Kuwait must engage in catch-up

Kuwaiti authorities seem determined more than ever to revisit the notion of the welfare state as enjoyed by its nationals. The fact that some 90 per cent of citizens work in government departments and state-owned entities says a great deal about the benefits that come with it.

The need for reappraisal was issued by the country’s leadership, including Prime Minister Shaikh Jaber Mubarak Al Sabah. He warned that the budget could encounter a deficit by 2021 unless measures are taken to limit spending.

Clearly, the warning relates to concerns associated with the current rather than capital expenditure. Current spending relating to salaries and other state-owned benefits made up 91 per cent of total expenditure in the last financial year ending March 2013.

The reference to a possible budgetary shortfall is peculiar, as the country has developed a reputation of posting mega surpluses. In fact, public finance has been posting annual surpluses in sizable figures for the past 14 years, something unusual in today’s world.

For instance, Kuwait recorded a notable $45 billion surplus in the fiscal year 2012-13 on the back of steady oil prices. The surplus represented some 25 per cent of the country’s gross GDP, certainly something extraordinary in global finance.

Conversely, the Gulf Monetary Union scheme, which went into effect in 2010, stipulates that budgetary shortfalls should be within 3 per cent of the GDP. Without a doubt, Kuwait is doing exceptionally well at the moment… but the future matters.

This level of confidence in public finance won praise from the IMF Managing Director, Christine Lagarde, during a recent speech in Kuwait. Still, she sounded out the need to ensure large investments come on stream to sustain the non-oil GDP growth.

An approved investment plan dating back to 2010 calls for spending some $106 billion on numerous development projects. Among others, the investment scheme calls for $3.2 billion on a new environmental-friendly terminal for Kuwait International Airport.

Happily, Kuwait sits on substantial reserves to meet its investment plans to rejuvenate the economy. The country’s sovereign wealth stands at $386 billion at the latest count.

According to the latest tracking by the Sovereign Wealth Fund, Kuwait’s fund ranks the sixth largest in the world. Within the GCC, only the UAE and Saudi Arabia command stronger SWFs.

In addition to meeting economic growth rates in the non-oil sector, the investments should help Kuwait address other challenges, notably streamlining its performance on international indexes.

Sadly, at the moment Kuwait has developed the reputation of being the under-performer among its GCC partners. For example, Kuwait is the lowest performer in the recent ‘Doing Business 2014’ findings, issued by the World Bank Group.

The report ranks Kuwait 62nd globally among the 189 economies ranked in the survey. This made it the only GCC member state outside of the best 50 performers on the index.

The index provides quantitative comparisons on business regulations and protection of property rights with regard to small and medium enterprises, globally regarded as key sources for producing jobs.

Undoubtedly, Kuwait has the ability to be a standout performer, partly for being a pioneer in the region. Suffice to say that Kuwait was ahead of other GCC states in setting up an authority dealing with its sovereign funds. The Kuwait Investment Authority was set up in 1953.