Kuwait and provide an opportunity for
policymakers to address medium-to-long-
KUWAIT Key conditions and term challenges. The newly elected Parlia-
ment will offer an opportunity to resolve
challenges political constraints and leverage higher
oil prices toward implementing urgently
Table 1 2021
Kuwait’s long-term economic challenges needed structural reforms articulated in
Population, million 4.3
are linked to its dependency on oil, domes- Vision 2035 and the Government Work
GDP, current US$ billion 133.1 tic consumption as key driver for growth, Program. Moreover, government may sup-
GDP per capita, current US$ 30699.0 and slow implementation of the diversi- port fiscal sustainability endogenously by
a 87.3
School enrollment, primary (% gross) fication agenda. Nonetheless, sizable for- containing the public wage bill, gradual
a 75.6 eign assets continue to underpin Kuwait’s phasing out of subsidies consistent with
Life expectancy at birth, years
Total GHG emissions (mtCO2e) 131.3 economic resilience; however, these assets fiscal sustainability objectives within the
Source: WDI, Macro Poverty Outlook, and official data.
cannot mitigate the risk of low future government work program, and moving
a/ Most recent WDI value (2020). oil demand, which necessitates fiscal and ahead with the VAT.
structural reforms. Moreover, progress on
the diversification agenda has been slow,
resulting in credit agencies downgrading
Kuwait’s sovereign rating in 2022 due Recent developments
to political stalemate which is hindering
Kuwait’s economy is expected to recover economic reform implementation. Kuwait’s economy is set to continue re-
to its pre-pandemic level in 2022, sup- Furthermore, declining productivity pre- covering from the contraction brought fore
ported by the easing of COVID-19 re- sents another long-term growth challenge by the pandemic in 2020. Developments
strictions, a significant increase in oil for Kuwait. In 2021, many expatriates per- in the oil economy have supported the re-
manently relocated, following a trend ex- covery, with Kuwait’s oil price and pro-
exports, and a rebound in credit to acerbated by the pandemic. The govern- duction levels increasing by 59.3 and 13.5
households and the private sector. Con- ment has been accelerating its Kuwaitisa- percent, respectively, during the first seven
sequently, fiscal and external surpluses tion policy—replacing foreign workers months of 2022. Oil exports rose by 81 per-
are projected to improve significantly in with Kuwaitis in the private and public cent during Q1 2022, prompting a 270 per-
sectors. The exodus of foreign workers has cent widening of the current account sur-
2022. However, economic recovery will
resulted in labor shortages, which risk plus which is estimated to reach 28.5 per-
moderate in the medium term as oil hampering growth in the oil and non-oil cent of GDP during the same period.
prices taper. Downside risks to the out- sectors. Structural reforms targeting sus- Growth is further bolstered by non-oil eco-
look include emerging coronavirus vari- tained, inclusive, and greener growth are nomic activity as mobility restrictions
urgently needed. eased following Kuwait’s largest
ants, volatile oil prices, and continued
Key short- and medium-term risks include COVID-19 outbreak during Q1 2022. High-
political deadlock over key reforms. uncertainty over new COVID-19 variants, frequency data suggest a strong rebound
oil market volatility and structural reform in private consumption and investments,
delays. Inversely, continued high oil prices with credit to households expanding by 5.5
represent a favorable upside risk for percent during the first seven months of
FIGURE 1 Kuwait / Growth: Real GDP, real oil, and real FIGURE 2 Kuwait / General government operations
non-oil sectors
Percent change Percent change Percent of GDP
15 10 80
Oil GDP
Non-Oil GDP 8
10 60
Real GDP growth (rhs) 6
4 40
5
2
20
0 0
-2 0
-5
-4
-6 -20
-10
-8
-40
-15 -10 2018 2019 2020 2021 2022 2023
2018 2019 2020 2021e 2022f 2023f Revenues Expenditures Fiscal Balance
Sources: Kuwait CSB and World Bank, Macroeconomics, Trade and Investment Sources: World Bank, Macroeconomics, Trade and Investment Global Practice
Global Practice. and IMF WEO. Notes: Based on fiscal year cycle (April to March 31).
