By Gulf correspondent Frank Gardner

The Kuwaiti Government has warned its citizens to prepare for a period of economic austerity and rising prices.

With a barrel of Kuwaiti oil now fetching less than half what it did at its peak last year, the government's finances are in trouble.

Kuwait's Finance Minister, Sheikh Ali al-Sabah, told the country's parliament that with little sign of Kuwaiti oil fetching more than eight dollars a barrel in 1999, expenditure could consume state reserves over the next three years.

For Kuwait's 650,000 citizens, long pampered by government subsidies and free services, these figures could herald a new and unpopular period of comparative austerity.

Price rises

The government, which has promised a comprehensive economic reform programme, says that reduced oil revenues will mean increases in consumer prices of electricity and other utilities.

But while Kuwait's economic difficulties are now being aired in public, in some ways it is better positioned than its neighbours to endure the leaner years ahead. It sits on nearly 10% of the world's oil reserves and it has amassed a government reserve fund of close to 50bn US dollars.

Amongst Kuwait's neighbours, Iran and Saudi Arabia have been worst hit by the drop in oil income. The Saudi Government has been trying to prepare its 13m citizens for economic hardship in the years ahead.