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Kuwait maintains AA ratings despite trailing other GCC states in fiscal reforms
August 13, 2016, 6:57 pm

Kuwait's fiscal reforms lag behind most of its other Gulf Cooperation Council (GCC) member states says Fitch Ratings, the global credit rating agency, in its most recent report on Kuwait.

The agency points to the Government’s belated and less than successful efforts to rein in its huge wage bills and reform its generous subsidies for water, electricity and fuel. Many of these reforms have already been enacted in other GCC states.

The report notes that in January of 2015, the government attempted to substantially increase the price of kerosene and oil, but had to immediately scale back the increases due to opposition from Parliament.

Similarly, in April of this year, the government again tried to increase utility prices for electricity and water, but that too was shot down by legislators who argued that it would affect ordinary citizens and their way of life. The government eventually gave in to the demand and decided to implement it only from September 2017 and announced that the increases would only target expatriates and Kuwaitis would be exempt from the price increases.

Even more difficult than reforming subsidies has been the government’s attempt to rein in the humongous wage bill that takes a substantial bite of the budget each year. In April, oil refinery workers went on strike against public-sector wage reforms resulting in significant loss in oil production and revenues. Following this, the government agreed to sit down with the workers and discuss their grievances.

The government’s most recent attempt to reform subsidy was its announcement that prices at petrol pumps in the country would go up by as much as 74 percent from 1 September. This belated effort to increase fuel prices, after all other GCC states had enacted similar fuel price reforms, also came in for criticism from the country’s parliament. Legislators complained that they were not consulted prior to the announcement and warned the fuel hike would result in substantial increase in the market price of goods and services. They also called for Kuwaitis to be exempted from the price hikes.

The difficulties that the government faces in building political consensus on reform has left Kuwait lagging behind its GCC peers in restructuring its finances and weaning the country away from its over-dependence on oil revenues.

However, the ratings agency noted that the government's exceptionally strong fiscal position, allows it more leeway than many of its GCC neighbors in pushing through structural reforms at its own pace.

The agency said Kuwait, rated AA with a stable outlook, has ample fiscal space which reduces pressure to make rapid fiscal adjustments. The country’s sovereign wealth which includes the Reserve Fund for Future Generations (RFFG) has estimated assets of more than 300 percent of GDP.

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