Despite the value of a lively Parliament, the political impasse of the past three years has destabilized public policies and hindered the government's ability to develop and implement long-term strategic and sustainable plans.
Ali Noureddine
This article was translated from Arabic.
The Kuwaiti government submitted its resignation on January 23, 2023 to the country’s crown prince. This marked the end of Kuwait’s sixth government in three years and the third government formed by Ahmed Nawaf Al-Ahmad Al-Sabah, the son of the Emir of Kuwait, since August 2022.
This government was unable to last more than 100 days after being formed in mid-October.
Long-term political tension
The short tenures and rapid changes of Kuwaiti governments in recent years indicate the high level of tension between the legislative authority and the government, leading to recurring political crises. This led to the dissolution of Parliament in August 2022, in an effort to break this cycle and elect a new parliament through popular appeal.
These developments reflect the political dynamism evident in Kuwait’s active parliamentary life, in addition to the country’s openness to the principle of pluralism and the ability of various political currents to play a significant role in constitutional institutions. This sets Kuwait apart from the neighboring Gulf monarchies, which lack such political fervor.
However, despite the value of a lively Parliament, the political impasse of the past three years has destabilized public policies and hindered the government’s ability to develop and implement long-term strategic and sustainable plans. This has also affected the country’s competitiveness in terms of economic development and attracting foreign investment, compared to neighboring countries like Qatar, the United Arab Emirates and Saudi Arabia.
There are a growing number of indications that political figures and currents in Parliament’s populist demands, which are fiscally and economically unsustainable for the state, are a key cause of these crises. The widening gap between these expectations and the government’s policies intended to protect the public finances and the economy was what ultimately led to the administration’s recent resignation.
These crises have become more severe as a result of the widening of financial surpluses brought on by rising oil prices globally. Political figures and currents in Parliament are raising unrealistic demands to spend these surpluses on services without added economic or societal value, with the aim of pleasing their electoral bases in the short-term.
As the 10th largest oil producer in the world, with daily production of more than 2.8 million barrels, Kuwait’s GDP grew by 8.7 per cent last year and its government debt-to-GDP ratio is less than 7 per cent – quite low compared to the vast majority of countries in the world. The decrease in the budget deficit by 72 per cent due to increased oil revenues is a contributing factor to Parliament’s growing financial demands.
The New Crisis: A Case of Populism in the Kuwaiti Parliament
In late September, the opposition made significant gains in the early legislative elections following the dissolution of the previous Parliament, winning 60 per cent of the seats in the new assembly. Despite this, Prince Ahmed Nawab Al-Ahmad Al-Sabah continued to serve as the head of state and made an effort to defuse tensions with the opposition and placate Parliament by appointing new members to the cabinet who had not been in prior ministries.
However, when the Finance Committee of Parliament approved a proposal in mid-December for “the state’s acquisition of people’ debts relating to personal and consumer loans,” tensions between the two parties once again escalated. Under the proposal, the state would write off all of these people’s bank obligations, with the understanding that they would pay it back over an extended period of time with low-interest installments.
The proposal also calls for the state to provide citizens monthly financial stipends to aid in loan repayment. In actuality, the majority of citizen-made consumer and personal debts will have been assumed by the government.
The construction of a new business for the procurement and marketing of agricultural products, raising pensions for some retirees, and making Kuwait Airways a state-owned carrier completely controlled by the state were among the expensive measures that the Finance Committee adopted on the same day.
After the Central Bank revealed that 515,000 individuals had taken out loans totaling $50 billion, the authorities promptly stated their concerns about the loan payback scheme. According to the government and Central Bank, Kuwait lacked the financial resources to fund this sum and would have to borrow it, incurring considerable interest costs over the next 25 years.
The Central Bank of Kuwait assured all parties that the situation with respect to loans given to individuals did not call for such a proposition. The fact that only 2.3% of loans are non-performing dispels the assumption that citizens are in a perpetual state of crisis requiring government involvement, and regulations on the banking industry. As such, the government felt that supporting borrowers from public funds was unnecessary.
The government argued that the Parliament’s proposal went against the idea of social equality because it exclusively favors borrowers and leaves out the 62% of Kuwaitis who have not taken out loans. The government therefore expressed that investing these revenues in public services that benefit all Kuwaitis, such as education, healthcare, infrastructure, and public administration, would be more morally and financially responsible.
The proposal also gives affluent groups an advantage over those with low incomes since wealthier groups are more likely to obtain larger loans, particularly when borrowing to pay for luxury goods. The government believes that rather than aiding the most affluent groups, subsidies should be used to meet basic needs.
Resignation in the wake of a crisis
The Kuwaiti Parliament exerted pressure on the government to implement the package of laws approved by the Finance Committee, including the state’s purchase of citizens’ debts. Despite multiple confrontations and discussions, the government refused to make such a commitment.
The government argued that the purchase of debts would result in unprecedented financial stress on the state. In response, Parliament summoned the minister of finance and the minister of state for cabinet affairs for questioning over their refusal to buy debts, indicating that Parliament was escalating the issue.
The government’s refusal to comply with Parliament’s demands ultimately led to its resignation. The government is now in caretaker mode and attention is focused on the formation of a new government. The new government will face the challenge of addressing Parliament’s explosive demands to buy debts.
The new government will have to choose between opposing the Parliament and giving in to its objectives, resulting in a detrimental effect on the Kuwaiti public budget. Despite this, the debt-buying proposal continues to be a prime example of the kind of populist economic ideas that have in the past strained relations between Parliament and Kuwait’s various governments.