Kuwait’s new finance minister has issued a stinging criticism of the country’s bloated administration and bureaucratic red tape, saying the economy cannot continue growing robustly in the long term if they are not reformed.
The comments by Sheikh Salem Abdulaziz al-Sabah, carried by state news agency KUNA on Monday, were his first extensive public policy statement since he took his job in August.
Sheikh Salem left the central bank last year after 25 years as its governor, protesting against a rapid rise in government spending. It is not clear whether he will have more success in shaping Kuwait’s fiscal policy in his new role.
His remarks echoed criticism by the International Monetary Fund, which said last week that despite its huge oil wealth, Kuwait needed to rein in public spending, especially on wages, and find new sources of income to protect its budget position.
Sheikh Salem, a member of Kuwait’s ruling Al-Sabah family, said structural imbalances in the state budget, inefficiencies in the labour market and the limited role of the private sector were the most prominent challenges facing the OPEC member’s economy.
These imbalances are partially or wholly linked to “the role played by the government in economic activity, which has resulted in the oversized growth of its administrative sector and the complication of procedures, thus hindering sustainable growth,” KUNA quoted him as saying.
He acknowledged that Kuwait’s fiscal and current account surpluses were strong at present but added that they were fundamentally linked to the performance of the global oil market, which meant it was important to find a sustainable model for economic growth.
Kuwait’s budget surplus fell to 12.7 billion dinars ($44.8 billion) - equivalent to 24.7 percent of gross domestic product, still one of the highest levels in the world - for the fiscal year that ended in March, he said. Its current account surplus stood at 22.2 billion dinars in 2012.
The IMF has forecast Kuwait’s fiscal surplus will come in at 27.4 percent of GDP in 2013/14 after 33.4 percent in 2012/13, higher than the finance ministry’s estimates.
But in view of recent sharp rises in the government’s current spending and relatively small non-oil revenues, state expenditure could exceed oil revenues by 2017/18, raising the risk from any sustained drop in oil prices, the IMF said.
Analysts in a Reuters poll in September predicted the budget surplus was likely to shrink to 23.7 percent of GDP in 2013/14 and 18.5 percent in the following fiscal year.
Like other wealthy Gulf Arab states, Kuwait provides a generous welfare system and does not collect income tax, but it has lagged peers such as the United Arab Emirates and Qatar in raising competitiveness and foreign investment.
It has the most open political system in the Gulf Arab region but infighting and bureaucracy have slowed tens of billions of dollars worth of economic development plans that were originally announced in 2010. Parliament has pressured the cabinet into boosting spending on social welfare handouts.