Politics gets in the way of doing business for Kuwait

Kuwaiti watchers were puzzled by the government’s call for a fresh parliamentary election in late November 2016 rather than July 2017. What’s more, the dissolved legislative body was exceptionally cooperative with the authorities with regards to legislating and approving socioeconomic reforms.

The dissolved parliament was elected in 2013 and among other matters was noted for seeking ways to avoid being at loggerheads with the appointed cabinet, something abnormal in Kuwaiti politics for years. Hence, officials run the risk of having to work with potentially less-accommodating MPs following the election of a new 50-member assembly on November 26.

Undoubtedly, overcoming economic challenges facing the country requires cooperation between the elected and appointed entities. Yet, the extent of the challenge came to light recently with the disclosure that fiscal year 2015-16 ending in March recorded a budgetary deficit of $15.3 billion, reversing years of surpluses. Still, the figure is considerably lower than the projected amount $27.2 billion, thanks to a fall in spending by nearly 14 per cent and thereby keeping the tradition of spending less than the planned amount.

Within the Gulf, only Saudi Arabia registered a higher deficit figure — $98 billion in 2015.

Kuwait’s budget for fiscal year 2016/17 starting in April projects revenues and expenditures of $24.4 billion and $62.2 billion, respectively. The ensuing $40.2 billion deficit entails a portion of oil revenues set aside to cater to future generations. It is believed that the expected revenues would only cover 71 per cent of governmental salaries and related costs, estimated at $34.2 billion.

The public sector is uniquely vital in Kuwait with state entities providing employment opportunities for about 90 per cent of locals. Trouble is the new environment of fiscal imbalances could only weaken the capability of the government to continue serving as the employer for the majority of nationals.

In another unprecedented development, Moody’s Investor Service assigned a negative outlook for Kuwait reflecting concerns about implementation of fiscal and economic reforms. The move took many by surprise and underscored the nature of socioeconomic challenges facing the country.

The rating agency made the decision in the presence of an legislative body willing to work out solutions with the authorities. Further actions cannot be ruled out in the future.

In moves requiring parliamentary support, Kuwait opted to reduce the extent of subsidies extended to petroleum products starting September. The price for low-octane petrol was increased by 41 per cent to $0.28 per litre; that for high-grade petrol was raised higher by 61 per cent to $0.35 per litre. The price for ultra petrol or the environmentally-friendly low-emission is higher by 83 per cent to $0.55 per litre.

Kuwait needs to pursue reforms to help achieve economic objectives like enticing businesses. Unfortunately, it is not in the forefront of GCC economies when it comes to international indexes. For instance, the “Doing Business 2017” report, published by the World Bank, gives poor marks to Kuwait.

Kuwait was ranked 102nd among 190 nations. By comparison, the UAE is in 26th position, the best among Arab and Muslim countries.

Kuwait is in need of a parliament prepared to exercise oversight over governmental actions whilst concurrently to collaborate with officials on reforms. Also, making business laws friendly to local and international investors is a challenge for the new legislators in order to attract businesses — and it’s no easy job.

The writer is a Member of Parliament in Bahrain.