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יפןGrowth to recover on higher hydrocarbon revenues
In 2023, Kuwait’s economic growth was almost nil due to lower prices and OPEC+ production cuts for oil estimated at 4% (oil accounts for nearly 50% of GDP). Growth is expected to recover in 2024 thanks to a rise of crude oil and refined fuel exports, the latter permitted by the additional refining capacity offered by the Al-Zour refinery. Total refining capacity is expected to reach 1.4 million barrels per day in 2024, up from an estimated 1.05 million in 2023. Lower inflationary pressures are expected to support private consumption (around 30% of GDP), while a gradual rise in oil prices will reduce pressures on public spending (hydrocarbons account for around 70% of fiscal revenues). As a result, public investment would rise to expand Kuwait’s oil fields. However, investments in the non-oil economy are likely to be minor apart from some large infrastructure projects (i.e., employment centres, development of the Mubarakiya markets, a cultural and entertainment center on Abdullah Al-Ahmad Street in the Sharq region etc.) in the pipeline which form part of the government’s Vision 2035 project aimed at diversifying the economy away from oil, mainly owing to a challenging operational environment (lack of transparency, insufficient intellectual property rights, bureaucracy etc.). On the other hand, the government’s plan to establish a new sovereign fund to support the local economy and diversification is a positive step towards the implementation of economic reforms. The contribution of net exports (around 25% of GDP) to growth will rise in 2024 on back of gradually higher oil prices and output. However, the country’s dependence on imported goods and services will bite back into this contribution. Inflation is expected to decelerate in the upcoming quarters mainly in line with downward trending goods prices despite sticky inflation in the services and housing sectors due to insufficient stocks, chiefly due to the lack of private sector involvement. The central bank is expected to follow in the footsteps of the US Federal Reserve in 2024 due to the exchange rate peg regime as the undisclosed basket of currencies is estimated to contain a heavy share of US dollars.
Rebuilding of fiscal and external surpluses
An estimated rise of around 3% in oil production and gradually higher oil prices will support fiscal revenues (oil accounts for around 70% of these) in 2024. The rise in refined fuel products will also contribute positively. But the lack of diversification in fiscal resources (i.e., the absence of VAT, corporate tax, etc.) and the prevailing weight of the public sector wage bill (estimated at around 40% of total expenditure in 2023) will drag on restoring the fiscal surplus. The failure to pass new debt legislation since the expiration of the previous one in 2017 will continue to thwart the government’s ability to tap international capital markets to meet its financing needs. Consequently, where necessary, the authorities will continue to use the General Reserve Fund (GRF), which is the main repository of all the state’s oil revenues and income that acts as a state treasury account under the management of the Kuwait Investment Authority (KIA). The second fund under the KIA’s umbrella is the Future Generations Fund (FGF) which is an intergenerational savings platform whose assets cannot be withdrawn unless sanctioned by law, although according to media reports the authorities are planning to seek legislative approval for public debt legislation in the first year of its 2023-2027action programme. However, persisting disagreements between the Parliament and the Executive in 2024 could jeopardise the plan and could delay approval of the law and other reforms such as the introduction of a value added tax.
Higher energy revenues (90% of total mercandise exports) will continue to add to the country’s accumulated wealth despite its dependence on imported goods. Renewed political gridlock may weigh on demand for capital inputs as it would delay most of the infrastructure projects. This would contribute to an increase in current account surplus and confort Kuwait’s external position, estimated to have reached around USD 1 trillion (combining the foreign exchange reserves and foreign assets in the central bank, and the KIA as of 2023).
Tensions between Cabinet and Parliament will persist
The continuous struggle arising from tensions between Kuwait’s executive and legislative branches is a source of instability that weighs on the investment environment and the reform process. The National Assembly is made up of 50 elected members – officially independent as political parties do not exist – and 16 government-appointed ministers. The snap elections held in June 2023 which saw opposition politicians win 29 of the legislature’s elected 50 seats, and 37 lawmakers retain their seats, are not expected to create the necessary environment for the implementation of financial and social reforms, as well as the launch of investments deemed necessary to diversify the economy. The usual rapid succession of governments will delay the passing of public debt legislation, the development of the private sector and upping the percentage of Kuwaitis in the country’s workforce. The dispute over the Durra gas field, located in the northwestern part of the Gulf, off the coast of Kuwait, may test the recent improvement of ties with Iran as the latter has staked a claim on the northern part of the field.
*includes SWF income, latest budget figure is for April 1, 2024/March 31, 2025
