IMF concerned about Kuwait's finances-central bank

KUWAIT Sun May 13, 2012 10:47am EDT

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KUWAIT May 13 (Reuters) - Kuwait's recent wage hikes have raised concerns about the sustainability of its public finances, its central bank governor told the state news agency KUNA, citing a preliminary report from the International Monetary Fund (IMF).

The IMF said Kuwait's fiscal stimulus had helped non-oil sectors to recover from the global financial crisis, Governor Mohammad al-Hashel was quoted as saying by KUNA.

"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 IMF was in Kuwait on a regular visit between April 18 and 30, Hashel told KUNA.

Around 3,000 Kuwaiti customs workers went on a week-long strike in March, which disrupted traffic at ports, demanding higher salary increases despite the government plan for a 25 percent rise in public wages. Employees at national carrier Kuwait Airways grounded planes for three days during a walkout.

The IMF said that the rising cost of retirement would also put pressure on public finances, KUNA reported. Only 7 percent of Kuwaitis work in the private sector, the report also said.

Policymakers and economists in Kuwait, a member of the Organisation of the Petroleum Exporting Countries, have warned that growth in public-sector salaries is unsustainable in the long term. They say it also puts pressure on private sector wages and could fuel inflation, which reached a four-month high of 4.1 percent on an annual basis in March.

The IMF forecast 4.4 percent inflation in 2012, KUNA said. It also sees a budget surplus of 30 percent of gross domestic product and a current account surplus of 40 percent 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.

"The report predicts increased recovery of the economy this year led by high Kuwaiti government spending," it said. Real GDP is seen at 6.6 percent, it added, compared to 8.3 percent in 2011.

Kuwait, which pegs its dinar to an undisclosed basket of currencies believed to be heavily dominated by the U.S. dollar, last changed its key discount rate in February 2010, when it cut it by 50 basis points to 2.50 percent to spur non-oil growth.

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Comments (4)
mikesvoice wrote:
“Only 7 percent of Kuwaitis work in the private sector, the report also said.” Think 93% Gov’t employment might be the problem? Of course there is some % of unemployment, but the do get $$ from the Gov’t sector. Additional proof that Socialism, Progressive Gov’t, DemocRAT, type Government ruling is a failure!!! OPM only last so long!

May 13, 2012 5:21pm EDT  --  Report as abuse
sailordude wrote:
Only 7% work in the private sector, 20% work for the government, and 73% do nothing and get paid for it! I live here as an American Ex Pat for many years, I have a good feeling on this. They are swimming in oil money! If Kuwait tried to reform anything, the Arabs here would FREAK OUT! With all the bad IMF news in the world, I would think Kuwait ranks near the bottom in importance.

May 14, 2012 6:35am EDT  --  Report as abuse
Davidus wrote:
Just like it said in that book – “Confessions of an Economic Hit Man.”
The IMF hits countries hard and give false illusions of helping a country. If you are unable to pay back then IMF asks that you allow the US to host its military or so in its country. So give a country something that only the rich could use and not beneficial to all the citizens and then make it so expensive that the economy crashes. The IMF did that to South America and the economy was on a slow road to death. So South American kicked IMF and its policies out and the country is once again booming. Want to do good for your country? Keep the World Bank and IMF out!

May 14, 2012 7:04am EDT  --  Report as abuse
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