Public finances on track, DMO office set up
As with other hydrocarbon-dependent economies, the main challenge facing Kuwait over the past three years has been adapting to a new environment of lower oil prices. Buoyed by a strong sovereign balance sheet and hampered by local political divisions, policymakers in the Gulf state have been slower to react to falling revenues than their peers in some neighbouring countries. Over the past year, however, significant progress has finally been made in implementing fiscal and economic reform. Anas Khalid Al Saleh, Kuwait’s dynamic young finance minister, has been a key driver of this process. Educated in the US, Al Saleh joined the cabinet in 2012 as minister of commerce and industry following a career in business and banking. He moved to the finance ministry in January 2014 and has also held the office of deputy prime minister since January 2015.
In his capacity as finance minister, Al Saleh has played a leading role in putting Kuwait’s public finances on a sustainable trajectory following the collapse of the oil price in late 2014. A sharp decline in commodity revenues has been at least partly offset by a reduction in fuel subsidies, implemented in September last year, and more recent hikes in electricity and water tariffs. Further subsidy cuts have been promised as well as curbs on public sector pay.
Promise of taxes
On the revenue side, Kuwait joined other Gulf states last year in pledging to introduce VAT and excise tax. A levy on corporate profits is also in the works and in addition Al Saleh has advocated the sale of minority stakes in Kuwaiti public sector firms as a means of raising budgetary funds and improving governance.
He was also responsible for the establishment of a debt management office within the finance ministry last year, which paved the way for Kuwait’s stunningly successful sovereign Eurobond debut in March. The eagerly anticipated deal raised $8bn of five and 10 year financing for the public budget at ultra-low yields on the back of strong demand from funds in Europe and the US as well as regional investors, with total orders topping $27bn.
Even after the transaction, however, Kuwait’s public debt to GDP ratio remained below 20%, leaving policymakers with ample room to tap international markets for further budgetary requirements over the coming years. The country also still boasts foreign exchange savings of $550bn.
Al Saleh has also earned plaudits for promoting much-needed institutional reforms, including improvements in co-ordination between the finance ministry, the central bank and Kuwait’s sovereign wealth fund. Moody’s cited improvements in Kuwait’s institutional capacity to effectively implement fiscal and economic reforms as a key factor in its decision to upgrade the outlook on the sovereign’s rating from negative to stable in May