Oil-rich Kuwait is facing a debt crisis

DUBAI, United Arab Emirates (AP) – When Kuwait stepped out of a month-long coronary virus closure, hundreds of Kuwait flooded into reopened shops, lines clogged shopping malls, meandered down the aisle and spilled onto sidewalks.

But unlike much of the world, where long lines have developed for donated food, Kuwait has been waiting to buy Cartier jewelry.

The outbreak of jewelry by the long-coded citizens of Kuwait is a symptom of a looming disaster. Kuwait, one of the richest countries in the world, is facing a debt crisis. Due to the pandemic, oil prices plummeted to an all-time low and steered the gas station toward the biggest calculation in a long time, just as parliamentary elections are approaching in December.

“COVID, low oil prices and the liquidity crisis have come together in a perfect storm,” said Bader al-Saif, an assistant professor of history at the University of Kuwait.

Like other Gulf states, Kuwait provides easy jobs for about 90% of citizens in public payroll, along with generous benefits and subsidies ranging from cheap electricity and gasoline to free health care and education.

This fall, Moody’s downgraded Kuwait for the first time in its history. The finance minister warned that the government will soon be unable to pay salaries. According to the National Bank of Kuwait, the country’s deficit could reach 40% of gross domestic product this year, the highest level since the 1990 invasion of Iraq and the subsequent financial devastation of the Gulf War.

With the price of crude oil barely above $ 40 a barrel, other nearby Arab states have taken on debt, reduced subsidies, or introduced taxes to sustain their spending. However, Kuwait did not do either. This year’s budget payback price was $ 86 a barrel, doubling current sales figures, which puts a strain on your finances.

This does not mean that Kuwait will soon be asking for help at international summits. The Kuwaiti investment authority has $ 533 billion in assets, according to the Las Vegas-based Sovereign Wealth Fund Institute, making it the world’s fourth-largest such fund.

The problem is that Kuwait has no legal framework for spending beyond the current $ 33 billion mark. It needs the country’s strong and raging 50-member parliament – a rarity among Arab cell mountains – to approve it.

The long-awaited public debt bill will allow Kuwait to borrow up to $ 65 billion and alleviate the crisis. But drumming billions remains a difficult issue for the government in a country shaken by high-ranking corruption scandals. In addition to Kuwait’s liquidity crisis, public suspicions of government transposition and mismanagement are growing.

Adoption of the bill will be the first legislative challenge for the new Emir of Kuwait, Sheikh Nawaf Al Ahmad Al Sabah. Sheikh Nawaf ascended the throne in September after the death of 91-year-old Sheikh Sabah Al Ahmad Al Sabah, an experienced diplomat who made his tiny state a recognized regional mediator in 14 years.

After Kuwaiti’s December 5 election, incoming lawmakers will decide the fate of the public debt law, and it won’t be an easy sale.

“The whole system is corrupt,” said Omar al-Tabtabaee, an independent legislature running for re-election. “There is corruption in our projects, in the way civil servants are elected. No Kuwaiti is happy with our situation. “

Earlier this year, al-Tabtabaee rejected raising Kuwait’s debt ceiling, as well as a majority of lawmakers who feared the new revenue would fall into the pockets of wealthy traders and foreign banks.

“People have lost confidence in the government,” said Mohammed al-Yousef, an independent political analyst in Kuwait. “There have been so many scandals and not a single minister in prison.”

The scandals include a regime that plundered billions of dollars from a Malaysian sovereign wealth fund, capturing a member of Kuwait’s ruling family. Another Bangladeshi worker was smuggled into the country with the alleged help of lawmakers. Last year, the cabinet dropped allegations that hundreds of millions of dollars were missing from a military fund.

Now ministers are struggling to convince the increasingly resentful public. Former Finance Minister Mariam al-Aqeel resigned in February after coming under fire because she recommended to the government to end her deficit by taxing citizens and reducing salaries. Six finance ministry officials resigned last month to bid to oust the current minister, who has pushed hard for the debt law.

The resistance stems from Kuwait’s decades-long social contract. Reducing a bloated welfare state will change the system in which cradle-to-grave benefits buy loyalty – a recipe for unrest without concessions from above.

“Kuwait is wondering why I would contribute my own money if the government does not hold anyone accountable?” If I don’t see where their money is going? said Barrak Algharabally, a government budget expert at the University of Kuwait.

As Kuwait quarrels, the available cash is running out. For the first time in history, oil revenues do not cover salaries and subsidies that have swelled since 2006 and now consume more than 70% of the national budget. With current oil prices and spending levels, the general reserve fund will dry up by December, said Raghu Mandagolathur, research director at the Kuwaiti financial center, an investment bank.

Even if the virus recedes, oil prices are not expected to rise to a peak above $ 100 a barrel. Experts say the pandemic has given Kuwait a glimpse into the future, upsetting the country from the assumption that it can live beyond its means forever. But whether the shock will force the necessary reforms is yet to come.

– We’re going to have fun for the next 10, 20 years, but what’s next? Algharabally, a budget expert, asked. – What about our sons and grandchildren?


Follow Isabel DeBre on Twitter at www.twitter.com/isabeldebre.