By: Ahmed Awad
Kuwait – Mubasher: Kuwait will raise its petrol prices by 60% starting from 1 September, as per a court ruling, to face the budget’s deficit, according to Kuwait’s cabinet meeting.
The price of low-octane petrol will rise 42% to 85 fils from 60 fils a litre while high-grade petrol by 61% to 105 fils from 65 fils a litre.
Eco-friendly low-emission “ultra” petrol will jump 84% to 165 fils from 90 fils a litre.
The Kuwaiti government’s decision targets shrinking the budget deficit, amounting to KWD 9.5 billion ($31.5 billion) in FY 2016/2017.
Reducing petrol subsides
While petrol subsidy amounts to KWD 280 million, the government’s decisions aim to reduce it by 75% over the coming three years to total KWD 68 million in FY 2018-2019.
The petrol price average is likely to hike 110% over the next three years, with the aim of increasing the consumer price index by 0.5 percentage points, according to a research by Ernest and Young institute for the Kuwaiti finance ministry.
Inflationary pressures
The increase in low-octane petrol prices in Kuwait will contribute to more inflationary pressures, added to imposing burdens on the Kuwaiti dinar’s purchasing power, aside from the pressures faced by the currency from falling oil prices.
General inflation went down to 2.8% on an annual basis in May, compared to 3.3% in the previous year, according to a report released by the National Bank of Kuwait's (NBK) research unit .
The move to raise petrol prices was met with a public objection, questioning the reasons behind the austerity measures, despite the surplus of petrol revenues by billions during the years that witnessed $100 per barrel.
Reforming public finance
Kuwait aims to reform its public finance on six axes, which include imposing taxes on capital profits and adopting the value-added tax (VAT) law, added to privatising projects till 2019 at a value of KWD 5.4 billion.
KWD 23bn deficit till 2020
The International Monetary Fund (IMF) expects that the accumulative deficit in Kuwait’s budget will reach KWD 23 billion ($76 billion) during the period between 2015 and 2020, where the oil price retreat crisis has resulted in a decline in the country’s revenues by more than 60%.
Petrol represents more than 93% of Kuwait's total revenues, while wages and subsidies represent more than 70% of total expenses.
Indebtedness
Kuwait intends to seek local and international borrowing in the coming period to get KWD 5 billion.
The Gulf country will also hold discussions with global banks to issue KWD 3 billion in the form of international bonds that will equal $10 billion by the beginning of 2017.
Energy prices rise for Expats
The low-octane petrol price hike follows a similar move back in April when the government more than doubled the tariff for electricity and water delivered to expats, raising the cost of living.
Translated by: Sara Ghali
