AFP – Oil-rich Kuwait said Monday that the generous cradle-to-grave welfare system provided to its 1.2 million citizens was “unsustainable” and it was time for change.
“The fact everyone must be aware of … is that the existing welfare state system that Kuwaitis are used to is unsustainable,” Prime Minister Sheikh Jaber Mubarak Al-Sabah said, presenting his government’s four-year programme to parliament.
The programme up to the 2016/2017 fiscal year aims to review subsidies, charges and prices of public services, besides imposing a taxation system in a country that generates 94% of its income from selling oil and where individuals and corporates pay no taxes.
The government has also promised to cut public expenditure, especially current spending which includes wages, subsidies and defence spending.
Finance Minister Sheikh Salem Abdulaziz Al-Sabah said last week that current spending constitutes 85% of the budget.
The government warned that if the welfare system remains, the OPEC nation will start facing “real” budget deficits from 2021 and is expected to accumulate shortfalls of up to KWD 414bn (Kuwaiti dinars, around $1.46tn) by 2035.
It insists there is an urgent need to reduce subsidies on fuel, electricity and water and raise charges on public services which are offered to citizens for free or at highly-subsidised rates.
For example, fuel prices have not changed for the past 15 years, while power is offered to citizens and the 2.7 million foreign residents at less than five percent of the cost, according to government figures.
Earlier this month, the International Monetary Fund urged Kuwait to contain public spending, which has trebled in seven years, to avoid risks from a drop in crude prices.
According to finance ministry figures, between the fiscal years 2005/2006 and 2012/2013, public spending surged from $24.4bn to $68.2bn, during which government wages rose from $6.7bn to $17bn.
In the same period, oil income, which makes up around 94% of public revenues, more than doubled from $45.9bn to $106bn.
Kuwait has boasted a budget surplus in each of the past 13 fiscal years, accumulating around $300bn, whereas the size of its sovereign wealth fund has increased to over $400bn.
Nominal GDP rose to $184.5bn last year from $160.7bn in 2011, said the IMF.