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Kuwait eyes PPP funds as oil prices hit budget

Fluctuating oil prices have led to instability in Kuwait's funds, leading the country to turn towards the public-private partnership (PPP) model to fund infrastructure projects in the country

Kuwait is targetting PPP funds to boost its infrastructure. [Representational image]
Kuwait is targetting PPP funds to boost its infrastructure. [Representational image]

Kuwait is extensively using the public-private partnership (PPP) financing model to spur job creation and cope with the effects of dwindling oil prices. 

The country has implemented a strategic development plan since 2010, aimed at improving infrastructure across the country, and expanding its economy towards non-oil sectors. 

The plan seeks to boost investments in the country, and officials have reportedly pledged to spend between $106bn (KWD32bn) for the country between 2015 and 2019. 

To this effect, authorities approved the second five-year development plan for the country earlier this year. 

Implementing the various projects Kuwait has planned in sectors such as transport, infrastrucutre, and power and water, seeks to achieve non-oil economic growth of 4% in 2015 and 2016. 

Kuwait's PPP programme includes developments valued at $33.1bn (KWD10bn), mainly in power, water, wastewater treatment, housing, and transportation projects. 

These projects are expected to add $3.31bn (KWD1bn) per year to capital spending in the country. 

According to Arab News, Kuwait considers PPP could help reduce the financial burden on the state and limit growth in government spending and the public sector.

They can also introduce economic efficiencies and facilitate the adoption of new technologies and know-how, especially when projects attract foreign investors. In Kuwait, PPPs will also help develop the private sector, generate private sector jobs, and deepen financial markets.

One of the main advantages of the PPP framework is that it attracts private funding for projects that would otherwise have been financed with government resources, thus reducing the fiscal burden on the state. In Kuwait's case, the Development Plan requires around a third of the capital spending to come from the private sector.

However, for Kuwait, ample fiscal resources including sovereign financial reserves of over three times GDP, means private funding was never the main goal. Still, now that oil prices have declined, Kuwait's government has less fiscal space than it did just a year ago; reducing the burden on public funds will certainly help.

"For Kuwait, one of the core advantages of the PPP initiatives is that they help diversify the economy and generate private jobs by developing the domestic private sector", the report said.  

"Indeed, most PPP projects [in Kuwait] are in areas where private initiative has been limited due to government restrictions. Now, for the first time, the private sector is being encouraged to invest in power and water, new cities, and a metro [network]." 

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