MPO 1 Oct 22
2022. Non-financial private sector activity work in the public sector and thus were a 7.7 percent uptick in 2022. More robust
was reinforced by a 5.2 percent year-to- protected from pandemic-related restric- demand will be translated into additional
date increase in credit facilities from local tions on economic activity. By contrast, upward inflationary pressures, though
banks; concentrated in trade, real estate, migrant workers are employed mainly in monetary tightening and decreasing glob-
and construction. the private sector (64.3 percent) or as do- al food prices will moderate inflation in
Kuwait registered the highest inflation rate mestic workers (31 percent). The ILO es- the medium term.
among other GCC countries, averaging 4.4 timates a complete rebound in the la- The fiscal balance is anticipated to reg-
percent during the 7-months of 2022 and bor force in 2022 relative to pre-pandemic ister a surplus of 1.1 percent of GDP
driven mainly by food, education, and ap- levels, which follows the partial rebound in 2022 supported by stronger oil rev-
parel. Food constitutes the highest share of in 2021 (4.1 percent). This is primarily dri- enues and lower spending. Oil revenues
merchandise imports in Kuwait compared ven by increased public sector employ- are projected to increase by 9 percentage
to other GCC countries, which adds pres- ment among Kuwaitis in 2021, compen- points of GDP while expenditures are es-
sure to the high inflation rates. According- sating for the decline in migrant work- timated to drop by 1.5 percentage points
ly, the Central Bank of Kuwait continued ers therein. The ILO estimates that unem- of GDP with capital expenditures bearing
tighter monetary conditions in line with ployment rates for women and men will the brunt of this cut. Fiscal surplus in
the FED’s policy; nonetheless, non-per- decline modestly in 2022 to 8.5 and 1.8 2022 might widen even further (5.9 per-
forming loans remain low and the local fi- percent, respectively, though they both cent of GDP) if the newly elected Par-
nancial sector remains well-provisioned to remain higher relative to 2019. liament approves government’s proposal
address headwinds. to suspend FGF transfer during this FY.
On the fiscal front, higher oil prices sup- Nonetheless, a negative oil price outlook
ported a narrower fiscal deficit during will narrow fiscal surpluses and revive
FY2021/22. However, continued political Outlook deficit risks in the medium run. Imple-
tensions and the dissolution of the Na- menting the economic diversification pro-
tional Assembly prevented the approval Economic growth is forecasted to accel- gram and introducing the VAT, in line
of FY2022/23 proposed budget. Owing to erate in 2022 to 8.5 percent before mod- with other GCC peers, will enable
higher oil prices, FY2022/23 budget sets a erating to 2.5 percent in 2023 and 2024, Kuwait to diversify revenues and en-
path for a fiscal surplus (excluding invest- respectively. After growing by 13.4 per- hance fiscal sustainability.
ment income and including FGF trans- cent in 2022, the oil sector will continue Higher oil receipts are expected to more
fers) which will help rebuild fiscal buffers supporting growth as more capacity from than compensate for the larger imports bill
depleted during the pandemic-induced the Al Zour refinery comes online in 2023 resulting in a significant external balance
oil price shock. despite signals for a more cautious ap- surplus of 28.6 percent of GDP in 2022. The
Kuwait’s labor market is highly segment- proach of OPEC+ scheduled production. surplus is expected to continue but nar-
ed. According to the 2016-17 Labor Force Likewise, the non-oil sector is anticipated row over the medium term to an average
Survey, nine out of ten employed Kuwaitis to continue expanding in 2023 following of 21.4 percent of GDP.
TABLE 2 Kuwait / Macro poverty outlook indicators (annual percent change unless indicated otherwise)
2019 2020 2021 2022e 2023f 2024f
Real GDP growth, at constant market prices -0.6 -8.9 1.3 8.5 2.5 2.5
Private Consumption 2.3 -4.5 3.2 3.0 3.0 3.0
Government Consumption 7.7 0.0 1.1 7.0 2.4 -1.3
Gross Fixed Capital Investment -2.6 -4.6 3.9 21.2 10.0 -2.4
Exports, Goods and Services -10.0 -13.3 2.2 10.3 -0.5 4.5
Imports, Goods and Services -10.4 -4.0 5.7 12.8 3.7 0.1
Real GDP growth, at constant factor prices -0.6 -8.9 1.4 10.5 2.0 2.1
Agriculture -4.6 -3.8 0.5 0.8 0.0 1.0
Industry -1.0 -12.2 2.2 17.7 3.7 4.6
Services -0.1 -3.6 0.3 -0.6 -1.0 -2.4
Inflation (Consumer Price Index) 1.1 2.1 3.4 4.0 2.5 2.5
Current Account Balance (% of GDP) 12.5 3.2 16.4 28.6 23.6 19.3
a
Fiscal Balance (% of GDP) -11.1 -31.2 -9.6 1.1 -0.5 -4.0
GHG emissions growth (mtCO2e) 2.1 -7.4 3.7 10.5 4.7 3.7
Energy related GHG emissions (% of total) 65.9 63.7 62.9 63.5 62.2 60.5
Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). Balances exclude investment income and include transfers to FGF.
MPO 2 Oct 22