02 August 2015Govt eyes serious measures
For the first time in the history of Kuwait, the country faced a huge deficit of KD 2.7 billion in the last fiscal year which ended on March 31. Kuwait will face bigger shortage in this fiscal year if the current decline in oil prices does not cease. This year's budget was formed based on Kuwait's crude oil price of $45 per barrel; but the price of crude oil has to be close to $70 per barrel for avoiding any shortage in the budget.
Kuwait will need to rely on its monetary reserve to balance the budget which is valued between KD 43 billion and KD 45 billion. This is far better than selling part of the country's overseas investments, which have given us overall returns of 9 percent while we can borrow at less than 2 percent. The government seems to be taking serious measures to reduce the deficit through various means without touching the salaries or benefits of governmental employees.
However, it will reduce the overall subsidies on fuel and electricity from KD 5.8 billion to KD 3.6 billion due to which the public will have to pay higher charges for fuel and electricity service. In short, the message the government is trying to convey is for us to tighten our belts and move forward by stopping wastage and focusing on savings. Perhaps, the decision taken by the United Arab Emirates to reduce the subsidies on fuel from Aug 1 will pave way for other Gulf countries to follow the same pattern, or maybe it is just wishful thinking.
The biggest challenge that all oilproducing countries are facing is restoring the oil prices. A gap of $25 is too big to cover for balancing our year-end budget and it is highly unlikely that the oil prices will reach $70 per barrel by end of March 2016. If our government is serious about implementing its austerity program, it must act now. It should not only increase the fuel and electricity prices, it should also liberate the economy, privatize some of its institutions and generate revenues from its sales to cover any deficit in the budget.
There are many ways and means to correct the economy and put an end to the shortage in our year-end books but the government must take a firm stance and not repeat its pathetic experience when it increased the diesel prices for a short time and then revised it immediately without giving any explanations. The time now is right to implement. Let this be the last time Kuwait ever witnesses any budget shortage. We should never again resort to our monetary reserve, as it belongs to our future generation and should not be touched.