and financial communications firm.

Shift to renewable energy

The OPEC club of oil-exporters has revived crude from its historic drop this year, but $40 is still too low. The coronavirus pandemic and shift towards renewable energy threaten to keep prices depressed.

Saudi Arabia is curbing benefits and imposing taxes. Bahrain and Oman, where reserves are less plentiful, are borrowing and seeking support from wealthier neighbors. The UAE diversified with the rise of Dubai as a logistics and finance hub.

In Kuwait, however, a standoff between the elected parliament and a government whose prime minister is appointed by the emir, has led to policy gridlock. Lawmakers have thwarted plans to reallocate state handouts and blocked proposals to issue debt.

 

Instead, the government has almost exhausted its liquid assets, leaving it unable to cover a budget deficit expected to reach the equivalent of almost $46 billion this year.

It has been a gradual decline for Kuwait, which in the 1970s, was among the most dynamic Gulf states, with its outspoken parliament, entrepreneurial heritage and educated people.

Then the 1982 crash of an informal stock market shook Kuwait’s economy and coincided with instability from the near decade-long Iran-Iraq war. Kuwait embarked on a spending spree to rebuild after Saddam Husseins assault led to the 1991 Gulf War. It took years for oil to flow freely again.

Kuwait still relies on hydrocarbons for 90 per cent of its income. The state employs 80 per cent of working Kuwaitis, who out-earn private-sector counterparts. Benefits for housing, fuel and food can total $2,000 a month for an average family. Salaries and subsidies soak up three-quarters of spending by the state, which is heading for its seventh consecutive deficit since the 2014 oil slump.

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Published on September 02, 2020
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