Kuwait: In 2016, when Kuwait’s then Finance Minister Anas Al-Saleh warned to cut down spending and prepare for life after oil, he was ridiculed by the petro-dollar rich population. Now, four years on, the current Finance Minister Barak Al-Sheetan declared that the cash dried up to an extent that the state could not pay salaries beyond October.
Once one of the world’s richest petrostates, Kuwait is now struggling to make ends meet as energy prices are facing sharp decline. 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. Furthermore, the COVID-19 pandemic and the probable shift towards renewable energy continue to keep the oil prices depressed.
While Saudi Arabia is curbing benefits and imposing taxes, the countries with less-plenty reserves—Bahrain and Oman are borrowing and seeking support from its wealthier neighbors. UAE, on the other hand, diversified with the rise of Dubai as a logistics and finance hub. Kuwait, however, is stuck in the policy gridlock with lawmakers thwarting several attempts to reallocate state handouts and blocked proposals to issue debt.
Until the mid-1970s, Kuwait was the most dynamic of Gulf states with its outspoken parliament, entrepreneurial heritage and educated people. The crash of the country’s informal stock market in 1982 shook its economy, which coincided with the instability that raged from the decade-long Iran-Iraq war.
Further, post-1991 Gulf War, Kuwait embarked on a spending spree to rebuild and for the oil to flow freely again.
Kuwait still relies on hydrocarbons for 90% of its income. The state employs 80% of working Kuwaitis, who out-earn private-sector counterparts. 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.
Kuwait’s Future Generations Fund, an unbreakable fund of $550 billion, is the fourth-largest in the world and was designated specifically to ensure prosperity after oil runs out. While some argue that the designated time to use the Fund has already arrived, some claim that the savings would dry up in less than 15-20 years, if diversification of the economy does not take place.
“It’s not a solvency problem, although it’s considered a cash drought,” said Jassim Al-Saadoun, head of Kuwait-based Al-Shall Economic Consultants to Bloomberg.
Decline in investor confidence
The deadlock in Kuwait has undermined investor confidence. In March, S&P Global Ratings put Kuwait’s sovereign rating on negative watch. Moody’s Investors Service followed. The IMF said that month Kuwait’s “window of opportunity to tackle its challenges from the position of strength is narrowing.”
“We’re going to wake up one day and realize 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, head of Bensirri political and financial communications firm to Bloomberg.
“The belief system in Kuwait is that we’re rich for infinity. No one has the political capital to tell the Kuwaiti people that the party will be over soon if we don’t support change,” he added.