Tightrope Walk For Kuwait Economy As Oil's Grip

According to a report by the General Secretariat of Planning, Kuwait's economy is connected to global oil prices continuously and consistently. However, despite substantial government investments aimed at maximising non-oil revenues and empowering the private sector, these endeavors have fallen short of expectations.

As a result, we must ask: Where are the non-oil revenues, and how can the private sector play a role in diversifying the local economy?

Within Kuwait's macroeconomic framework, the private sector's performance over the past 12 years has been consistent but uninspiring. Throughout the first, second, and third development plans, the private sector’s share in the local economy fluctuated between 23% and 38%, underscoring its limited impact.

It is interesting to note that the private sector's contribution to GDP diminishes during economic recoveries, while it increases during economic downturns. Notably, the private sector failed to play a significant role in rescuing the Kuwaiti economy from deficits, as evidenced by the highest recorded contribution of 38% in 2020 coinciding with the largest economic deficit in 12 years. In the report, the economic challenges are attributed to government investment spending over the past 12 years, contrary to the view that the private sector is the engine of economic growth.

With global oil prices peaking at $100 per barrel between 2010 and 2014, Kuwait's economy experienced financial surpluses. Conversely, in 2015, with a three-year consecutive decline in oil prices to $40 per barrel, the economy entered a persistent deficit, exacerbated by the substantial impact of the “COVID- 19” pandemic in 2020. The global economic recovery and increased oil demand played a pivotal role in mitigating the crisis, with oil prices reaching $100 per barrel in 2022. Since initiating the development plan in 2010, Kuwait has invested in projects with sustainable economic returns to achieve Kuwait Vision 2035. The first development plan focused on legislative preparation, the second on infrastructure, and the ongoing third on empowering the private sector.

Plans involve strengthening the knowledge economy and transitioning towards “Smart Kuwait 2035.” Examining the first development plan, government investments ranged from 13% to 18%, leading to a trade surplus of 36% to 48%. Private spending recorded between 24% and 29%, marking a prosperous period for the local economy. In the second development plan, government investments increased to 25-30%, resulting in a trade deficit in 2016. The ongoing third development plan witnessed fluctuations in government investments, ranging from 22% to 15%, leading to a trade deficit in 2020.

In order to enhance the role of the private sector in the local economy, the report makes several recommendations:

1. Implementing development projects with sustainable economic returns.

2. Swiftly approving legislative requirements to prevent project delays.

3. Promoting a knowledge economy, creating economic zones, reshaping government roles, promoting sustainable prosperity, and empowering citizens as part of New Kuwait Vision 2035.

By Mahmoud Shendi

Al-Seyassah/Arab Times Staff

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