The government has unveiled a package of economic reforms in mid-March that is a direct response to a protracted slump in global oil prices, which has put pressure on the state budget and heightened the risk of domestic dissent. Key proposals include a 10% tax on corporate profits and deep cuts to state spending on subsidies. The Cabinet stopped short of bolder steps, such as introducing an income tax, but officials had earlier indicated that a 5% value-added tax will take effect in January 2018, in coordination with Kuwait’s regional partners in the GCC.
The reform plan signals the government’s recognition that Kuwait cannot count on an imminent reversal of the slump in oil income. The specific proposals have long been recommended by the IMF, and were heralded by Emir Sabah al-Ahmed al-Sabah back in October 2015, when he warned that deep spending cuts were needed to avoid lasting damage to the country’s financial position.
Displaying unusual speed, lawmakers approved increases in the prices of both electricity and water in mid-April. However, lawmakers insisted that Kuwaiti citizens be exempted from the hikes, which will only apply in the case of businesses and residential apartments, which are almost exclusively inhabited by foreigners.
However, in a sign of trouble to come, over 3,000 workers from different oil companies gathered on March 21 to protest against plans to privatize parts of the industry, voicing objections to government plans to unify the pay scale and benefits system for all public-sector employees. The fear of industrial action will make the government reluctant to push too far at a time of rising regional tension and concerns over Islamist extremism and meddling from Iran. Against that background, it is possible that key provisions of the reform plan will be delayed or diluted.
Kuwait’s close coordination with fellow members of the GCC on security matters is reflected in the adoption of more combative posture toward Iran and its regional allies, which in turn has resulted in the heightening of sectarian tensions at home. In January, Kuwait joined other GCC members in expelling its Iranian ambassador following a diplomatic row triggered by Saudi Arabia’s execution of a leading Shiite cleric, Sheikh Nimr al‑Nimr, which prompted Kuwait’s Shiite lawmakers to boycott the legislature.
The National Assembly is expected to vote on lifting the immunity of a prominent Shiite lawmaker, Abdulhamid Dashti, over comments critical of Saudi Arabia’s intervention in Yemen. The mere fact of the vote is certain to reignite domestic debate on the treatment of Shiites in Kuwait, regardless of the outcome.