Last updated: 13 February, 2012

Kuwait’s central bank chief quits over rise in government spending

Governor of the Central Bank of Kuwait, Sheikh Salem Abdulaziz Al-Sabah, has resigned in protest against the oil-rich Gulf state’s steep rise in spending, local media reported on Monday.

Al-Qabas newspaper said the 61-year-old chief banker quit after “objecting to the negative developments in the state’s fiscal policy and its dangerous consequences on the national economy.”

Sheikh Salem, in the post for over 25 years, was behind the decision in May 2007 to de-peg the Kuwaiti dinar from the US dollar and re-link it to a basket of currencies in a bid to limit the impact of high inflation.

He has frequently warned in public of the government’s highly expansionary fiscal policy and the rapid rise in spending on the future of Kuwait.

Buoyed by 12 consecutive years of large budget surpluses thanks to high oil prices, spending has more than tripled over the past six years from just $23 billion to over $70 billion, mostly on wages, subsidies and grants, based on official figures.

Local economists have warned that Kuwait, which says it sits on about 10 percent of global crude reserves and pumps around 3.0 million barrels a day, will not be able to sustain this rise in spending, particularly if oil prices drop.

Kuwait, with a native population of 1.17 million, offers a cradle-to-grave welfare system with services and fuel offered either at heavily-subsidised prices or for free and there is no taxation.