The successive leaking of some new government decisions through social media does not always appear to be something beyond officials’ control. Rather, it has become closer to a utilitarian mechanism that completes the picture for them in shaping the public impression toward a new decision, allowing the government to reconsider it on various levels. Today, we are witnessing leaks of the most prominent features of the Ministry of Finance’s “financial plan,” aimed at solving the budget deficit dilemma that has persisted for many years. This article avoids entering into whether those leaked details are accurate, and has one objective: to support the political leadership in its future decisions.

First — Salaries and Special Cadres

Perhaps the most prominent element in that plan, especially for the ordinary citizen, is the unification of the salary and wage scale and the cancellation of special cadres by raising the basic salary of government-sector employees. Because of the fog surrounding the leaks, and considering all available data, and given that the plan came to address the two dilemmas of the budget and fiscal deficit, such a step would result in one of two outcomes: (1) stability or (2) a decrease in total expenditures under the salaries item.

In the case of (1) stability, this means that the money supply entering the local market remains unchanged, while at the same time being redistributed in a way that brings social classes closer together. This occurs because the financial solvency of those below the average rises, while the solvency of those above that average declines. Accordingly, this step directly contributes to raising the inflation rate, because a larger number of citizens become closer to the average level of financial solvency, despite the stability of the money supply.

Although (1) stability may contribute to aspects of social justice, its role in strengthening the main objectives of the “financial plan” strategy is nonexistent. Its implementation would require taking into account the Central Bank’s interest rate by strengthening the value of the Kuwaiti dinar in order to stabilize the inflation rate, despite its accumulated rise. Although there appears to be an intention to strengthen the currency in this plan, we do not believe this is connected to stabilizing total expenditures under the salaries item.

As for the case of (2) decrease, this means a decline in the money supply entering the local market, and consequently a decline in the inflation rate. This would result from a decline in the average level of financial solvency, and the convergence of social classes toward that average. Despite the negative effect on the citizen’s budget and the negative reactions it may provoke, this step is more useful than (1) in achieving the desired objectives of the plan, in addition to contributing to aspects of social justice.

There is no doubt that (2) decrease would create an economic contraction in the local market as a result of the scarcity of liquidity, leading to a lower inflation rate. The simultaneous strengthening of the dinar’s value would increase the rate of this contraction, which would relatively preserve the citizen’s welfare compared with the state of their financial solvency before the plan’s implementation.

Second — Strengthening the Currency and Diversifying Income Sources

The intention to raise the value of the currency came within the financial plan. Although it directly contributes to reducing the severity of the impact on citizens’ welfare resulting from salary-scale adjustments, it negatively affects mechanisms for diversifying sources of income. There is no doubt that the matter is somewhat complex.

A stronger currency plays a central role in providing comfort to a society that consumes imports. As the value of the Kuwaiti dinar rises, the value of foreign goods falls against it. Accordingly, the total cost of imports becomes lower than it was previously. At the same time, however, the value of exports sold in the local currency rises, especially exports of transformative production and manufacturing.

The “financial plan” included transforming dependence on a single source of income into other sources, most notably taxes on transformative companies and opening the door more widely to foreign investors under conditions, the most important of which are employing citizens and paying taxes.

Here, strengthening the dinar will directly raise the cost of exporting. Accordingly, and in addition to nationalization laws, it will only contribute negatively to attracting foreign investors.

Third — Privatization and Nationalization

Perhaps the last of the most important matters mentioned in that “financial plan” is the privatization of government sectors on the condition that they become shareholding companies owned by citizens and employ only citizens.

Without entering into the details of subscription and listing mechanisms, what happened in the subscription of Boursa Kuwait Company is evidence of the inefficiency of subscription mechanisms. Favoritism is dominant and capable of regulating mechanisms to serve some groups against others without observing equality between capital holders. Such matters only strengthen a model of capitalism built on unhealthy foundations, creating two classes that lack social parity.

As for employment nationalization, whether in the foreign companies that are attracted or in the listed companies that take over government-sector affairs after privatization, there is no doubt that this role is marked by a negative incapacity to enhance productive efficiency. Through the nationalization mechanism, the government transfers the disease of employment slackness into the private sector, disregarding it in order to sedate the issue of citizen employment — an issue that should be solved as a result of economic prosperity governed by productivity, not used as a means to it.

Finally — Conclusion

We have not presented this commentary to discourage any serious step taken by the Ministry of Finance. Its efforts deserve thanks, and its attempts to resolve pending issues are appreciated. What we wish to point out here is the plan’s lack of integration. Every mechanism in the plan conflicts with another, and applying one mechanism in isolation from another worsens issues vertically, reinforcing the core of the complex problem whose consequences we suffer today.

The Ministry of Finance has not been, and will not be, able to eliminate the budget deficit on its own. Its role in the equation of revenues and expenditures is limited by factors that do not carry the greatest weight. Accordingly, the Presidency of the Council of Ministers must intensify efforts to rebalance the factors of the equation through a comprehensive plan followed by all ministries, authorities, and affiliated institutions — not by the Ministry of Finance alone.

And Allah is the Grantor of success.

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