Kuwait orders government bodies to cut spending by at least 10% as budget deficit soars

Move to reduce expenditure includes government officials’ incentives and rent for state-owned assets

The skyline of Kuwait City. The country is assessing whether it should halt financial incentives for privately employed Kuwaiti citizens whose wages exceed 3,000 Kuwaiti dinars ($9,976). Getty

Kuwait’s Cabinet has ordered all government entities to cut spending by at least 10 per cent to help bridge the oil-rich Gulf state’s widening budget deficit.

Kuwait also instructed the Public Authority for Manpower to assess whether it should halt financial incentives for “privately-employed Kuwaiti citizens whose wages exceed 3,000 Kuwaiti dinars ($9,976)”, the state news agency Kuna reported.

The move to slash spending includes “the revision of incentives” for higher government officials and rent of state-owned assets, Kuna cited Deputy Prime Minister Sheikh Hamad Al-Sabah as saying after the weekly Cabinet meeting.

Kuwait is limiting spending on local and international exhibitions, overseas training, expenditure on foreign missions and medical treatment as it plans to improve the collection of debts owed to the government.

Kuwait’s push to reduce spending comes amid the government's budget deficit widening 174.8 per cent in the 2020-21 financial year to 10.8 billion dinars.

This is the highest in the country's history, after it recorded a 5.9bn dinar budget gap in the 2015-16 financial year at the peak of a three-year oil price slump. Kuwait’s Finance Ministry said in a statement this month.

Revenue for the financial year ending March 31 dropped 39 per cent to 10.5bn dinars from a year earlier, while spending climbed 0.7 per cent to 21.3bn dinars, government data shows.

The country, which founded the oldest sovereign wealth fund in the world, the Kuwait Investment Authority, relies largely on revenue from the sale of hydrocarbons to fuel its economy. However, oil income has slumped by about 43 per cent to 8.79bn dinars and the country registered an average price of $42.36 for oil per barrel produced, while its output level remained at 2.5 million barrels per day during the financial year.

Like its peers in the six-member economic bloc of GCC, Kuwait is trying to diversify its economy and cut government subsidies that are a major drain on the Treasury. Wages and subsides accounted for about three quarters of its total expenditure, the budget document said.

In July, S&P Global Ratings downgraded Kuwait's sovereign rating to 'A+' from 'AA-', with a negative economic outlook, citing its budget deficit and a lack of funding strategy as well as risks posed by the depletion of the government's main fiscal liquidity buffer, the General Reserve Fund.

The shrinking of the GRF, the government's primary source of budget deficit funding, accelerated as lower oil prices and oil production cuts hurt revenue, S&P said.

The ratings agency's revision comes amid a political deadlock that has prevented the government from raising debt to fund its budget shortfall.

“Kuwait has yet to put in place a long-term, sustainable funding policy,” S&P said. "In our view, lack of a prompt solution to Kuwait's funding arrangements could have a number of negative, longer-term economic consequences."

On Tuesday, the Cabinet reviewed a report by the Central Bank of Kuwait and was briefed by its Supreme Council for Planning and Development, both of which underscored “improving the country's sovereign credit rating over the next four years”.

The Cabinet set up a “sovereign credit rating governance committee”, which is tasked with “strengthening communication and the standardisation of data with all [credit] rating agencies and state bodies”, the Kuna report said.