Complex Made Simple

How does Kuwait reduce a $23.6bn budget deficit? Layoffs!

Kuwait’s budget deficit battle is off to a bad start.

According to Arab Times, an agreement to supply Kuwait with Iraqi gas is hamstrung after Iraq did not agree on the price offered by Kuwait.

“The point of contention is the pricing of 1,000 cubic feet (cf) of gas, for which Iraq is asking $5 while Kuwait wants it for $3,” said the daily.

As the agreement stipulates a gas supply reaching 500 million cf per day, the price difference is an additional cost of $1 million per day.

But that’s the least of Kuwait’s challenges.

The country wants to lay off thousands of foreigners as part of Kuwaitization, but reducing a ballooning budget deficit is at the core of the initiative.

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Massive public sector firings ordered

According to Gulf Business, Kuwait’s finance ministry is instructing ministries and government entities to prepare lists of foreign employees to be cut from April 2018 to March to limit public sector roles to Kuwaitis, quoting Arabic language newspaper Al-Anbaa.

“The government has committed to reducing the number of expat employees in a number of job categories each year to reach a 100% Kuwaiti workforce by 2022,” the daily said.

“The finance ministry has requested the lists of foreign workers to be terminated in the coming fiscal year in order to estimate budget expenses and cut the government’s wage bill.”

According to the daily, funds were requested to make up the difference in salaries paid to the former employees and their Kuwaiti replacements amid reports that Kuwaitr will restructure the salaries and incentives of all government sector workers by the beginning of 2019.

Kuwait has been debating in parliament calls to reduce the number of foreign workers estimated to make up 70% of the 4.4 million population.

The government jobs that must be fully Kuwaitised by 2022 are in information technology, marine, arts, information, letters and public relations, development, administrative and statistics and administrative support roles, said the daily.

Read: Kuwait makes headlines for plane collision, soccer accident, hunger strike

 Private banks get the order too

According to Gulf Business online, Kuwaiti banks have been informed that Kuwaiti citizens are to take up most of the posts offered at the financial institutions, especially at leadership positions, citing Kuwait Times sources.

“This has seen the number of Kuwaiti CEOs, deputy CEOs, department managers and section heads increase to 33% at the country’s banks, and the new instructions mean banks must increase the percentage of Kuwaitis holding various banking positions to 70%,” said the media.

The Kuwaiti central bank had instructed local lenders to phase out foreign staff and constrain their activities to training activities only.

A supreme committee tasked with reducing Kuwait’s foreign population has proposed new measures that include reducing the number of domestic visas issued per person from five to three and doubling fines for residency law violations from KD2 ($6.63) to KD4 ($13.25) per day to a maximum of KD1,000 ($3,313), according to local reports.

Read: Kuwait’s population could quickly drop by 300,000 as country cleans house

 A large deficit burden

According to Kuwait’s official news agency KUNA, projected expenditure in the 2017-18 Kuwaiti budget amounts to approximately KD21.2bn ($70.17bn) and estimated income stands at KD13.3bn ($44.23bn), with a KD 7.9bn deficit ($23.6bn).

Figures of the 2017-18 State budget have been set on forecast oil price at $45 per barrel with equilibrium reached if price is at $71.

Payroll allocations are estimated in the 2016-2017 budget of KD16.7bn ($50bn).

Forecast oil revenues for the 2017-18 year amount to some KD11.7bn ($39bn) parts of which will cover 161 total projects costing KD 4.57 bn ($15bn), using “New Kuwait” as a basis of the development strategy that includes government administration, sustainable and diversified economy, and creative manpower.