Kuwaiti central bank governor said a preliminary report from the International Monetary Fund (IMF) has expressed concern about the sustainability of its public finances due to the government’s hike in public spending.
State-run Kuwait News Agency (KUNA) quoted Governor Mohammad al-Hashel as saying that the IMF noted Kuwait’s non-oil sectors have benefitted from the fiscal stimulus package introduced by the government.
“But elements of the fiscal stimulus, such as the increase in wages in the state budget for the financial year (2012-2013) raised concern about the sustainability of public finances in the medium term … and management of public finances in the short-term,” the report said.
The central bank governor told KUNA that an IMF delegation was in Kuwait between 18 to 30 April.
Around 3,000 Kuwaiti customs workers went on a week-long strike in March demanding higher salary increases despite the government plan for a 25% rise in public wages. Employees at national flag carrier Kuwait Airways also staged an industrial action which led to grounding of planes for three days.
The IMF report insisted that rising cost of retirement would increase burden on public finances while noting that only 7% of Kuwaitis worked in the private sector.
Policymakers and economists of Kuwait, a member of the Organisation of the Petroleum Exporting Countries, have warned the government that growth in public-sector salaries is unsustainable in the long term as it puts pressure on private sector wages and fuel inflation, which hit a four-month high of 4.1% in March.
KUNA said the IMF forecast 4.4% inflation in 2012 and saw the budget surplus rising to about 30% of gross domestic product (GDP). Kuwait’s current account surplus is currently stands at 40% of GDP.
“The IMF expects Kuwait will keep up its ‘liquidity support’ during 2012 and allow interest rates to remain low to encourage credit growth,” KUNA said in its report.
“The report predicts increased recovery of the economy this year led by high Kuwaiti government spending,” it added. Real GDP is seen at 6.6%, it added, compared to 8.3% in 2011.
The Gulf state pegs its dinar to an undisclosed basket of currencies believed to be heavily dominated by the US dollar. The central bank last changed its key discount rate in February 2010, cutting it by 50 basis points to 2.50% to spur non-oil growth.