Population 3.785 million
GDP 174.628 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
6 |
8.3 |
5.2 |
3.2 |
|
Inflation (yearly average) (%)
|
4.1 |
4.6 |
4.3 |
4.1 |
|
Budget balance (% GDP)
|
22 |
30 |
25 |
18.5 |
|
Current account balance (% GDP)
|
31 |
41.5 |
43 |
37.5 |
|
Public debt (% GDP)
|
7.5 |
5.5 |
5 |
4.5 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Extensive oil reserves (9% of world total)
- Accumulation of considerable public and external account surpluses
- International economic stature, via the sovereign Kuwait Investment Authority (KIA) fund
WEAKNESSES
- Economy heavily dependent on oil income and poorly diversified
- Political obstacles to structural reforms
- Disputes with Iran over maritime frontiers in a context of strong regional tensions
Risk assessment
Growth downturn in 2013
Growth will decline in 2013, oil production having reached a plateau after three years of increase as a result of the start of operations at new oil fields. This level - close to Kuwait’s maximum production capacity -exceeds the quota allocated by OPEC. Growth will also be adversely affected by a sluggish world economy and internal political tensions. However, private consumption will still be sustained by high public sector salaries and a policy of generous subsidies and social benefits, increased since 2011 due to socio-political unrest in the emirate.
Besides, private sector credit will expand only moderately - despite the scale of deposits - due to the banks’ risk aversion because of the poor quality of some of their assets. The banks remain exposed to convalescent sectors like construction and property (a third of their portfolio), as well as to two local investment companies still undergoing restructuring (Global Investment House and National Industries Group). Some segments are, however, more dynamic such as consumer credit.
Ongoing very solid financial situation
Oil wealth will enable Kuwait to continue achieving imposing external and public account surpluses, despite the slight erosion predicted for 2013.
Hydrocarbon sales represent the bulk of export revenues (95%). In 2013, despite the probable decline in oil sales, exports will far exceed the rise in imports, mainly attributable to purchases of capital goods intended for productive investment. Despite the structural deficit in the balance of services, there will again be a considerable current account surplus.
Hydrocarbons account for over 90% of fiscal revenues. Rising social spending and investment, the latter as part of the 2010-2014 $127bn development plan, will not dent the very large public accounts surplus. The plan aims to diversify the economy and make the country into a regional commercial and financial centre in 2014.
In this context, Kuwait will continue to benefit from a significant amount of finance. In addition to its foreign currency reserves, the country has substantial financial assets abroad managed by its sovereign fund, the KIA, which could reach some $400bn by the end of 2013.
Slow pace of economic reforms
Some reforms have been implemented in recent years: opening of the stock market to foreigners, creation of an independent regulator, admission of foreign operators in the petrochemical and banking sectors, a more favourable framework for foreign investment in the free-trade zones. A privatisation bill was adopted in 2010 with a programme of liberalising the airline sector – with the launch in mid 2011 of the partial privatisation of Kuwait Airways – the postal and telecommunications sectors, and water and electricity production. The first public-private partnership projects, like the Al Zour electricity power station and the Kuwait City Metro, could get off the ground, but the implementation of economic reforms is slowed by red tape and political disputes.
Repeated political crises
The Emirate has the oldest and most powerful National Assembly (dating from 1962) of the Gulf monarchies. In this context, relations between the executive and the Parliament are traditionally very tense, with repeated political crises shaking the country.
In early 2012, under pressure from the parliamentary opposition and against a background of public discontent, the Emir, Al-Ahmed Al-Sabah, dissolved Parliament, the February legislative elections having been won by the Islamist opposition. The Emir dissolved Parliament again in October, amending the electoral law, which pushed the Islamist and liberal opposition as well as the Bedouin tribal chiefs to boycott the early elections. Marked by a low turnout (less than 40%), due in particular to a call for a boycott by a portion of the opposition, the December poll resulted in a pro-government majority and historic success for the Shiite minority, which won a third of the seats.
With the representativeness of the new Assembly now an issue, Kuwait is facing by a new political crisis. The opposition is demanding better measures against corruption and democratic reforms to reduce the Al-Sabah dynasty’s hold on the machinery of the Sate. However, despite the weakening leadership of the aging Emir, this critical situation seems unlikely to really undermine the regime’s sustainability, if only because the opposition is divided, although there have been attempts to form a coalition since the start of 2013.
