Kuwait's emir tells new parliament austerity is inevitable

KUWAIT (Reuters) - Cutting public spending has become inevitable because of the sharp drop in oil prices, Kuwait's emir on Sunday told a new parliament that was elected partly by voters protesting against austerity policies.

Kuwait is seeking to plug a budget deficit officially projected at 9.5 billion dinars ($31 billion) for the current fiscal year through March 31, after payments to the sovereign wealth fund.

But Kuwaitis, who are citizens of one of the world's top oil exporting states, bristled at gasoline price hikes earlier this year, and candidates who oppose planned public sector wage restraint and other price hikes won nearly half of the seats in the 50-member National Assembly last month.

Addressing the opening session of the new parliament on Sunday, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah said a sharp drop in state revenue due to lower oil prices over the past two years was the second most serious challenge facing Kuwait, after regional security threats.

"I am certain that your esteemed council and my brothers and sons, all citizens, realize that cutting public spending through careful measures to fix the imbalance in the state budget, stopping waste and the bleeding of our national resources...has become inevitable," he said.

He also said the government must be careful not to overlook social justice and the need to ease the burden on low-income Kuwaitis.

Prime Minister Sheikh Jaber al-Mubarak al-Sabah, who was reappointed by the emir to head the new government after the election, told parliament he intended to push ahead with plans to diversify the economy beyond oil, which would be presented to the assembly soon.

Kuwait's parliament has the right to grill government ministers, including the prime minister, and it can block legislation; it is frequently at loggerheads with the cabinet, and such stalemates have hampered crucial reforms.

In a report last week, credit rating agency Fitch Ratings said that because of the election result, "the government may back down from more substantive initiatives such as public sector pay reform, particularly if the oil price recovery is sustained".

"Nevertheless, it could still pursue some of its fiscal agenda with smaller, less contentious measures, for example enforcing existing subsidy rules or linking public sector bonuses to job attendance," Fitch said.

(Reporting by Ahmed Hagagy; Writing by Sami Aboudi; Editing by Andrew Torchia and Raissa Kasolowsky)

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