Authority are estimated at close to US$530 KUWAIT billion (approximately US$380 billion in Recent developments the Future Generations Fund, and US$148 billion in the General Reserve Fund (GRF) With hydrocarbons accounting for nearly which aims to support the budget). The half of GDP, oil production cuts by OPEC recovery in oil prices over the past year Table 1 2017 and some non-OPEC countries (“OPEC+”) has boosted export receipts (despite the oil P o pulatio n, millio n 4.1 until the end of 2018 has weighed on GDP production cuts), with Kuwait estimated GDP , current US$ billio n 120.1 growth, with the economy estimated to to post a current account surplus of over 3 GDP per capita, current US$ 29031 have contracted by 1 percent in 2017. Out- percent of GDP in 2017, a marked im- Life expectancy at birth, years a 74.7 side the oil sector, activity has been sup- provement from a deficit of –3.4 percent of ported by the implementation of large GDP in 2016. Import growth has remained Source: WDI, M acro Poverty Outlook, and official data. Notes: infrastructure, transport and refinery pro- robust reflecting healthy domestic de- jects contained in the five-year Develop- mand related to government infrastruc- (a) M ost recent WDI value (2015) ment Plan (2015/16-2019/20). In 2017, the ture projects. government released the New Kuwait 2035 Fiscal pressures lessened in 2017, but fi- Strategic Plan, the latest iteration of ambi- nancing needs will remain over the medi- tions to transform the country into a re- um term. The recovery in global energy gional, financial and commercial hub. prices – from an average of US$45/bbl Household spending and confidence are (Brent) in 2016 to US$66/bbl in 2017 – has improving. Consumer confidence and boosted oil receipts, which account for spending rebounded over the past year nearly 90 percent of total government re- Kuwait’s economy contracted by an esti- following a marked slowdown in late ceipts. As a result, the government is an- 2016. In part this reflects the recovery in ticipated to post a deficit of 3.5 percent of mated 1 percent in 2017 as OPEC-related oil prices and steady hiring by the govern- GDP in FY2017/18, an improvement from oil production cuts weighed on growth. ment, which have boosted sentiment and 17 percent shortfall the previous year. However, growth should gradually recov- supported spending. The correction in real Deficits have been financed by a mix of er to about 3 percent in the medium term, estate prices, which had been softening in drawdowns from fiscal savings in the recent years, also appears to have run its GRF, and from domestic and international supported by infrastructure spending, course: real estate prices have stabilized debt financing. Kuwait issued an inaugu- and as oil production cuts are phased out. while residential sector sales and related ral US$10 billion international bond in External and fiscal balances are improv- household borrowing are expanding at a 2017, but gross public debt remains low at ing. Key challenges include hydrocarbon robust pace. Bank lending to firms slowed less than 20 percent of GDP in end-2017. dependence and parliamentary opposition during 2017; the banking sector remains Fiscal reforms are proceeding slowly. The generally healthy and, at 18.3 percent, government began raising utility prices in to deep structural reforms. Poverty inci- bank capital adequacy ratios are above the September 2016; however subsequent dence among Kuwaitis is low. Central Bank’s required 13 percent. tariff increases during 2017 have been External positions are strong and support- slower than initially proposed in part due ive of Kuwait’s currency peg. Financial to strong opposition in Parliament. The buffers held by the Kuwait Investment government remains committed to intro- FIGURE 1 Kuwait / Banking sector capital adequacy ratios FIGURE 2 Kuwait / Public sector balances Percent of GDP percent 40 20 General Government Basis 19 Ex Investment Income 30 18 Ex. Investment income & transfers to SWF 17 20 16 15 10 14 0 13 12 -10 11 10 -20 2012 2013 2014 2015 2016 2017Q2 2012/13 2013/14 2014/15 2015/16 2016/17 Sources: Central Bank of Kuwait, Haver, World Bank. Sources: Central Bank of Kuwait, Haver, World Bank. MPO 1 Apr 18 ducing a VAT. Inflation has remained detailed analysis is hindered by re- Key external