Testing the water: Development plans have sparked lively debate

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The political landscape in Kuwait has been marked by deadlock and legislative inertia for several years. However, the repercussions of the global financial crisis in the emirate have offered the prospect of a shake-up. The government has been able to take the first steps towards greater economic liberalisation and to call on the parliament to pass some important pieces of legislation. The true litmus test of this new assertive agenda is likely to be the National Development Plan (NDP).

The $108bn project was passed in February 2010, and was the first such development roadmap since 1986. The plan has been dominating the front pages of the local press and monopolising political debate for the past year. For many, the NDP will continue to act as a testing ground for cooperation and consensus building between the government and the parliament. The current atmosphere, particularly among the business community and the liberal merchant elite, is one of cautious optimism. This is perhaps best summed up by the title of the analysis of the plan by local firm, Kuwait Finance Centre (Markaz). “Towards a Strong Beginning” aptly captures the feeling that there are many hurdles still to be overcome if the emirate is to make good on the potential of its landmark development strategy.

PROGRESS: When it was first passed the plan was heralded as a major breakthrough. Government spending over the past decade has been dominated by current expenditures, predominantly wages and salaries of public sector employees. Since 2004 current expenditures have accounted for an average of 65% of state spending, with wages alone accounting for almost a quarter of expenditures. With the government hoping to reduce the size of the public sector workforce to 92% of Kuwaiti workers by 2014, the NDP is seen as a crucial tool for fostering economic diversification and private sector growth. The five-year plan is envisaged as the first of five that will position Kuwait as the region’s financial centre by 2035. Spending under the plan will focus on areas such as infrastructure and social services and is expected to be half-funded by the private sector, through direct investments, build-operate-transfer agreements and public-private partnerships.

Such a plan, which will see development expenditure increase by 95% in 2011, according to Markaz, is very much in line with the political and economic philosophy of the urban, pro-government bloc of parliamentarians and their supporters. Therefore, although it managed to pass through parliament in 2010, there continues to be significant opposition to the strategy.

According to the Markaz report, “The sovereign risks involved in the success or failure of the NDP lies in the ability of the state to build a degree of consensus between the government and parliament to cooperate in furthering the aspirations of the plan.”

CHALLENGES: Many news outlets have cited the political discord between the two branches as a main impediment to the realisation of the NDP. Members of both groups have acknowledged that continued disagreement and consequent lack of progress has frustrated citizens who would see the plans advance beyond the preliminary phase. Despite the passage of the NDP, certain members of parliament have opposed the plan and cast doubt on its realisation due to legislative and regulatory issues such as inadequate laws, overwhelming bureaucracy and lack of transparency.

SPENDING: These problems, as well as the sheer difficulty of absorbing so much additional expenditure from such a low base, means the government is likely to fall short of its annual spending targets under the plans.

According to Markaz, the projected realisation rate for spending is likely to be 30-40% for the 2010/11 budget. For 2011/12 this may well increase, but it is not likely to surpass 75% (Markaz’s most optimistic scenario), which would equate to 22% of overall government expenditure and 20% of real GDP. Therefore, the plan is likely to continue to stand as a battleground between the government and its supporters in parliament, and the opposition. As such, the passage of the initial development package through parliament was just the beginning, albeit a very positive one.

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The Report: Kuwait 2012

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