Kuwait's Economic Overhaul Faces Familiar Parliament Hurdle

  • Government plans to impose corporate tax, curtail subsidies
  • Disagreement with parliament stymied reform in the past

Kuwait’s plan to impose corporate taxes and cut fuel subsidies to reduce the OPEC member’s reliance on oil faces a familiar obstacle: a parliament that has resisted previous attempts to curtail one of the world’s most generous welfare systems.

Finance Minister Anas al-Saleh on Monday submitted a six-point plan to the cabinet that aims in part to bolster revenue and cut public spending. Measures include selling stakes in state-owned entities, official media reported. The plan, which needs parliamentary approval, has been referred to the legislature’s committee for finance and economy.

“In the current parliament there are no political blocs with defined economic plans or philosophies,” Abdullah al-Naibari, a former lawmaker, said in a phone interview from Kuwait on Tuesday. “There are individuals with one aim, which is winning votes, nothing else.”

The plunge in crude prices has increased pressure on oil exporters from Saudi Arabia to Venezuela to shore up their public finances and find alternative sources of revenue. Though Kuwait has relatively more financial firepower to help weather the slump than some of its neighbors, officials have repeatedly warned that the current level of government spending is unsustainable.

Oil Pressure

Oil accounts for about 90 percent of the government’s revenue, the most in the six-nation Gulf Cooperation Council, and the budget break-even price is estimated to be $63 a barrel this year, Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in an e-mail.

The “announced reforms are welcomed, as they would help diversify the government’s income base and reduce its volatility,” Razan Nasser, senior Middle East and North Africa economist at HSBC Holdings Plc in Dubai, said by e-mail.

“The real challenge is passing the reforms through parliament and winning public support,” she said. “The reversal of fuel subsidy reforms last year highlights the difficulty of implementing such unpopular reform measures.”

The Kuwaiti parliament has resisted previous government plans to boost investments and curtail spending. In 2013, lawmakers sought to write off interest payments on bank loans taken by nationals over five years to bail out indebted citizens.

The benchmark Kuwait Stock Exchange Index was little changed in Kuwait City. The measure has dropped 19 percent over the past 12 months.

“Disagreements between the government and the parliament has complicated decision-making in the past,” Carla Slim, an economist for Standard Chartered Plc in Dubai said in an e-mail. “It is yet to be determined if widening the tax base and boosting government revenue is a priority to both political bodies.”

Before it's here, it's on the Bloomberg Terminal.