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Experts urge Kuwait to reform subsidy system to save $2.8bn

Country’s economy may collect $76bn to $103bn a year “if the saving is well invested”

A number of global experts urged the Kuwaiti government to focus on reforming the subsidy system to achieve sustainable economic growth, robust public finance and efficient social protection.

Subsidized prices harm economic efficiency and trigger deadweight losses, according to Ananthakrishnan Prasad, head of the International Monetary Fund’s mission to Kuwait.

Speaking at a panel discussion on Kuwait’s subsidy system, Prasad said Kuwait will save an amount of $2.8 billion – equal to 1.6 to 2.2 per cent of gross domestic product – if it deregulates fuel prices to the current level of US fuel prices while fully compensating consumers.

He further added that the economy of the oil-rich Arab nation may collect $76bn to $103bn a year if the saving is well invested.

The high prices of oil during most years of the past decade encouraged the Kuwait government to substantially expand public expenditure and post strong growth, but this era is over, for now at least, Prasad said, urging the country’s government to embark on a gradual reduction of public spending.

In the remarks published by the Al-Rai daily, the expert said Kuwait could face a major budget deficit if no tightly knit plans are incorporated to control public finance in the medium term, creating a sort of balance between spending and revenues.

Other experts, who attended the discussion, noted that close to 50 per cent of global fuel subsidies are being spent by Middle Eastern and North African nations.

They said the time now is ripe to reform the costly blanket fuel subsidy system in light of the relatively low prices of crude oil in international markets.