Elderly Support in Oil Economies: How Sustainable in the 21st Century with Illustrations from Kuwait

Social Security (SS) programs are integral parts of a generous welfare system instituted in the oil economies during the past quarter century. This paper assesses the future viability of these programs with special reference to the case of Kuwait. A review of the financial structure of the SS program in Kuwait indicates solid economic and actuarial principles. But its future viability is questioned. Some problems are internal to system design while others are external. Internal design problems relate to benefit structure such as the very early retirement age especially for women that exert increasing financial pressure on the system. The paper emphasizes two external problems viewed as critical: the demographic transition from young to old age structure, and the transformation of the economy away from oil. Demographic change provides for a window of development opportunities that depends on the presence of renewable production base. This is essential since all intergeneration transfers, regardless of mechanism, are based on current production. Problems of SS schemes, if any are not only economics. A review of case studies from outside the region indicates how unrealistic expectations affect self-reliance and create political pressures against necessary reform that, if not implemented, may require difficult choices and painful decisions in the longer term.