The ruler of Kuwait on Monday warned against the misuse of the oil-rich emirate’s mammoth assets as he opened a meeting to study the fallout of the global debt crisis.
The meeting comes amid fears of another global recession that could dampen the price of oil, which provides more than 93 percent of Kuwait’s public revenues, and impact its $300 billion (210 billion euros) of foreign investments.
“The misuse of financial surpluses … has led to fundamental distortions in national economy and a burden that threatens the future of the country,” in meeting essential spending, Sheikh Sabah al-Ahmad Al-Sabah told the meeting.
Encouraged by high oil prices, the small state with just 1.1 million Kuwaiti nationals has boosted spending more than three times over the past six years to more than $71 billion, mostly to pay wages and subsidies.
“We have to adopt measures to rectify the direction of the state budget,” said the emir who called for “sacrifices” to enforce long-delayed reforms, without revealing the type of measures.
Senior government officials including the central bank governor attended the meeting called to study the possible impact of the US downgrade and European sovereign debt crisis on Kuwait’s domestic economy.
In June, parliament passed the largest budget in Kuwait’s history amid warnings by MPs that spending must be curtailed otherwise the country risks tapping into assets to pay wages.
The head of the parliamentary budgets committee, MP Adnan Abdulsamad, described the budget as “crazy” and said the price for oil needed to balance the budget is $85-90 a barrel.
“Ten years ago, we needed oil price to be at $18 a barrel to balance the budget, but now if oil slips below $85-90, we will be forced to withdraw (money) from the assets to pay for wages,” Abdulsamad told parliament.
The price of Kuwaiti oil has remained above $100 a barrel for most of the current fiscal year which began on April 1.
Kuwait’s current economic indicators are encouraging but oil remains the main driver of the economy with reforms on the backburner amid non-stop political disputes between parliament and the government.
Last month, Standard & Poor’s rating services raised the OPEC member local and foreign currency sovereign credit ratings to AA from AA- on the back of strong public finances.
S&P however pointed to Kuwaiti weaknesses including heavy reliance on hydrocarbons, recurring deadlock between parliament and the government, lack of transparency and a slow pace of reform.