Alwaght- The economic crisis in various countries has been one of the undeniable consequences of coronavirus pandemic over the past two years. The major global economies sooner and on a much larger scale experienced the effects of the Covid-19. In addition to the industrial countries, the pandemic quickly affected the economies of other countries, including those in West Asia and North Africa, most of which having rentier and petrodollar-powered economies.
Since 2019, there have been numerous reports of economic crises in countries such as Saudi Arabia and the UAE , but in the new situation, reports indicate that Kuwait, also an oil-dependent nation, has gone through its history's largest crisis because of coronavirus, with reports suggesting that the Persian Gulf Arab monarchy has recorded its highest deficit.
Causes of the crisis
The cause of the crisis hitting the Kuwaiti economy, like many oil-dependent and single-product economies, is related to the drop in the energy sales revenues. The country’s income for 2020-2021 budget was predicted to be $35.5 billion, down 38.9 percent from the year before. The fact is that the country now faces $35.5 budget deficit, the highest in the country’s history. So far, the largest budget deficit was $19.89 billion for 2015-2016 fiscal year.
The government's current spending increased by 7 percent compared to last year to $70.83 billion. In June, the parliament approved a 2021-2022 budget proposed by the government, in which the spending is $76.65 billion and the budget deficit is predicted to be $40.24 billion. There are also reports that the pandemic outbreak in 2019 caused serious damage to oil and minerals-dependent economies. Kuwait, meanwhile, has suffered nearly $33 billion in losses, the highest since 1991.
Kuwait's Finance Minister Khalifa Hamada suggested that the critical situation stems from the sagging oil prices in the global markets. In other words, the low oil prices along with coronavirus crisis have stood behind the broadening budget deficit in Kuwait's economy. The country's oil revenues, dropping 42.8 percent in 2020-2021 fiscal year, are $29.27 billion. Other incomes saw a 6.5 drop to reach $5.66 billion.
Excessive and unnecessary expenses of the government have played a major role in creation of the economic predicament. According to available government statistics, 56.4 percent of Kuwait's GDP is spent on government expenditures, putting the country top among other Persian Gulf states. But the most important point is that the Kuwaiti government has the lowest efficiency rate among the Arab countries. Globally, Kuwait ranks 59 with $76 billion in government spending.
Remedial measures to tackle crisis
The officials have undertaken some measures to battle the crisis, among them approving the public debt law and nationalizing the economy.
The government seeks to raise between $40 to $50 billion to reverse the financial damages, but it first needs to get the parliament approval. Such an action by the government, known as the "public debt law," has sparked widespread controversy among political and economic officials. If not approved, the government will face a real crisis. But should the lawmakers give it a green light, the government can borrow $65 billion within 30 years. The finance ministry has applied for a $7.2-billion loan from the sovereign wealth fund or from the central bank to complete the implementation of the debt law.
At the same time, the Kuwaiti officials are seeking "Kuwaitization" of the economy, an initiative eyeing replacing the foreign workers with Kuwaiti ones. The government plans to fully implement this initiative by end of 2022, giving the Kuwaitis 100 percent of technical, administrative, and supervisory jobs in the oil industry. Also, 35 to 45 percent of the contracts will be with the internal companies.
Outlook of Kuwait Economy's Future
Regarding the prospects of Kuwait's economy, two issues are important: First, how successful the government will be in giving the oil jobs to the Kuwaiti nationals and where the oil prices will go. What is clear is that Kuwaitization is unfeasible in a short time.
Concerning the oil revenues, the finance ministry reported that the country's average oil exports have been 2.5 million barrels per day with a price of $42.36 on average. But even increased oil revenues cannot bridge the budget gaps. To cover the budget deficit, the country needs to sell oil $90 per barrel, whereas currently the barrel is sold $66.56 globally. All these lead to the conclusion that any economic improvement is unlikely for Kuwait at least in the short run.
