Following the recent passing of Prince Sheikh Nawaf Al Ahmad Al Sabah, Kuwait’s new Emir, Sheikh Mishal Al Ahmad Al Sabah, has been sworn in by the National Assembly. However, his rule is confronted with significant economic challenges amidst political tensions and delayed reforms.
According to a report released by the International Monetary Fund (IMF) a few months ago, Kuwait’s economic recovery is ongoing but faces notable risks. The nation, which relies on oil production, is experiencing a slowdown in real GDP growth, projected to be just 0.1 percent this year compared to 8.2 percent in 2022, primarily due to decreased oil production.
The IMF initially estimated that real GDP would slow to 0.9 percent. Despite the anticipated recession, the IMF later revised its forecast for non-oil GDP growth to 3.8 percent this year, down from 4 percent in 2022.
The IMF report acknowledges that Kuwait possesses substantial financial and external reserves, which positions it favorably to address necessary repairs. However, the political impasse between the government and parliament could continue to hinder the implementation of crucial reforms, as stated by the Fund.
According to the most recent update from the World Bank, Kuwait’s economic growth is projected to experience a significant slowdown, with an estimated rate of 0.8 percent in 2023. This deceleration can be attributed to various factors, including reduced oil production, a more restrictive monetary policy, and a general slowdown in global economic activity. However, the World Bank forecasts a modest recovery in the following year, with GDP expected to grow by approximately 2.6 percent.
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Limited progress
The World Bank report stated that the limited progress in reforms in Kuwait can be largely attributed to the differences between the government and the National Assembly. The report expects that the government’s active promotion and the reduced costs of imports in the UAE, Qatar, and Kuwait will help maintain control over consumer prices, thus keeping inflation in check.
The persistent disagreement between successive appointed governments and elected parliaments has been a major obstacle to fiscal reform in Kuwait for several years. This has included the delay in passing the debt law, which would enable Kuwait to borrow funds.
In response to the decline in oil prices caused by the COVID-19 pandemic in 2020, Kuwait has employed temporary measures to bolster its financial resources.
In March, the Gulf country reported an annual budget surplus, marking the end of nine consecutive years of deficits. This positive outcome was supported by a surge in oil revenues and disciplined spending management, solidifying Kuwait’s position as one of the largest oil producers in the Middle East.
Cash crisis
In 2020, the government of Kuwait faced a cash crisis due to the combined impact of the pandemic and plummeting oil prices. As a result, the government had to explore ways to ensure the payment of salaries to government employees. Although the pressure on the Treasury has eased with the subsequent increase in oil prices, challenges persist.
One of the hurdles faced by the government was the opposition from Parliament regarding the reallocation of government grants. This opposition was notable despite a significant portion of spending being allocated to salaries and state support. Additionally, important decisions such as implementing VAT or privatizing government assets required the approval of legislators in the House of Representatives.
Kuwait’s economy has been fortunate to have the $700 billion Future Generations Fund, which is managed by the world’s oldest sovereign wealth fund. This fund was established as a savings reserve for the post-oil era and is considered a valuable asset. However, any action regarding the fund could not be taken without the approval of Parliament.
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