Kuwait’s plan to reduce expats ‘to impact economic growth’

Kuwait plans to reduce expats

New research says it will take a generation to replace large number of foreign workers with Kuwaiti ones. Kuwait’s plan to cut expat numbers by 1.5 million over the next seven years will impact economic growth, according to new research.

Dr Paul Wetterwald, chief economist for Indosuez Wealth Management, the global wealth management division of Crédit Agricole, said it will be “almost impossible” to achieve the replacement of such a large number of foreign workers with Kuwaiti ones in a timescale less than a generation.

Like its oil producing peers, Kuwait is trying to build a more diversified economy but is also willing to favour its national workforce.

“This ‘demographic management’ will not go without impacting growth. After all, growth is the combination of population growth and productivity,” said Wetterwald in a new research note.

The plan by the government aims to limit the number of foreigners in Kuwait to 25 percent of the population, meaning at least 600,000 Indians and 300,000 Egyptians will be among those reduced as they constitute the largest expat communities.

However, it does not explain the fate of 120,000 Bedouins or stateless people, nor does it specify whether the cuts will include 650,000 domestic helpers.

He added that the postponement of the implementation of a 5 percent value-added tax (VAT) until 2021 will hit government revenues.

“This will represent a lack of revenues for the Kuwaiti government against a framework of a generous welfare state including fuel, electricity, and water subsidies and the large economic role of the public sector,” he said, adding: “Clearly this loss of non-oil revenues will be compounded by the recent fall in oil prices. It illustrates that the rhythm of reforms has somewhat stalled.”

That being said, the country still has one of the lowest fiscal breakeven oil prices, and the ratio of public debt-to-GDP is around 20 percent.

Forex reserves amounted to $34.2 billion as of September 2018, whereas external debt totalled $59.6 billion, or 50 percent of GDP, the research note said.

It also noted that the recent strength in the US dollar and the US Fed’s tightening is less of a worry for the Kuwaiti central bank, as the Kuwait dinar is pegged to a basket of currencies and not to the US dollar alone.

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