risks include spillovers from muted, averaging 1.6 percent during 2017 strictions on access to household data. geo-political tensions and conflict. A due to declining housing costs and persis- strong resurgence of US hydrocarbon out- tently weak food inflation. The peg to an put could weigh on global oil prices, par- undisclosed basket of currencies, in which the US Dollar has a heavy weighting Outlook ticularly if the US sustains its emergence as a major energy exporter. Bouts of glob- means that monetary policy is closely tied al financial volatility as G3 central banks to that in the US. The Central Bank has Growth is projected to rebound to 3.5 per- tighten monetary policy could affect the opted to raise policy rates more slowly cent in 2019 as OPEC+ production cuts are costs of funding given large financing than the US Fed, in order to support activ- tapered off, and oil output and exports needs in the country. ity in the non-oil sector, and held off from increase. Plans to invest US$115 billion in Longer-term challenges relate to oil de- raising its key rate after the Fed rate in- the oil sector over the next five years pendence. The public sector is one of the crease in December 2017. should also boost oil production. With largest in the world, with a spending to Absolute poverty and involuntary unem- additional support coming from public GDP ratio of 53 percent. Oil rents are dis- ployment are virtually nonexistent. Eighty investment spending, growth should rise tributed through subsidies, transfers and percent of employed Kuwaiti nationals to about 2.7 percent over the medium public employment, with 80 percent of work in the public sector. In contrast, ex- term. Current account and budgetary employed Kuwaiti nationals working in patriates, who make up two-thirds of the pressures are expected to continue easing the public sector. A poor business envi- population, constitute the bulk of lower- on the back of a partial recovery in oil ronment and onerous regulations – Ku- income residents. Additional concerns for revenues, and as government spending is wait is ranked 96th out of 190 countries in expatriate workers include unpaid or de- gradually trimmed. The baseline assumes the Doing Business rankings – have ham- layed wages, difficult working conditions gradual implementation of spending and pered the development of the private non- and fear of a crackdown. revenue reforms including the introduc- oil sector. Comprehensive reforms are A relative concept of living standards may tion of a VAT in the second half of 2018 as needed to rebalance the economy away be more appropriate for a rich country, part of efforts to diversify revenues. Infla- from the energy sector to a more diversi- like Kuwait. In that respect, about 18 per- tion is expected to rise moderately to 3 fied growth path underpinned by innova- cent of the total population lives on less percent during the implementation of the tion, private sector entrepreneurship and than half the median income level—this VAT, before easing to 2.5 percent in the job creation, and the quality of its labor number is 1.5 percent for Kuwaiti nation- medium term. force. als and 34 percent for others. The Gini index of per capita consumption in Ku- wait, at 36.5, is not extreme, with higher Risks and challenges inequality amongst expatriates. A more TABLE 2 Kuwait / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 0.6 3.5 -1.0 1.9 3.5 3.0 Private Consumption 3.4 5.9 2.2 2.6 3.0 3.0 Government Consumption -1.5 2.9 4.0 -4.2 -0.4 3.2 Gross Fixed Capital Investment 15.3 14.8 10.3 11.0 8.5 7.1 Exports, Goods and Services -0.8 -2.1 -5.6 1.5 3.6 2.3 Imports, Goods and Services 6.8 1.1 4.0 5.0 5.0 5.0 Real GDP growth, at constant factor prices -0.9 2.2 -1.0 1.9 3.5 3.0 Agriculture -5.3 3.6 0.7 2.3 3.4 3.4 Industry -1.7 -5.3 -4.4 0.2 4.9 0.6 Services 0.6 14.9 3.7 4.1 1.7 6.0 Inflation (Consumer Price Index) 3.3 3.2 1.6 3.0 2.4 2.5 Current Account Balance (% of GDP) 7.5 -3.4 3.3 4.7 5.1 4.1 Financial and Capital Account (% of GDP) -8.1 4.9 -4.0 -4.8 -5.3 -4.5 Net Foreign Direct Investment (% of GDP) -12.8 -5.1 -3.1 -2.1 -2.1 -1.9 Fiscal Balance (% of GDP) 5.8 0.5 3.5 3.7 2.9 2.2 Debt (% of GDP) 11.0 10.2 19.0 27.3 33.2 38.1 Primary Balance (% of GDP) 5.9 0.5 3.7 3.9 3.3 2.7 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 2 Apr 18