Kuwait To Review $16bn Annual Subsidies

Kuwait’s government plans to form a special committee to review subsidies on goods and services which are costing the Gulf Arab state more than 4.5 billion dinars ($15.9 billion) a year, daily al-Qabas reported on Sunday, citing government sources.

Like other wealthy countries in the region, Kuwait does not tax earnings and provides a generous welfare system for its citizens. All residents, including foreigners, benefit from subsidised petrol, cheap electricity and water, while Kuwaiti nationals get extra support for housing and food.

These generous spending programmes, which al-Qabas said account for 22 per cent of the annual budget, are often cited by analysts as one of the reasons why the region largely escaped Arab Spring-style unrest.

However, Kuwaiti ministers have warned that state expenditures will exceed oil revenues within a few years if spending keeps rising at the current rate. The International Monetary Fund (IMF) says this could happen as early as 2017 while the government believes there could be a budget deficit in 2021.

Finance Minister Sheikh Salem Abdulaziz al-Sabah first suggested last month that Kuwait might review its subsidies system, as encouraged by the IMF. Sheikh Salem is an advocate of cutting spending and is believed to be behind the push to change the subsidies system.

IMF chief Christine Lagarde is due to speak at a central bank event in Kuwait later on Sunday.

Al-Qabas newspaper said the committee, made up of representatives from government ministries, would look at all goods and services, including subsidies for tuition fees, sports clubs, marriage grants, benefits for the disabled and the additional support given to farmers and fishermen.

The plan is to make sure that subsidised services reach only the people who need them, the paper said.

Kuwait’s Prime Minister also joined in the debate about spending last month, saying that the welfare state was unsustainable and that the major OPEC oil producer needed to cut spending and consumption of its natural resources.

Any such plans may run into problems in parliament, where many lawmakers campaign to raise benefits and say the state can save money by eliminating wasteful spending and bureaucracy instead.