Kuwait to cut fuel and power subsidies

Cuts come as oil revenues continue to fall, following predictions of a budget deficit for the first time in 16 years.

2 min read

21 January, 2016

The price of oil has lost three quarters of its value since mid-2014 [Getty]

Heavy subsidies on fuel and power in Kuwait are to be cut in a bid to offset a drop in oil revenues, Kuwait's Emir Sheikh Sabah al-Ahmad al-Saba said on Thursday.

"We will lift subsidies and raise the prices of petrol, electricity and water," while also reducing subsidies for other services, Kuwait's Al-Rai quoted the emir as telling editors of the coutnry's newspapers.

Kuwait is the only member of the six-nation energy-dependent Gulf Cooperation Council (GCC) that has not hiked the prices of petrol and power after oil income plunged.

Saudi Arabia, the United Arab Emirates, Qatar, Oman and Bahrain have either raised or liberalised fuel and power prices, saving billions of dollars.

The emir, however, did not give any timeframe for the measures.

Last year, Kuwait liberalised the prices of diesel and kerosene - allowing the market to set rates instead of government bureaucrats.

The government has allocated around $7 billion in the 2015/2016 budget for fuel and power subsidies. A similar amount is earmarked for other forms of subsidies and social aid.

The tiny Gulf state has posted a budget surplus in each of the past 16 years, accumulating fiscal reserves in excess of $600 billion. However, it is projecting a deficit of $23 billion in to the year to March 31.

The price of oil, which contributes around 94 percent of Kuwait's revenues, has lost three quarters of its value since mid-2014. The price of Kuwaiti oil in particular has slumped to just $19 a barrel.

The emirate has a native population of 1.3 million and is also home to about 2.9 million foreigners.

Gulf states are being hit hard by a combination of slow global growth - including in China - and Iran's return to the world market.

Oil prices fell to a 12-year low earlier this month.

In December, Saudi Arabia raised the price of petrol at the pumps by 40 percent as part of a plan to cut subsidies, after issuing its 2016 budget projecting a deficit of 326 billion riyals ($87 billion).

Earlier this week, Oman's oil minister Mohammad al-Rumhy said Muscat was willing to cut oil output by up to 10 percent to prop up oil prices - if other producing states were willing to do the same.