THE PROPOSED SOLUTIONS FOR THE DEFICIT ARE INSUFFICIENT
With the shrinking of our income, we have begun to dig up old ledgers in search of scapegoats to blame for the loss of revenue, and thence, in search of someone to burden with our expenses and free more net income for us.
This is very normal thinking and reflects commercial shrewdness usually restricted to private companies.
But, even private companies sometimes fail in tackling excess expenses over revenues, and are forced into bankruptcy, while others downsize to a fraction of their previous self, and a few, find salvation by merging with bigger companies, or with similar but more successful and profitable ones.
Today, Kuwait (and other oil producers) face such a condition. Oil prices have crashed causing government revenues to collapse. The problem is that these revenues represent the main income stream for individuals in the form of salaries to citizens and working expatriates. It also, represents the main income for all companies in the country, who depend on government purchases and tenders. Companies also depend on consumers spending their government salaries on local purchases.
With the shrinking of government revenues, and public expenditure continuing at its previous high rate, budget deficits are becoming the norm, forcing a drawdown on the State surplus reserves. Kuwait reserves are two types of savings: The first are normal reserves which result from annual government budget surpluses and are used to shore up temporary income shortfalls and for investment. The second type are our children and grandchildren’s savings stashed away for a rainy day in the unknown future. In short, using the first reserve is acceptable on a temporary basis, but using the second reserve is theoretically abhorred, except in exceptional cases.
As the deficits are beginning to seem as though they are here to stay and are growing, it has become obvious that to continue in our present path will soon lead to poaching our children’s piggy bank. But our government financial pundits were quick to the rescue, and they came up with the clever idea of borrowing from the financial markets to cover the deficits. They probably regarded it as a financial coup, with interest rates at ridiculously low levels. Also, as a parallel rescue tool, they came up with an “Economic Restructuring Plan”, which although good in principle, may be overly optimistic with unclear priorities.
Unfortunately, loans have to be repaid. And even loans with zero interest will not be viable if the borrowers are unable to generate surpluses to repay them with. In such cases, loan can become so burdensome that they can quickly and easily impoverish a country, and Africa and South America are full of sad examples – not to mention Greece and other European countries. Only big and powerful countries can get away with not repaying their loans.
On another front, private individuals also jumped in on the act of finding solutions to the deficits, and with the same commercial shrewdness, they figured out the easiest way out is to transfer some of the government’s expenses onto other parties, such as the expatriate community. They erroneously concluded that this would reduce the deficit and remove the specter of new or increased government rates and taxes. They simply followed the standard commercial formula of eliminating the middleman.
Some believe that, between the Government pundits and the individual pseudo-economists, matters will return to their previous idealistic beautiful state.
The problem with this train of thought is that, it ignores productive revenue and concentrates on small expenses. Increasing rates to induce public consumption rationalization will take us only a small part of the way and may, in the process, impoverish society. As for threatening the livelihood of the expatriate work force, this will only unsettle and annoy them and isn’t likely to deliver positive results.
The real issues that need to be addressed are the huge government expenses, and how to generate real revenue other than oil. As for the expatriate labor, they are here to do a job and earn a living. If we can do that job ourselves, then they would naturally leave. (see our views & solutions published on 13 April 2016).
It seems that the present solutions floating around are insufficient, and unless they are reconsidered, we will eventually face either a bankruptcy, or a downsizing of the welfare state that we have become so accustomed to. The last remaining option would be to merge economically with someone successful, such as Norway? But here too, we must be careful, for even Norway, could soon face difficulties with its ever growing property bubble.