Kuwait must make huge spending cuts, IMF warns

Kuwait must make huge spending cuts, IMF warns
2 min read
16 November, 2016
Kuwait's government has a difficult balancing act. It's economy is being battered by low oil prices, but risks popular anger if it pursues austerity.
Kuwait's budget plans has drawn criticism from the population [AFP]

Kuwait must go further in liberalising its economy and ending costly subsidies if it wishes to cut its growing deficit, the International Monetary Fund has said.

Low oil prices have put Kuwait in a difficult position: its oil-reliant economy has shrunk, but popular anger at government cuts has made austerity a sensitive issue.

This unrest contributed to bringing down the government in October, when anger reached fever pitch at unpopular cuts to petrol and energy subsidies.

Austerity is a key issue in the debate garnered by the upcoming election - slated for 26 November - and Kuwaitis are clearly unhappy with government plans for more cuts.

Even with the current measures, Kuwait will still need a massive 35 billion dinars ($116 billion) to finance its deficit over the next six years, the IMF said.

"[Kuwait's] fiscal and external accounts have deteriorated markedly," it said. "Further subsidy reform is critical."

It also advised Kuwait to make further energy subsides reforms - which cost the government $7 billion last year - and control the huge public sector wage bill. Such moves would likely anger Kuwaitis further.

According to local media, the government plans to end subsidies by 2020, but rather than making sweeping reforms has instead opted with a combination of cuts, lending and using up savings.

Instead, Kuwait has dipped into its $600-billion sovereign fund but more years in the red will deplete these savings further and affect investors' confidence in the country.

Meanwhile, Kuwait also plans to issue domestic and foreign bonds worth $16.6 billion.

Yet the fall of the government and protests from oil workers and others in the country highlight the difficult balancing act the king and his minister will have to follow, through these turbulent times.

Agencies contributed to this story.