The Lack Of Reforms In Kuwait Weighs On The Outlook

08 March 2023 Economics

Kuwait is enjoying high oil and gas prices, but the country's economic outlook is hampered by a lack of reforms, according to Global Finance magazine. According to Al-Anba daily, high energy prices during 2022 led to an increase of 85% in Kuwaiti oil revenues, which resulted in a GDP growth of 8.5 percent and a decrease of 70 percent in the fiscal deficit. As Salah Al-Fulaij, CEO of Kuwait's National Bank, told Global Finance: "While the world faced tensions due to the war in Ukraine and its impact on the global economic scene, Kuwait's operating environment was mainly positive following the pandemic, when oil prices increased and consumer spending increased."

Kuwait may have the ninth largest oil reserves in the world, but its economy seems relatively unaffected by global recessions, high inflation, and disruptions to supply chains, and yet Global Finance believes Kuwait faces strong challenges of its own. Kuwait was fortunate in the past year due to the rise in oil prices, according to the magazine, which quotes Yaqoub Ahmed Baqer Al-Abdullah, assistant professor in Kuwait University's Finance Department: “The rise in oil prices gave the economy some freedom with regard to liquidity, but looking at things from a broader perspective, the situation is unsustainable.”

Kuwaiti exports and revenues still depend on oil for 91 percent, according to Ministry of Finance data, making it a very rich country with a very weak economy, even though other Gulf states are actively reforming their economies to reduce their dependence on fossil fuels. This and the economy move in conjunction with the movement of oil prices.

In 2014, the country recorded a deficit in its budget for five years, which was covered by withdrawing money from the General Reserve Fund. Kuwait's GDP shrank by 9.9% in 2020, when oil revenues fell because of the Corona pandemic, and government employees are almost unable to be paid. “Oil prices will continue to fluctuate, which will affect Kuwait’s GDP,” Jihad Al-Humaidhi, CEO of Ahli United Bank Kuwait, was quoted by “Global Finance” as saying. According to Al-Humaidhi, this stage calls for rapid reforms in economic diversification, financial management, labor markets, and housing.

In spite of the negative repercussions, Kuwait's economy is still based on oil. In late 2022, the government started operating a new oil refinery in Al-Zour and plans to expand production until 2027. In addition, the government announced an investment of $120 million to build the world's largest petroleum research center. In their part, international and local observers have repeatedly warned Kuwait of the “oil curse” and demanded financial reforms; however, Kuwaiti citizens are accustomed to a comprehensive health and welfare system that provides them with all their needs, including housing and health care, pensions, and even employment, so the rentier culture is deeply rooted.

 

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