Oil-rich Kuwait faces reckoning as debt crisis looms

When Kuwait emerged from months-long coronavirus lockdown, hundreds of Kuwaitis flocked to reopened stores, the lines clogging malls, snaking through hallways and spilling onto sidewalks.

But unlike much of the world, where long lines formed for donated food, Kuwaitis were waiting to buy Cartier jewellery.

The jewellery-store rush by Kuwait’s long-coddled citizens is a symptom of a looming disaster. Kuwait, one of the world’s wealthiest countries, is facing a debt crisis. The pandemic has sent the price of oil crashing to all-time lows and pushed the petrostate toward a reckoning with its longtime largesse, just as a parliamentary election approaches in December.

Liquidity crisis

Covid, low oil prices and the liquidity crisis have all come together in a perfect storm, said Bader Al-Saif, an assistant professor of history at Kuwait University.

Like other Gulf sheikhdoms, Kuwait provides cushy jobs to roughly 90 per cent of citizens on the public payroll, along with generous benefits and subsidies, from cheap electricity and gasoline to free health care and education.

This fall, the ratings agency Moody’s downgraded Kuwait for the first time in its history. The finance minister warned the government soon wouldn’t be able to pay salaries. Kuwait’s national bank said the country’s deficit could hit 40 per cent of its gross domestic product this year, the highest level since the financial devastation of the 1990 Iraqi invasion and subsequent Gulf War.

With crude oil prices just above $40 a barrel, other nearby Arab states took on debt, trimmed subsidies or introduced taxes to sustain their spending. Kuwait, however, did none of that. Its break-even price for this year’s budget was $86 a barrel, double current sales figures, putting its finances under strain.

International aid

That’s not to say Kuwait will be begging for aid at international summits any time soon. The Kuwait Investment Authority holds assets of $533 billion, according to the Las Vegas-based Sovereign Wealth Fund Institute, making it the world’s fourth-largest such fund.

The problem is Kuwait has no legal framework to deficit-spend beyond its current limit of $33 billion. It needs the country’s strong and rambunctious 50-seat parliament — a rarity among Arab sheikhdoms — to grant approval.

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A long-awaited public debt bill would allow Kuwait to borrow up to $65 billion and relieve the crisis. But drumming up billions for the government remains a thorny issue in a country rocked by high-profile corruption scandals. Public suspicion of government graft and mismanagement is growing alongside Kuwait’s liquidity crisis.

Passing the Bill will be the first legislative challenge for Kuwait’s new emir, Sheikh Nawaf Al Ahmad Al Sabah. Sheikh Nawaf ascended the throne in September following the death of the 91-year-old Sheikh Sabah Al Ahmad Al Sabah, a seasoned diplomat, who over 14 years, made his tiny state a respected regional mediator.

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