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One of the world’s richest petrostates is running out of cash

By Bloomberg | September 3rd 2020 at 00:00:00 GMT +0300

Anas Al-Saleh, Kuwait's deputy prime minister and finance minister, speaks during a Bloomberg Television interview at the World Economic Forum (WEF) in Davos, Switzerland, on Friday, Jan. 20, 2017. World leaders, influential executives, bankers and policymakers attend the 47th annual meeting of the World Economic Forum in Davos from Jan. 17 - 20. [Simon Dawson/Bloomberg]

When Kuwait’s then-Finance Minister Anas Al-Saleh warned in 2016 that it was time to cut spending and prepare for life after oil, he was ridiculed by a population raised on a seemingly endless flow of petrodollars.

Four years on, one of the world’s richest countries is struggling to make ends meet, as a sharp decline in energy prices raises profound questions over how Gulf Arab States are run.

Al-Saleh’s long gone, shifting to other cabinet positions. A successor, Mariam Al-Aqeel, moved on in January, two weeks after suggesting Kuwait restructure a public-sector wage bill that’s the single biggest drag on State finances.

Her replacement, Barak Al-Sheetan, warned last month there wasn’t enough cash to pay State salaries beyond October.

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Spending habits

Slow to adjust big-spending habits as oil revenues fall, the Gulf States are hurtling toward a moment of economic reckoning, prompting renewed debate over the future of nations that for decades bought popular loyalty with State largesse.

“We’re going to wake up one day and realise we went through all our savings, not because we didn’t check our bank statement but because we looked at it and said, it’s probably a bank glitch, and then bought the latest Rolex,” said Fawaz Al-Sirri, who heads Bensirri political and financial communications firm.

The OPEC club of oil-exporters has revived crude from its historic drop this year, but Sh4,000 ($40) per barrel is still too low. The coronavirus pandemic and shift toward renewable energy threaten to keep prices depressed.

Saudi Arabia is curbing benefits and imposing taxes. Bahrain and Oman, where reserves are less plentiful, are borrowing and seeking support from wealthier neighbours.

The UAE diversified with the rise of Dubai as a logistics and finance hub. In Kuwait, however, a standoff between the elected parliament and a government whose prime minister is appointed by the emir has led to policy gridlock

Lawmakers have thwarted plans to reallocate State handouts and blocked proposals to issue debt.

Instead, the government has almost exhausted its liquid assets, leaving it unable to cover a budget deficit expected to reach the equivalent of almost Sh4.7 trillion ($46 billion) this year.

It’s been a gradual decline for Kuwait, which in the 1970s was among the most dynamic Gulf States, with its outspoken parliament, entrepreneurial heritage and educated people.

Then the 1982 crash of an informal stock market shook Kuwait’s economy and coincided with instability from the near decade-long Iran-Iraq war.

Kuwait embarked on a spending spree to rebuild after Saddam Hussein’s assault led to the 1991 Gulf War. It took years for oil to flow freely again.

Kuwait still relies on hydrocarbons for 90 per cent of its income. The State employs 80 per cent of working Kuwaitis, who out-earn private-sector counterparts.

Benefits for housing, fuel and food can total Sh200,000 ($2,000 a month for an average family. Salaries and subsidies soak up three-quarters of spending by the state, which is heading for its seventh consecutive deficit since the 2014 oil slump.

But Kuwait has money, plenty of it, stashed away in an unbreakable fund - the world’s fourth-largest at an estimated Sh55 trillion ($550 billion). Touching the Future Generations Fund, designed to ensure prosperity after oil runs out, is a controversial proposition.

Some Kuwaitis say the time has arrived. Opponents warn that without diversifying the economy and creating jobs, the savings would run out in 15-20 years.


Anas Al-Saleh Gulf Arab States Kuwait Petrostates
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