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Kuwait's economy - Stronger position than many expected

Thursday, 07 January 2010 14:14

Though 2009 has not been easy for Kuwait, with many of the country's leading sectors experiencing a downturn, the country appears to have weathered the worst of the global crisis and can ring in the new year on a positive note.

While Kuwait's economy expanded by 5.9% in 2008, the situation is expected to be somewhat different come the end of 2009, with most predictions tipping a contraction of GDP to around 1.5%. However, with the price of oil having risen through 2009, Kuwait is in a far stronger position than many expected earlier in the year.

Having planned for a $16.9bn deficit for the 2009-10 budget, expecting oil prices of around $35 per barrel, Kuwait instead garnered a $17.5bn surplus for the first six months of the financial year as per barrel prices have topped $75. With some projections putting the total 12-month budgetary surplus by the end of March 2010 at around $34bn, the government should be able to sustain both its economic expansion programmes and social support schemes.

That is not to say everything has been smooth in Kuwait's economic path this year. In March, the government announced that it was cancelling the tenders it had held for the $14.5bn Al Zour oil refinery, in part so that the costing for the massive project could be reassessed in light of falling materials prices.

Though the project had been halted, the government is still committed to building the new refinery, with the oil minister, Sheikh Ahmad Abdullah Al Sabah, saying on December 12 that the development would be part of $87bn worth of investments that would be made in the energy sector between now and 2030. The investments were part of a programme to increase output from 3m to 4m barrels per day (bpd).

The closely linked construction and real estate sectors both saw a fall off in activity in the first half of the year, though there are signs that rising liquidity and growing confidence among consumers will lead a revival into 2010. There was an increase in real estate transactions for October, up 35% on the previous month, and if this trend is maintained it will not only help kick-start the property market but draw the building sector into its tail stream.

The country's stock market also experienced mixed results in 2009. Having opened the year at 7917 points, the main index of the Kuwait Stock Exchange (KSE) dipped below 7000 less than three weeks into the new year. By May, the index had fallen through the 8000-point barrier before sliding back to the 6900-mark in December.

Throughout the year there have been calls, both from investors and some members of parliament, for the state to compensate shareholders who lost money on the KSE, with the issue being one of the reasons there were delays in implementing a planned $5.17bn economic stimulus package that had been approved by the cabinet in early February.

The package finally came into force in mid-April, providing a series of measures to support the economy, including state guarantees of up to 50% for new credit facilities offered to local firms by banks. The package also provided a 15-year guarantee against any fall in the value of local banks' investment and real estate portfolios and old loans to local companies.

According to Majid Al Shatti, the chairman of the Commercial Bank of Kuwait and chairman of the Union of Kuwaiti Banks, the government's stimulus package had helped cushion the economy from the effects of the global economic crisis and saved the country's financial sector from potential bankruptcy.

"It protected the banking sector and stabilised the market," Al Shatti told a seminar in November. "It also leveraged productive sectors."

Much of the year's economic developments were played out against a backdrop of political tension, with parliamentary deputies repeatedly pressuring the cabinet over its policies and blocking items of legislation the government saw as crucial to overcoming the financial downturn.

Events came to a head in March, when His Highness Sheikh Sabah Al Ahmad Al Sabah, Kuwait's Emir, was forced to dissolve parliament and call early elections, the third time in as many years the country had gone to the polls. However, the ballot left the distribution of seats in the 50-member assembly little changed in that there is no clear majority bloc in the house, though the election was notable for the fact that four women were elected to the parliament, a first for the nation.

As the year came to a close, political tension was again on the rise. The media suggested that the Emir might again dissolve the parliament after opposition deputies tabled a motion in the assembly that, if passed ,would halt co-operation between the elected branch of government and the prime minister and interior ministers.

With the economy looking to edge its way out of recession early in the new year, and ride high oil prices and stronger demand to post solid growth in 2010, Kuwait should be well placed to put a slow 2009 behind it and return to more positive territory.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Thursday, 07 January 2010 14:39

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