KUWAIT, (Reuters) – Kuwait’s government unveiled on Wednesday a proposal to combat record inflation that would cut import duties on food and increase subsidies, but faces pressure from parliament to hike state salaries as well.
Rising prices are a political hot potato in the only Gulf Arab oil exporter that does not peg its currency to the weak dollar.
Inflation topped 10 percent in February, prompting popular demands for the state to spend its $43 billion surplus to offset rising food and rental costs.
Commerce and Industry Minister Ahmad Baqer told the newly-elected parliament, which has demanded immediate action on inflation, that the global rise in commodities prices, population growth and the country’s reliance on food imports were to blame for the rising cost of living.
“The government has understood the negative effects of Kuwait’s inflation, which has taken an upward trajectory recently,” he said.
“Tackling this phenomenon is a national task that requires the government to continue to take the necessary measures.”
As well as reducing import duties and transport costs on food products, the proposal would both increase the value of state subsidies and the number of subsidised products.
Baqer also proposed an increase in farm subsidies in Kuwait and said the government could work with other Gulf Arab states to invest in food production and farming to secure food supplies to a region that is largely desert.
Fellow Gulf countries such as Saudi Arabia are already looking to invest in farming countries such as Brazil, Thailand or India as part of efforts to boost food security.
Governments at a U.N. food crisis summit agreed on Thursday that the world must take urgent action to prevent soaring food prices from pushing millions of people into hunger.
While Kuwait’s relatively small population of around 3.3 million faces little danger of hunger, its relatively open political system means the government faces more popular pressure than in more autocratic Gulf Arab states.
The government proposal would have to be approved by parliament, which already plans to discuss a motion to increase state salaries, setting it on a possible collision course with the government.
A standoff over state salary increases brought Kuwait’s political crisis to a head in March, prompting the previous government to resign and resulting in new elections.
The last government raised state salaries in February to offset inflation but opposed another pay hike that it said would trap it in a wage-price spiral.
Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah has repeatedly urged the government to restrain spending, saying monetary tools alone could not dampen prices.
Inflation has hit record or near-record levels across the world’s biggest oil-exporting region, where most states peg their currencies to the weak U.S. dollar, raising import costs.
Kuwait broke ranks with Gulf neighbours and cut its link to the dollar a year ago, saying its weakness was making imports too expensive. But inflation has continued to rise as Kuwait relies on food imports and pays for a third of imports in euros.
Inflation is expected to average at least 9 percent in most Gulf Arab states this year, a Reuters poll showed last month.