Kuwait Looks to Reforms to Boost Sagging Economy in 1999
December 31, 1998 - 0:0
KUWAIT CITY Kuwait, rocked by low oil prices, is facing 1999 armed with an array of government reforms aimed at boosting the emirate's ailing economy. Faced with benchmark Brent crude oil prices hovering around all-time lows, Kuwaiti Oil Minister Sheikh Saud Nasser al-Sabah announced on Monday plans for investment by international oil companies in developing its northern fields. Sheikh Sabah said that investment from the world's oil majors could reach $7 billion over the next five years to increase production capacity to over 900,000 barrels a day.
Kuwait has said it plans to intensify cooperation with foreign oil companies to boost its production to three million barrels a day by 2005. But Kuwait is looking beyond the oil sector, and the government has drafted a number of bills in response to the country's economic malaise. The first to be passed, on Tuesday, was the controversial health insurance bill that will see expatriates and their employees bearing the cost of public services they receive.
The first of three other bills, if passed, will allow the government to halt 10 percent of all revenues automatically going to a future generations fund if government expenditure exceeds total income. It will also allow the government to withdraw proceeds to meet budget deficits, now running at 15 percent of GDP. The second bill aims to renew an emiri decree introduced in 1987 which allowed the government to borrow up to 10 billion dinars ($33 billion) over 10 years to cover deficits.
A further reform package includes substantial cuts in fuel subsidies, public utilities and social security, as well as plans to increase taxation in a number of other areas. Kuwaiti nationals, who make up just 34 percent of the emirate's 2.2 million population, currently receive a cradle-to-grave welfare system, which includes tax-free income, free health care and education, job guarantees, and heavily subsidized housing, public utilities and local telephone calls.
The foreign investment bill, flagship of the government's policy of encouraging a greater role for Kuwait's private sector, will provide incentives to attract foreign capital and technology if approved. Analysts said that this will greatly assist local investors who lack technology, know-how and huge capital, adding that it would play a major role in restructuring and rehabilitating the national economy. The bill allows 10-year tax breaks for foreign investors and 100-percent foreign ownership of Kuwaiti companies as well as possible real estate allocation and some exemption from custom duties on machines, equipment and material.
Husam Meshal, senior financial analyst at Al-Shall Economic Consultants, stressed that Kuwait must look to diversify its economy and boost its private sector. He said that state salaries for 1998-99 total $7.6 billion, or 94 percent of budgeted revenues. This alone is significantly higher than total forecast oil revenues of $6.3 billion. The price of oil is part of an eternal cycle for Kuwait. But Kuwait and other oil-dependent Persian Gulf states must diversify their economies and open up their private sector to foreign investors, he told AFP. Meshal warned, however, that increased industrialization heavily-subsidized on a national level to boost the sagging economy is one option, but that too has its pitfalls.
You need a flexible labor market and technology that generates employment. The risk in Kuwait is one of overproduction, which defeats the essence of industrialization by creating unemployment, and associated losses in consumption, wealth and economic investment. Kuwait, which produces 1.96 million barrels of oil a day, supplies around 10 percent of the world's oil and has 100-year reserves at current production levels, but prices have spiralled downwards over recent months in light of the Asian economic crisis and a market glut.
The oil industry represents 90 percent of the Persian Gulf Arab state's exports. It accounted for 39.2 percent of GDP revenue between 1992-96, and revenues make up 80 percent of the state's economy. Kuwait's budget deficit for the 1998-99 fiscal year which began in July is estimated at $6 billion, the largest since its liberation by a U.S.-led coalition in 1991 from Iraqi occupation.
(AFP)
Kuwait has said it plans to intensify cooperation with foreign oil companies to boost its production to three million barrels a day by 2005. But Kuwait is looking beyond the oil sector, and the government has drafted a number of bills in response to the country's economic malaise. The first to be passed, on Tuesday, was the controversial health insurance bill that will see expatriates and their employees bearing the cost of public services they receive.
The first of three other bills, if passed, will allow the government to halt 10 percent of all revenues automatically going to a future generations fund if government expenditure exceeds total income. It will also allow the government to withdraw proceeds to meet budget deficits, now running at 15 percent of GDP. The second bill aims to renew an emiri decree introduced in 1987 which allowed the government to borrow up to 10 billion dinars ($33 billion) over 10 years to cover deficits.
A further reform package includes substantial cuts in fuel subsidies, public utilities and social security, as well as plans to increase taxation in a number of other areas. Kuwaiti nationals, who make up just 34 percent of the emirate's 2.2 million population, currently receive a cradle-to-grave welfare system, which includes tax-free income, free health care and education, job guarantees, and heavily subsidized housing, public utilities and local telephone calls.
The foreign investment bill, flagship of the government's policy of encouraging a greater role for Kuwait's private sector, will provide incentives to attract foreign capital and technology if approved. Analysts said that this will greatly assist local investors who lack technology, know-how and huge capital, adding that it would play a major role in restructuring and rehabilitating the national economy. The bill allows 10-year tax breaks for foreign investors and 100-percent foreign ownership of Kuwaiti companies as well as possible real estate allocation and some exemption from custom duties on machines, equipment and material.
Husam Meshal, senior financial analyst at Al-Shall Economic Consultants, stressed that Kuwait must look to diversify its economy and boost its private sector. He said that state salaries for 1998-99 total $7.6 billion, or 94 percent of budgeted revenues. This alone is significantly higher than total forecast oil revenues of $6.3 billion. The price of oil is part of an eternal cycle for Kuwait. But Kuwait and other oil-dependent Persian Gulf states must diversify their economies and open up their private sector to foreign investors, he told AFP. Meshal warned, however, that increased industrialization heavily-subsidized on a national level to boost the sagging economy is one option, but that too has its pitfalls.
You need a flexible labor market and technology that generates employment. The risk in Kuwait is one of overproduction, which defeats the essence of industrialization by creating unemployment, and associated losses in consumption, wealth and economic investment. Kuwait, which produces 1.96 million barrels of oil a day, supplies around 10 percent of the world's oil and has 100-year reserves at current production levels, but prices have spiralled downwards over recent months in light of the Asian economic crisis and a market glut.
The oil industry represents 90 percent of the Persian Gulf Arab state's exports. It accounted for 39.2 percent of GDP revenue between 1992-96, and revenues make up 80 percent of the state's economy. Kuwait's budget deficit for the 1998-99 fiscal year which began in July is estimated at $6 billion, the largest since its liberation by a U.S.-led coalition in 1991 from Iraqi occupation.
(AFP)