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Populist plan to pay down private debt is another sign of Kuwait’s ills

IN October Kuwait The Treasury has a stern message to the government: Don’t waste money. Yes, oil prices are high and the deficit has shrunk, but now is the time for fiscal discipline. Weeks later, however, lawmakers introduced a bill that would force the state to pay for new cars, vacations or anything else citizens might buy on credit.

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Under the proposal, the government would purchase consumer loans worth billions of dinars. It will write off the interest on the principal over a long period of time and schedule repayments, with monthly installments deducted from the cost of living allowance paid to citizens. In effect, the state will repay private debt.

The proposal caused an uproar in Kuwait’s parliament, which, unlike other Gulf states, has real power. Earlier this month, ministers walked out of the meeting in protest. On January 23, the cabinet resigned due to a power struggle with the parliament, the fifth resignation of the Kuwaiti government since December 2020.

Supporters say it will help struggling families. Critics say the measure would damage public finances. The central bank estimates that more than 500,000 Kuwaitis have eligible loans worth 14 billion dinars ($46 billion), or 60 percent of projected revenue in this year’s budget. (CongressmanHe claims the program is much less costly. ) it would also set a precedent for future write-offs: the program is the epitome of moral hazard.

These were supposed to be boom times for Kuwait. It is the tenth largest oil producer in the world, producing about 2.8 million barrels of oil per day, and is a small country of just 4 million people, less than half of which are citizens.this International Monetary Fund explain gross domestic product It was up 8.7% last year. Its sovereign wealth fund is one of the largest in the world, and the government’s debt-gross domestic product The 7% rate is the smallest in the world.

But dysfunctional politics are holding it back, as it has long done. Conservative Islamists did well in last year’s general election. About one-third of the newly elected Congressmans signed a pledge calling for sex-segregated schools and other restrictions. Last year, hardliners sought to ban the annual marathon, which features musical performances and men and women running together.

Apart from conservatism, Parliament also has populist tendencies. Other Gulf states are trying to diversify their economies away from oil and attract foreign investors. Kuwait has all but abandoned plans to develop its private sector.

Government policy is not much better. Early in the pandemic, it imposed price controls amid concerns over food safety — Kuwait imports 90 percent of its food. It left them in place long after it became clear that the imports were unaffected. Prices soared after deregulation, leading to one of the highest inflation rates in the Gulf region last year.

Kuwait now has the highest rate of youth unemployment in the Gulf region, with at least one in six people out of work. Citizens complain about everything from potholes to poor public education and health care. Maybe they should pay to fix their own streets and schools: if they go on credit, the state might pay them back.

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