Kuwait’s PM Says Welfare State Is “Unsustainable”

Kuwait’s prime minister has called the Gulf Arab state’s welfare system unsustainable and said the major oil producer needs to cut spending and the consumption of its natural resources.

In some of the strongest comments yet from a senior government official on Kuwait’s rising spending bill, Sheikh Jaber al-Mubarak al-Sabah said a “transformation” was needed to avoid future problems.

“The current welfare state that Kuwaitis are used to is unsustainable,” he said in the introduction to a government programme sent to lawmakers ahead of the opening of parliament on Tuesday.

“It is necessary for Kuwaiti society to transform from a consumer of the nation’s resources to a producer,” he said, according to excerpts published in local media on Monday.

The International Monetary Fund (IMF) and other Kuwaiti officials, including the finance minister, have repeatedly warned against rising government spending in OPEC member Kuwait, one of the world’s richest nations per capita.

Government spending may soon exceed oil revenues.

Sheikh Jaber has tended to keep out of the debate, but his comments suggest that the government could review the costly subsidies system, as suggested by the finance minister earlier this month.

Like other wealthy Gulf Arab countries, 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.

Generous spending programmes are often cited by analysts as one of the reasons why the region has largely escaped Arab Spring-style unrest, with citizens accepting some political and social curbs in return for a comfortable life.

The government’s four-year programme says that if spending continues to rise at the current rate, Kuwait will have a real budget deficit by 2021, something which “threatens national and social security and the stability of the country”.

The government seeks to “rationalise” subsidies to make sure they reach people who need help the most, local media said, citing the government programme, adding that the annual subsidies bill had reached more than 5 billion dinars ($17.7 billion). The government has said previously that any changes to the subsidies system would not hurt Kuwaitis on low incomes.

The IMF has said Kuwait’s current fiscal position is sound, with the budget surplus is forecast to drop to a still very robust 27.4 per cent of gross domestic product in the fiscal year that began in April from 33.4 per cent in 2012/13.

However it has warned that government expenditure is set to exceed oil revenues by 2017/18, raising the risk from any sustained drop in oil prices, which account for nearly all of the country’s revenues.

Kuwait has lagged peers like the United Arab Emirates and Qatar in competitiveness and foreign investment. It has the most open political system in the Gulf Arab region but infighting and bureaucracy have slowed an economic development plan, announced in 2010, aimed at diversifying the oil-reliant economy.

The country’s political system may make it difficult for the government to push through economic reforms that are unpopular with voters. Any government attempt to cut subsidies for citizens would likely cause a strong backlash in parliament from lawmakers who often campaign to raise benefits.

Members of Kuwait’s ruling al-Sabah family hold top government posts and the emir has the final say in state matters but the elected parliament has the power to block legislation and put pressure on cabinet ministers through interrogation sessions known as “grillings”.