Kuwait, once known as one of the wealthiest countries in the world, once accumulated a lot of wealth by exporting oil, but now faces financial constraints because of the sharp drop in oil prices, according to the U.S. Bloomberg News Agency.
The American media even claimed in its headline that the country was "running out of money"
(screenshots from a report by Bloomberg)
According to the report of Peng Bo, the reason why Kuwait is in such a situation is that the international crude oil price has been continuously depressed since 2014. In addition, this novel coronavirus pneumonia impact, while governments in search of alternative clean energy for energy conservation and emission reduction, under such circumstances, crude oil prices are also facing downward pressure.
(screenshots from a report by Bloomberg)
But at the same time, the country, which relies on energy exports for 90% of its fiscal revenue, is still quite "extravagant" in terms of public expenditure. For example, when the oil price was high, the government's "welfare" that directly distributed cash to the whole people had not been cancelled, and the state-owned oil companies, which provided 80% of the jobs in the country, were still paying more to their employees than the private sector Wages and benefits of enterprises.
As a result, the country's fiscal deficit has become more and more serious, and it has been in deficit for seven consecutive years since 2014. Now, the country's current assets are not enough to ease its $46 billion deficit, according to the news agency.
However, according to the news agency, the country still has an "old capital" to eat. That is, in order to deal with the situation of "oil depletion", the country established a special fund in 1976, called "future generations fund".
Since 10% of Kuwait's oil sales revenue is injected into the fund every year, the fund is now worth $550 billion. Kuwait is now using the money to ease its fiscal deficit, and the country's Congress has decided not to inject 10% of its oil revenues into the fund for the time being this year, according to Bloomberg. However, there are many people who are against it in the country. They worry that if they just eat the "old money" instead of trying to promote economic reform, eliminate excessive dependence on energy, diversify economic sources and create new jobs, the 550 billion "old capital" will be consumed in 20 years.
However, due to the great opposition between the Parliament and the government of Kuwait, some policies of increasing income and reducing expenditure and economic reform that should have been introduced have been delayed. What's more, according to the news agency, many Kuwaitis believe their country will be "forever rich" because they have been "raised rich" for many years and are not aware of the crisis. So although some politicians and officials in the country saw the urgency of the problem and issued warnings, they were regarded as "groundless worries".
Finally, except for Kuwait, other countries in the Middle East that have grown rich by selling oil are now facing austerity, according to the news agency. Among them, Saudi Arabia has begun to cut benefits and increase taxes, while countries such as Bahrain and Oman, which are not rich in oil resources, have to borrow money from richer neighbors. The UAE is looking for ways to diversify its economy through the rise of Dubai, making it a financial and logistics center in the Middle East.
But these countries need to accelerate their economic reform further if they want to avoid a complete outbreak of their own economy's weakness of relying too much on energy.