Kuwait warns deficit 'inevitable' as spending soars

Anas al-Saleh speaks during a parliament session at the Kuwaiti national assembly Kuwait's finance minister warned Tuesday 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 percent during the past decade against a 16.2 percent 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 $11.4 billion (8.3 billion euros) to $33.8 billion, a massive 25 percent annually on average, he said.
Subsidies also rose more than fourfold, from $4.1 billion to $18 billion during the same period, an annual growth rate of 23 percent, Hamada said.
At the same time, oil income share in public revenues grew from just 85 percent in 2001 to as high as 95 percent in 2013, boosting Kuwait's heavy dependence on oil, the official said.
Oil income rose from $45.9 billion in 2005 to $106 billion last year.
Hamada said if oil prices remain at the level of around $100 a barrel, Kuwait will post its first budget deficit estimated at $2.3 billion in 2017/2018 fiscal year. By 2035, the country is estimated to accumulate deficits worth as high as $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 7.0 percent of GDP and as high as a quarter of spending, which was around $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 $500 billion, local media said.
Source: AFP