Recently a number of measures have been considered in Kuwait that target the country’s substantial population of expatriates. It is important before this issue is examined in more detail that the background be discussed. It is estimated that out of a total population of about three million, two thirds are expatriates while the remaining one million are citizens. There is, essentially, a dichotomy in the economy between these two groups. The state provides essentially guaranteed employment to its citizens in the public sector that comes with generous benefits, and citizens have taken advantage, with more than 90 percent of them holding jobs in the public sector. Meanwhile, the private sector is dominated by expatriates, who hold over 98 percent of the jobs.
The expense of employing approximately 91 percent of its citizens is a substantial one for the Kuwaiti government, but it is one that it is currently able to afford due to the current high price of oil. Kuwait export crude is projected to be $107 per barrel with one month remaining in the fiscal year, which leads to a major surplus. However, the official budget projections, which are included in this economic report by the National Bank of Kuwait, are calculated with a projected oil price of $65 for 2012/2013 and a projected oil price of $70 for 2013/2014. According to these figures, if the oil prices were at that level, Kuwait would have large budget deficits, totaling approximately KD7.3 billion ($25 billion) for 2012/2013 and KD3.05 billion ($10.7 billion) for 2013.
Since the Arab Spring began at the beginning of 2011, the regime has done two things – first, it has reacted to clamp down on dissent, and second, it has boosted government spending substantially. These spending increases could include granting interest relief to Kuwaiti citizens who overspent their income and obtained personal loans to do so, or having the government purchase the loans. The issue, beyond that of equity or fairness, is that financial institutions are likely to continue extending such loans if they believe that the state would continue to bail them out by repaying them.
This increased spending has happened to a degree that the World Bank reported in 2012 that it would be unable to sustain it over the long term. The IMF projected in 2012 that at the current rate Kuwait would run out of extra oil revenue by 2017 and would no longer be able to save funds for its future generations fund. At the time that report was written it estimated that the breakeven point was $44 per barrel, but the recent budget projections show that the breakeven point is now substantially higher.
It is impossible to predict the direction of oil prices, and a decline to $70 a barrel is not unforeseeable. It might not be likely, but it is not impossible either, and would, as the statistics above show, put a serious strain on Kuwait’s budget (and could lead to subsidy reductions as well). It is therefore necessary to increase the private sector employment opportunities for Kuwait’s citizens so that they do not need to rely on government employment, which over the long term could be affected by fluctuations in the price of oil. There was recently a plan passed by the National Assembly to help finance small business projects that employ citizens but it has been criticized as having many of the same flaws as previous efforts, which helped establish some businesses but these did not employ substantial numbers of Kuwait’s citizens. There is, then, a pressing need for employment for the substantial young population, but currently a lack of adequate steps being taken. A recent $111 billion development plan that included contributions from the private sector was blocked by parliament last year. The danger is that Kuwait will, even with recent measures to attract foreign investment, lose out on business to other states in the region such as the UAE.
It is in this context then, that recent measures have been taken targeting Kuwait’s substantial population of expatriate workers. The Ministry of Social Affairs and Labor announced a plan to reduce the number of expats by 100,000 annually to reach 1 million in ten years. The Kuwaiti Ministry of Health recently implemented a measure intended to segregate the hours that Kuwaitis and expatriates receive non-emergency medical care. They have also been blamed even for traffic jams and accidents. However, the measures to restrict expatriates have two flaws – first, they are attempting to scapegoat a population of workers for issues beyond their control. Expats only recently (in 2010) received a degree of protection that included a minimum wage, and have suffered abuse from employers in the past. Second, it could under present economic conditions lead to a loss of valuable skilled workers, as a recent survey of Kuwaiti citizens showed.
What, then, is the solution? The exclusion of citizens from meaningful economic (and increasingly political) participation is a long-term issue that need to be addressed. What is required is careful study and well-studied and implemented plans, not measures intended to target a class of workers for long-term problems that are not of their creation.