Beyond the Promise: Subsidies Reforms Assessment following Petroleum Price Declines in Kuwait through Economy-Wide Analysis
Since mid-2014, Kuwait has experienced a substantial drop in its oil export price and, consequently, government revenues, which caused adverse impacts on its macroeconomic stability, fiscal position, and overall economic performance. Against this backdrop, cutting energy subsidies has become a top priority for the Kuwaiti government with many policy makers promising energy pricing reform as a key element for improving the country’s fiscal position and repositioning its economy on a long-term sustainable path. This paper aims to fill existing gaps in the literature by quantifying and assessing the impact of the proposed energy pricing reform following recent declines in petroleum export revenues, by constructing a general equilibrium economy-wide model for Kuwait. The proposed computable general equilibrium model takes into account Kuwait’s unique features, including its economic structure, the unique nature of its labor market, and sovereign wealth fund. The model also specifically represents external financial flows, domestic fiscal policy, oligopoly industrial structures and their regulation.