The private sector in Kuwait must do more to address the employment imbalance of nationals, according to the governor of the country’s central bank, Dr Mohammad Y. Al-Hashel.
Al-Hashel stressed this was one of three areas of concern as the country strives for economic stability and sustainability, alongside the threats posed by climate change and the dominance of the government sector over economic activity.
According to the 49th issue of the Economic Report from the Central Bank of Kuwait (CBK), the government sector employs 81 percent of the Kuwaiti workforce, “clearly causing budgetary inflation and further spreading bureaucracy, poor performance, low productivity and disguised unemployment”.
Estimates suggest that, over the next five years, 100,000 more Kuwaiti nationals will enter the job market, with the government sector simply unable to accommodate such numbers.
“It is accordingly necessary to address the salaries item as part of medium-term financial reform,” the report said. “The private sector has to play a bigger role with enhanced public-private sector partnerships, as well as increased competitiveness and ability to create jobs.”
Prime Minister Sabah Al-Khaled Al-Sabah said last year the number of non-Kuwaitis should be capped at 30 percent of the 4.8 million population, down from 70 percent currently, to “resolve the demographic imbalance”.
Kuwait’s Prime Minister His Highness Sheikh Sabah Al-Khaled Al-Hamad Al-Sabah
The report added: “Privatisation needs to be pushed ahead with to enable the sector to become the main employer for nationals.
“The government sector meanwhile should simplify the salaries and pay structure and ensure its fairness and its compatibility among all state entities in a manner that does not cause nationals to shy away from seeking private sector employment.”
Public spending in Kuwait has accelerated in recent years with marked leaps in current expenditures that went all the way up to 88 percent of overall actual expenditures in the 2019-2020 budget.
Government spending to GDP ratio, meanwhile, came to 52 percent, which is the highest within the GCC region and among the highest in the world, with the global average standing at between 30-38 percent.
But the report warned: “However, this generous spending does not come with excellence or efficiency in services and the quality public services still lags behind that seen in countries of comparable financial and economic conditions and level of public spending.”
The third imbalance identified by the governor surrounding the long-term threat to lowering demand for oil as world leaders look to address climate change.
Over the next five years, 100,000 more Kuwaiti nationals will enter the job market
Meeting in the UK this week, leaders of the G7 committed to a “green revolution” that would limit the rise in global temperatures to 1.5 Celsius. They also promised to reach net-zero carbon emissions by 2050, halve emissions by 2030, and to conserve or protect at least 30 percent of land and oceans by 2030.
However, the CBK report said: “On one hand, such global trends threaten the oil sector which contributes significantly to the GDP, and on the other, they pose a threat to financial stability since Kuwaiti banks extend immense facilities to oil sector projects and would be negatively affected by any slump in the sector.
“Therefore, the CBK’s credit and regulatory policies continue to aim at bolstering social and economic development while, at the same time, directing the banking sector to set up buffers and reserves to offset exposure to the oil sector.”
While non-oil GDP is gradually recovering, it is unlikely to return to pre-pandemic levels until 2022, but the sector is expected to account for the bulk of Kuwait’s anticipated 2.5 percent GDP growth this year, according to the Oxford Economics’ Economic Insight report commissioned by ICAEW.
Governor of the Central Bank of Kuwait Dr. Mohammad Y. Al-Hashel
Al-Hashel said: “Unless serious and impactful financial and economic reform measures are taken, economic stability and sustainability would be unattainable, and we would see the further lowering of sovereign credit ratings and deterioration of the State’s economic and financial conditions.
“This would further lead to higher cost to public finances, should borrowing from external markets be opted for, and serious damage to a financial reputation that had been renowned for years.
“The lower rating would also have an impact on the banking sector in the country, which had long maintained high credit ratings supported by the State’s sovereign credit rating.”
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