Oil minister Sheikh Saud Nasser al-Sabah told a news conference late on Monday that prime mMinister and Crown Prince Sheikh Saad al-Abdulla al-Sabah would launch reforms that could place a financial burden on the country's 7,50,000 Kuwaitis, who are accustomed to a generous cradle-to-grave welfare system.

"It is hard for me to see His Highness the Crown Prince...facing these difficult decisions," said Sheikh Saud in what appeared to be the start of an intensive public campaign to prepare Kuwait, including its 1.4 million foreign residents, for a higher cost of living.

Sheikh Saud, a member of the ruling al-Sabah family, did not detail the reforms but said there were two categories -- orders by ministers and bills -- which require the necessary parliamentary approval.

Earlier on Monday, diplomats and political analysts said both thegovernment and the parliament might shy away from a full package of radical changes at one go to avoid public displeasure, he said.

"Parliament is facing elections in 2000 and could find it impossible while the government has internal problems," one economist said. "So who is able to lead a radical programme?"

But Sheikh Saud said the time had come to restructure an economy that is suffering from a growing budget deficit amid few signs that historically low oil prices will soon recover.

"There is no doubt that the economic situation in Kuwait because of the drop in world oil prices can be descibed as critical," Sheikh Saud said.

"We have to realise that the main ill is not only the dropin oil prices but also the economic structure in Kuwait."

Many analysts see the key obstacle as a budget burdened by"unrealistic" salaries in a country where some 95 percent of Kuwaitis in the workforce are employed by the state.

Salaries in the budget ending June 1999 are higher than forecast oil revenues of 1.894billion dinars ($6.3 billion) which were calculated at an average price of $10 per barrel.

Kuwaiti crudes have been trading for months below $10.

"It is illogical that a country depends for 93 per cent ofits revenues on one commodity (oil) which could rise and drop. That in itself is a grave responsibility," Sheikh Saud said.

He said the situation could be beneficial because it could bring about much-needed and long overdue reforms, restructuring the state-dominated economy.

"No doubt the measures will be difficult and no one can deny that. (they) require cooperation and understanding by all to find other means for an economic recovery," he said.

The cabinet has a reform package which could lead to higher rates for heavily subsidised basic services and measures aimed at raising non-oil revenues and cutting capital expenditure.

"The state has not failed in any way to provide and continues to provide basic servives to its citizens and the state will not fail in any way to meet its obligationstowards citizens," Sheikh Saud assured citizens, adding that Kuwait had other means to finance the budget shortfall.

The state, which has requested parliamentary approval to borrow and withdraw further from reserves to cover the deficit, has ordered cuts in the 4.362 billion dinar budget, Sheikh Saud said.

The budget carries a projected net deficit of 1.919 billion dinars and a gross deficit of 2.163 billion dinars.

Some economists see spending by the end of June 1999 coming in at around 3.5 billion dinars with oil revenue of 1.8 billion dinars and non-oil income of 350 million dinars instead of a projected 550 million dinars.

These figures compare with unrevised deficit estimates for the fiscal year ending June 1998 of some 400 million dinars.