“We remain of the view that unless material reforms are introduced to incentivise Kuwaitis into the private sector, non-oil growth – currently the main driver of the economy – will suffer,” says Florence Eid, chief economist at Arabia Monitor, a London-headquartered analysis firm. “Despite quotas and allowances given to employees in the private sector, public sector workers benefit from higher wages and more attractive working conditions.” According to Eid, Kuwait’s total wage bill in the 2012-2013 financial year was $31bn — a 109 per cent increase from the
At least, Ulrichsen says, Kuwait is open enough to allow these issues to be discussed publicly. “I think it has already become part of the public debate,” he says of the question of fiscal reform. “The Central Bank governor was the first to bring it up a few years ago and despite tensions with the bureaucracy there are attempts to set up a committee to study reform. People are talking about it in a much more open manner, especially now Bahrain and Oman are doing the same thing.”
In 2013, the new governor of the Central Bank of Kuwait, Mohammad al-Hashel, called for the government to begin reducing spending, echoing comments made by a number of Kuwaiti policymakers including the then-finance minister. His predecessor, Sheikh Salem Abdul-Aziz al-Sabah, had quit the post of governor after 25 years in the job, complaining the economy was too dependent on oil exports and government spending too high.
The current political environment, coupled with the pressing need to address structural issues in the economy, means that the time is ripe for reform, Coates-Ulrichsen says. “One gets the sense that Kuwait has the opportunity now to make decisions, and that there is a benign political environment, so it is easier to make big political decisions,” he says.
But even the new legislature is keen to investigate big deals. On 5 February, Kuwaiti parliamentarians voted to investigate the award of the Al-Zour power deal to the GDF-Suez-led consortium and a $4.4bn deal between Kuwait Airways and the US’ Airbus for 25 new aircraft as part of a major overhaul of the carrier. “Typically, for every project awarded, others are stalled or cancelled,” Eid says.
The Al-Zour project is moving ahead, but the Airbus deal has been suspended. “Hopefully, they can sort this out quickly,” says the businessman, “and build on the confidence we have been seeing lately.”
For now, Kuwait certainly has plenty of cash, at least. It ran its 14th consecutive budget surplus, an impressive 27 per cent of GDP. The country has huge foreign currency reserves, and the UK’s BP reckons it will be the better part of a century before Kuwait has to worry about running out of oil.
“But the longer they wait,” Coates-Ulrichsen says, “the harder it will be.”
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