Kuwait's Economy Faces Three Possible Scenarios

11 May 2023 Economics

According to a report by Al-Monitor, the ongoing disputes between the legislative and executive authorities have negatively affected health care, education, and other social services in Kuwait.

As reported by Al-Qabas daily, the country's economic growth has been highly variable in recent years, reaching 8.9% in 2020, 1.3% in 2021, and 8.3% in 2022 at a time when the International Monetary Fund expects the country to grow by 0.9% in real GDP this year.

Based on the US Energy Information Agency's forecast, Brent crude prices will average $85.01 per barrel in 2023 and $81.21 in 2024, down from $100.94 in 2022, as oil and gas contributes more than 80% of public sector revenue sources.

In addition, at the same time that the Ministry of Finance announced a record budget of $86.7 billion for fiscal 2023-2024, which begins in April, an increase of $9.1 billion (11.7%). Without calculating investment interest income from Kuwait Investment Authority, where the break-even point in the budget for 2023-2024 is $92.90 per barrel, this expansionary fiscal policy records a fiscal deficit year after year.

Kuwait's draft budget shows that salaries and subsidies account for 80% of planned expenditures, while capital expenditures and other expenses account for 9% and 11%, respectively, despite the inability to pass a new debt law, which has resulted in the failure to issue sovereign debt since 2017.

Researchers at the Arab Gulf States Institute in Washington presented 3 scenarios for Kuwait's next stage:

1. Persistent political stalemate prevents real economic policymaking and reform efforts, leading to a slow – but manageable – deterioration in the country’s economic environment and competitiveness, as Kuwait trails neighboring Gulf states as a hub for global talent and foreign direct investment, at a time when many businessmen choose to Local and international companies, exploiting the growing opportunities in the neighboring Gulf countries and other emerging markets.

2. Unexpected economic shocks eventually lead to a major economic crisis in Kuwait. In the face of a sharp drop in oil revenues and the lack of a legal path to debt issuance, the government relies heavily on its sovereign wealth, as these strict measures harm the country’s strong reputation provided by its fiscal and external budgets.

3. The response of the main stakeholders (the government and the National Assembly) to the growing need to work together to advance reforms and economic development initiatives, will lead to ensuring the economic well-being of citizens, streamlining the “complex” business environment in the country, and making better use of financial resources to unleash economic growth.

According to Mogilnicki, Kuwait's economic environment and competitiveness are most likely to decline steadily, but it can be controlled, since Kuwait's strong financial and external budgets reduce the urgency of reforms and allow policy makers to continue moving forward easily. The possibility of a crisis in the entire economy, such as Kuwait not being able to repay its debt obligations, is very low, said Kuwait.

 

Get The Latest and important news on our Telegram Channel click here to join

: 1073

Comments Post Comment

Leave a Comment