In Kuwait, Political Crises Mask Economic Facts

As Kuwait lurches from one political crisis to another, Amer Diab al-Tamimi takes a look a the economic problems facing the country. He argues for an end to reliance on oil revenue and for the creation of initiatives aimed at curbing youth unemployment.

al-monitor Opposition lawmakers cheers after receiving the resignation of Kuwait's Finance Minister earlier this year, one in a series of political meltdowns the country has been experiencing.  Photo by REUTERS/Hani Abdulla.

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oil & gas, oil, kuwaiti politics, kuwait crisis, kuwait, gulf, elections, economic

Oct 13, 2012

Kuwait is facing significant political and economic challenges, and will undergo administrative changes as a result of the upcoming parliamentary elections scheduled to take place in two months.

However, what is most important is that the desired economic reforms that everybody is talking about remain nowhere to be seen. Will the political elite be able to adopt realistic agendas for economic reform that would effectively take advantage of [the country’s] human and financial resources?

Upon reviewing the programs and speeches of the candidates who participated in the previous elections, it became apparent that none of them seriously undertook to understand the requirements needed for economic reform. In fact, politicians and political parties exhibit a great deal of timidity in dealing with the subject of the economy.

As a result of this, problems are not dealt with openly and politicians are trying to avoid calling for reforms that might negatively impact governmental subsidies or sponsorships.

This has reached the point that their stance came to echo that of the populace, with demands being made that bank consumer loans given to citizens be cancelled and bought back or paid off by the state on the population’s behalf, or that the wages of Kuwaitis employed in the public sector be increased. It is therefore not surprising that public expenditures were increased by record amounts reaching 15 to 25% per year, which raised the general budget to close to 20 billion dinars [$71.5 billion] in the current fiscal year.

The government has put forth, in the last few weeks, studies that confirmed the importance of fiscal policy reforms, and warned of the dangers of continued government subsidies. Yet, will that be enough to convince politicians in the National Council and outside it to adopt a new and cautious spending philosophy?

There is no doubt that the reform crisis lies in the welfare state approach to government which took hold during the last half century and led to people gaining the right to expect public sector jobs and generous retirement benefits, as well as the availability of education, health, housing and utility services for nominal charges.

This has led to budget provisions equaling 10 billion dinars [$35.6 billion] for the payment of wages, retirement and auxiliary benefits; with subsidies for goods, services and utilities reaching 6.5 billion dinars, which equals $16.5 billion or 82.5% of the yearly budget.

The state has become obliged to secure important revenues in order to fulfill these ongoing commitments through the sale of oil, especially when oil revenues decrease as a result of falling prices.

The economic management team must make it clear to the politicians that they need to reassess the welfare state approach and inform them of the dangers of continued reliance on unnecessary job creation, or the subsidizing of goods and services without making sure that doing so has real economic benefits.

Naturally, there is a demographic dimension to these fiscal policies, for the government employs most newcomers to the job market, whose number is estimated at 25,000 citizens per year. As a result, the number of Kuwaitis working for the government and in public sector institutions now approaches 400,000 individuals.

The private sector, on the other hand, employs 1.2 million people, out of which less than 65,000 are Kuwaitis. This fact is clear evidence of the rise in the number of Kuwaitis working government jobs at the expense of those employed in the private sector, which relies mostly on foreigners.

Job market studies conducted in the country show that the private sector relies on foreign inexpensive labor, and that the benefits given to government institutional employees in the past few years has led to a great disparity when compared with the wages and benefits offered to employees in the private sector.

It is well known that the state wants to encourage Kuwaitis to work in the private sector and is compelling private companies to hire them and imposing quotas for the number of Kuwaitis who must be employed in a particular economic sector. This is in addition to the subsidies paid by the state to Kuwaitis working in the private sector.

But the employment policies espoused in the private and public sectors remain far removed from proven economic models, whereby employment is based on the availability of real vacancies to which qualified candidates apply.

In the coming years, structural reforms must be undertaken on the job market in order to modernize the process of employment and better benefit from available national human resources.

Can the politicians enact employment policies that aim to enhance the fiscal policies and help in reforming the country’s economic structure?

This is the main challenge that Kuwait faces, albeit it is not a new one. What is required now if for matters to be discussed clearly and without ambiguity, for it is no longer permitted to overlook the economic facts that confirm the fallacies of the current policies.

Reliance on state spending — as is currently the norm — will lead to future crises of unknown consequences.

Moreover, the continued archaic reliance on foreign workers will lead to an economic deformation due to the lackluster numbers of citizen employees.

And so, in the coming few years, the populist philosophy aimed at buying political favor, the Kuwaiti people and society, will surely fail. The country’s system of social values has rendered the educational system, which was supposed to enhance the professional abilities and skills of citizens, ineffective in bolstering the human advancement of those citizens.

How is it possible then to overcome this complicated political and social situation, and liberate the country from the philosophy of the welfare state? The political leadership must be candid, and political forces and civil society institutions must formulate reform programs that emphasize the importance of educating citizens of the need to adopt a reformative stance.

Such a stance should bolster sustainable development and aim to employ available resources in a rational fashion. We hope that effective ideas such as these will be put forth in the upcoming elections, and that the government adopts reformative measures and strives to implement all measures needed to change the current economic reality.

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