In Kuwait, Unpopular Cutbacks Falter Ahead of Elections

5 MINS READNov 7, 2016 | 09:15 GMT
In Kuwait, Unpopular Cutbacks Falter Ahead of Elections
Economic issues, including ballooning wages and subsidies, have become hot-button issues as Kuwait's parliamentary elections approach.

Across the Middle East, low oil prices are squeezing national budgets, forcing many governments to rethink their generous subsidy schemes. But managing the expectations of growing, more educated populations while cutting back on the services governments have long provided is no easy feat. Some states, such as Kuwait, have done a better job than others. Despite record-high deficits over the past two years, Kuwait is combining its wealth and creativity to overhaul its social benefits system in an innovative way. The country's population, however, is less than impressed by the capital's reforms. And with powerful labor unions and lawmakers on their side, citizens' increasingly vocal complaints may prove tough to silence.

An Oct. 31 report commissioned by the Kuwaiti Finance Ministry appeared to reveal a plan to reduce the country's subsidy bill — which accounted for 26 percent of the 2014-15 budget — to zero by 2020. (The ministry then denied the plan's existence the following day.) Though such a drastic decrease is unlikely to actually occur, the fact that the ministry may even be entertaining the possibility underscores the severity of Kuwait's economic predicament.

Despite its tiny population and territory, Kuwait is in a sticky financial situation, thanks in large part to its heavy reliance on oil revenue. Though it has a considerable reserve cushion, the Kuwaiti government collected only $40.3 billion in oil revenue in the 2015-16 fiscal year, a figure that is projected to drop further still to $33.7 billion in 2016-17. Already facing a projected budget deficit of $29 billion — nearly double last year's deficit — Kuwait has begun looking more intently for ways to slash its spending and increase its income.

Tightening the Purse Strings

The obvious starting point for the Kuwaiti government would be to trim wages, benefits and consultant fees, which make up the majority of expenses. Wages, however, will not be easy to cut; much of the population works in the public sector, and civil service salaries are high because of subsidies. Earlier this year, public sector workers blocked wage garnishments by going on strike, something that is becoming a common pattern in Kuwait. Kuwaiti officials have instead focused on curtailing subsidized social services.

But pushing subsidy reforms through Kuwait's watchful National Assembly will be difficult. Kuwaiti lawmakers tend to adhere to the belief that the state's resources should be allocated by elected officials, not by its highest rulers. And as one of the only elected bodies in the Gulf with veto power over some of its government's decisions, the National Assembly has the ability to hamstring Kuwait City's reform efforts — a power it has promised to wield, should the Finance Ministry move ahead with its plan to dial back subsidies. With limited room to maneuver, the Kuwaiti government has become the last of the Gulf Cooperation Council states to loosen the subsidies most coveted by its citizens, including those for petroleum and electricity.

The Emir's Unpopular Endeavor

After encountering stiff resistance to his proposed measures, Kuwaiti Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah dissolved the National Assembly on Oct. 16 and called for new elections. The Kuwaiti ruler has fallen back on this tactic several times in the past decade when parliamentary pushback to his government's policies has grown too strong. The country's courts, labor unions and voters, however, have echoed lawmakers' demands for more gradual reform, calls that the emir will find harder to ignore.

Nevertheless, Kuwait's current subsidy scheme is unsustainable. Electricity and water costs account for roughly half the country's massive subsidy bill; the rest consists of other benefits such as housing deductions and food subsidies. In August, the government began to implement a plan approved in April to roll back its costs, driving up electricity and water prices by 83 percent for Kuwaiti residents. Meanwhile, fuel prices spiked by anywhere from 40 to 80 percent, depending on the type purchased. Although the government sought to soften the impact on citizens by promising each Kuwaiti national 75 liters (20 gallons) of gasoline a month, expatriates were not granted the same handout, although they comprise around 70 percent of Kuwait's population. Because expatriates lack political representation in Kuwait, the reforms underway could deter foreign workers from seeking jobs in the country in the future.

That said, it is unlikely Kuwaiti subsidies will disappear completely. If the government's previous attempts at reform are any indication, success will not come easily now nor by 2020 as the Finance Ministry may be hoping. But the administration is likely aware of that, and it may have set its goals excessively high in order to exact a few, more reasonable concessions on the fuel and petroleum subsidies that have gotten out of hand. In exchange, the government may also delay the introduction of new taxes, though it might have little choice but to pass a regional value-added tax that the Gulf Cooperation Council expects to be in place by early 2018.

Either way, economic issues — including ballooning wages and subsidies — have become hot-button issues as Kuwait's parliamentary elections approach. The vote, set for Nov. 26, will be made all the more interesting by the fact that a handful of opposition parties will participate in the elections for the first time in several years. Should they gain seats in the National Assembly, the emir's proposed bills may face even greater roadblocks ahead. Though al-Sabah can legally enact any reforms he pleases while the legislature is dissolved, the specter of judicial appeals and popular unrest after the next parliament takes office will no doubt encourage him to tread carefully in the coming weeks.

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