Kuwait, which hosted the 38th summit of the Gulf states last week amid the ongoing Qatari crisis, cannot keep overlooking the serious economic challenges at home. Facts surrounding its public finance partly explain the need for immediate economic reforms.

Projected expenditure and revenues for fiscal year 2017-18 amount to $65.2 billion (Dh239.3 billion) and $43.6 billion, respectively, and which would impose a sizeable deficit of $21.6 billion. (Kuwait runs its financial year from April to March, the only one to do so with within the GCC.) Chances are the final results would tilt towards the government’s advantage, as the budget was prepared using an average oil price of $45 per barrel, clearly below prevailing prices. Oil prices are hovering around $55 thanks to moves by Opec members as well as Russia to curtail output.

Kuwait stands out for being exceptionally dependent on the petroleum sector for its economic well-being even by GCC standards, let alone global norms. The petroleum sector accounts for 88 per cent of budget revenues, 85 per cent of exports and 40 per cent of GDP.

The need for reforms and achieving the desired results remain a challenge. The parliament has a track record of giving a hard time to the authorities when it comes to introducing reforms, as the legislators singularly cater for the needs of their constituents.

Creating jobs for locals in the private sector is serious business. It is suggested that some 90 per cent of employed nationals work for the government or public sector establishments. Undoubtedly, this is something extraordinary in normal situations let alone in an environment of low oil prices since mid-2014.

Reforming the subsidies programme is essential. By one account, the amount set aside for subsidies in the current fiscal year amounts to $9.5 billion, or 15 per cent of total spending. A great deal of subsidies end up in retail energy products.

Necessity

Yet, in late 2016, officials adopted higher prices at the retail levels for key petroleum products, increasing the price for low-octane petrol by 41 per cent to $0.28 per litre. The cost for high-grade petrol was up 61 per cent to $0.35 per litre. Still, the price for ultra-petrol — the environmental-friendly low-emission fuel — was raised higher by 83 per cent to $0.55 per litre. Nevertheless, these prices remain low by global standards.

Reforming the Kuwaiti economy is more of a necessity than a luxury at least judging by its performance on key global indexes. The economy even lags the other Gulf countries reflecting the poor outcomes for some of its economic choices. For instance, Kuwait ranks 52nd among 137 economies ranked on the 2017-18 global competitiveness index.

Among GCC states, only Oman is behind Kuwait in this index, which is tabulated by the World Economic Forum of Switzerland. The study classifies ranked economies on the basis of their achievements in creating the necessary infrastructure, efficiency, and innovation.

In addition, Kuwait ranks 102nd out of 190 economies in the Doing Business 2017 report, published by the World Bank. This is the worst performance by a Gulf state.

Kuwait can still deliver on reforms. Its pioneered the liberalisation of the telecom industry in the Gulf by allowing Wataniya to compete in the mobile telephony market.

More such initiatives are needed

— The writer is a Member of Parliament in Bahrain.