Interview: Sheikh Jaber Al Mubarak Al Hamad Al Sabah
What initiatives are being carried out under the government’s fiscal restructuring programme, and how successful have they been so far?
SHEIKH JABER AL MUBARAK AL HAMAD AL SABAH: The fiscal and economic reform programme has already partially contributed to the improvement of the final accounts for FY 2015/16 – an actual deficit of KD4.6bn ($15.2bn) versus an estimated budget deficit of roughly KD6.6bn ($21.8bn).
The other key contributing factor was a higher production of crude oil compared to what had been budgeted for, thanks to the investments made in the oil sector. Alongside the reforms, the government unequivocally maintains its commitment to funding capital projects under the national development plan and mega-infrastructure projects equally, which contributes to higher growth, competitiveness and the absorptive capital of our national economy.
First, the fiscal restructuring programme aims to achieve a reduction of our state’s expenditures as well as increase our non-oil revenues. In the current fiscal year, we aim to achieve lower expenditures than the estimate laid out in the FY 2016/17 budget. This impact will mainly be driven by the following initiatives: better control of spending by entities supported by a modernised accounting system; the setting of a ceiling for the compensation of board members; and the rationalisation of events, conferences and external missions. We will also start preparing three-year budgets as opposed to one-year budgets in order to increase fiscal predictability and enhance the management of our finances, thus allowing traceable savings.
In addition to these efforts, we must also ask Kuwait’s citizens to take part in this journey. We are currently restructuring government subsidies, such as fuel, water and electricity. We are the last GCC country to make this much needed move. It is important to note that subsidies have not been completely lifted; fuel, water and electricity are still heavily subsidised and are among the cheapest both regionally and internationally.
How is the government increasing the private sector’s contribution to Kuwait’s economy?
SHEIKH JABER: This represents a key objective of the fiscal and economic reform programme, which aspires to create a business environment that provides a broad range of opportunities to the national private sector and attracts additional foreign direct investment at the same time. Privatisation, however, is not a goal in itself. We will only privatise entities if it can be demonstrated that doing so will be beneficial to our economy by enhancing the quality of products and services rendered, creating private sector jobs for Kuwaitis and reducing the operating expenditures of the government. Consequently, during the months to come we will be issuing a nationwide privatisation strategy, which will involve identifying all the government assets and services that could be privatised in the short, medium and long term.
I can also confirm a set of greenfield projects, predominantly around revamping the infrastructure of the country, which require significant investment and, consequently, are candidates for public-private partnerships (PPPs). The projects at the most advanced stage are Phase II of the Al Zour North Independent Water and Power Project for electricity generation and water desalination and the Al Abdeliyah Integrated Solar Combined Cycle power plant project. In the coming years we will continue to work on projects such as the Kuwait Metro and the Umm Al Hayman Wastewater Treatment Plant. During FY 2017/18 we will also begin evaluation proposals and nominate the most suitable bidders, forming joint-stock companies and finalising the contract closure of some of our PPP projects.
How large a role is the PPP model likely to play in future projects, and what benefits can it bring?
SHEIKH JABER: PPPs can bring several benefits to Kuwait’s economy, not only by reducing government expenditures but also in increasing investments, stimulating economic growth and generating employment. Specifically, sharing assets and liabilities with the private sector can reduce state costs by limiting the government contribution to scheduled national projects.
While often viewed in fiscal terms, PPPs can offer other important economic and social benefits. The economic benefits of PPPs can include the introduction of competition into a market, the attraction of local or foreign investment, the development of the capital markets and, with it, the drawing of technological and knowledge transfer. Social benefits may include enhancing the provision of goods or services to the public or even increasing the ownership that citizens have over their economy, through the distribution of shares in government companies.
Kuwait has been facing exceptional economic and fiscal circumstances during 2016, which are expected to persist in the coming years. Despite our strong current financial position, we face relevant challenges that undermine the sustainability of our public finances. This imposes the need to rationalise public spending, diversify public revenues from oil and restructure our national economy in a way that creates an efficient business environment capable of attracting more private investment, while providing job opportunities for Kuwaitis entering the job market. As such, during FY 2015/16 the government has designed and launched a medium-term programme of fiscal and economic reforms that aim to address these challenges.
How is the restructuring of the civil service and the labour market taking shape?
SHEIKH JABER: This programme has three key objectives: establishing a compensation system which controls expenditure growth to a reasonable level while insuring that compensation in the public sector is fair and standardised; aligning recruitment in the public sector by matching future job requirements and industry needs to graduation qualifications; and, finally, encouraging the employment of Kuwaitis in the private sector. This is a multi-year reform. However, we expect to start implementing some of its measures during FY 2016/17, namely, the introduction of a new compensation system for new entrants across ministries, and attached or independent entities. We also plan to align education outputs with labour market needs, and incentivise the hiring of nationals through preferential recruitment policies and better matching processes between employers and job seekers.
What are the key enablers of the economic and fiscal reform programmes being fast-tracked in 2017?
SHEIKH JABER: One enabler is to create a long-term financing strategy for the country. Most available scenarios suggest that oil prices will remain, for the foreseeable future, lower than the levels required for our country to attain a balanced budget. This may result in the accumulation of fiscal deficits, requiring us to carefully select safe and balanced methods of deficit finance, as we should not solely rely on using our general reserves. Accordingly, the Ministry of Finance (MoF) has been working on a public financing strategy for the coming five years to cover our expected financial needs. Of equal importance is the fact that we are in the process of establishing a special unit to manage public debt within the MoF in order to draw up appropriate borrowing strategies and assess the risks associated with the various borrowing options. This unit will also be responsible for overseeing the borrowing operations in cooperation with Kuwait Investment Authority and the Central Bank of Kuwait.
The other key enabler is the legislative imperative for implementing reforms. Over the past weeks we have identified a list of priority laws, which will be issued during 2017 to support the execution of the economic and fiscal reforms. Some of these cover the privatisation law, corporate profit tax law, commercial registration law, strategic alternative law and insolvency law.
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