- Kuwaiti MPs reject IMF recommendations on reforming subsidies and wages
- GDP growth fell to zero in 2014 as oil production fell and the non-oil economy slowed
- Kuwait is expected to run a fiscal deficit of 4.4 per cent of GDP in 2014/15
Kuwaits National Assembly finance committee has rejected IMF advice on cutting current spending by reforming subsidies and wages.
The IMF expects Kuwait to run a fiscal deficit of 4.4 per cent of GDP in 2014/15, compared to an 11.7 per cent surplus the previous year.
However, the overall fiscal balance, including mandatory contributions to the Future Generations Fund, a sovereign wealth fund, is a 17.3 per cent surplus.
The head of the finance committee, MP Mohammad Al-Jabri told local press that it was opposed to any measure that disadvantaged Kuwaiti citizens. He called for alternative solutions to reducing spending, despite the Kuwaiti economys real problems.
Real GDP growth was just 0.3 per cent in 2014 due to falling oil prices and a 1.4 per cent drop in oil production, according to the IMF. Due to the divided zone dispute between Kuwait and Saudi Arabia, oil production has been halted there.
The IMF expects oil production to rebound by 2 per cent a year thanks to new investments to increase capacity. This will drive GDP growth back to 2.8 per cent a year.
Non-oil sector GDP growth also fell from 4.2 per cent in 2014 to 3.2 per cent in 2014. This was caused by a slowdown in the manufacturing, trade, electricity and water, and transportation sectors. The IMF predicts non-oil growth will remain lower in 2015/16, then pick up due to the elevated level of investment starting this year.
This will be assisted by excellent banking sector liquidity.
The IMF also highlighted the subdued conditions on Kuwaits stock exchange, where share prices fell 16 per cent in the first eight months of 2015. Twenty-four companies have decided to delist since the beginning of 2014, according to Reuters.
The IMF recommended that the Kuwaiti government take advantage of lower energy prices to phase out fuel subsidies, a move rejected by MPs. Kuwait increased diesel and kerosene prices and reduced subsidies on aviation fuel from January 2015, saving an estimated 0.3 per cent of GDP each year. Subsidies are estimated to be worth 7.2 per cent of GDP in 2015.
The IMF also advised Kuwait to set out a strategy to cover its fiscal deficit. The government is publically considering bond issuances but so far has drawn down on its general reserve fund.