Economic crisis: Kuwait will not be able to pay state salaries after October

The Arab country is facing an unprecedented economic crisis caused by the pandemic and the fall in oil prices
Kuwaiti Prime Minister Sheikh Sabah al-Khaled al-Sabah during a parliamentary session in the National Assembly of Kuwait on 12 August 2020

AFP/YASSER AL-ZAYYAT  -   Kuwaiti Prime Minister Sheikh Sabah al-Khaled al-Sabah during a parliamentary session in the National Assembly of Kuwait on 12 August 2020

At the end of July, the World Bank warned that the COVID-19 pandemic had been the hardest blow to the Kuwaiti economy since the Iraqi invasion in 1990.

The Arabian Peninsula country's representative to the World Bank, Ghassan Alkhoja, said the country's economy would contract by 5.4% this year and recover by about 1% in 2021," according to the Al-Anba media.

This crisis, caused by the drop in oil prices in a country that bases its economy on oil exports, has led the Finance Minister, Barak al-Sheetan, to warn in Parliament that the country will not have sufficient funds to cover the salaries of public officials.

The drop in oil prices and the OPEC agreement to reduce production has been seen by financiers and economists as an unexpected situation for a country known for its wealth and prosperity, given the abundance of financial income compared to its population, which barely reaches 4.5 million.

According to Bloomberg, Al-Sheetan has confirmed that the Kuwaiti Government is withdrawing from its General Reserve Fund at a rate of 1.7 billion dinars per month, just over.

The budget deficit of the Arab country increased by 69%, according to the Minister of Finance, and the Government estimates that it will be over $45.7 billion in the current fiscal year.

The minister added that liquidity will soon run out if oil prices do not improve and if Kuwait cannot borrow from local and international markets.

Cutting back on civil servants

According to the Kuwaiti authorities, salaries and allowances for public workers account for 76% of all expenditure, and Al-Sheetan already warns: "In the medium and long term, in the absence of debt, further austerity measures should be applied to public expenditure".

The American media reported that Kuwait only has 6.6 billion dollars of liquidity in its treasury, an amount that will not allow it to cover salaries beyond October.

This crisis comes in a climate of exchange of accusations that pit government officials against legislators for "mismanagement of public money".

Legislators are blocking deposits that would allow the Kuwaiti government to borrow from abroad. 

According to Reuters news agency, on Wednesday the Kuwaiti parliament passed a law to restrict transfers of state revenue to its sovereign wealth funds. This decision aims to inject more than $12 billion into Kuwaiti coffers.