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Kuwait records another strong current account surplus in 2013 Financial outflows ease back from record high

KUWAIT CITY, June 7: Latest data from the Central Bank of Kuwait (CBK) show a slight softening in Kuwait’s robust external position in 2013. Lower oil revenues trimmed the surplus in the current account, while financial flows to investments abroad eased back.  The current account - a measure of net international trade in goods, services, factor income and transfers - saw its surplus slip slightly to KD 20.3 billion in 2013, down from a record level of KD 22.1 billion in the previous year. A decline in the goods trade surplus was compounded by record deficits in services outflows. As a percentage of GDP, the surplus stood at 40%, down from 43% in 2012, but still very strong.

The decline in the current account surplus was primarily attributed to a KD 1.3 billion drop in the balance of goods to KD 25.4 billion. Goods exports were down 2% y/y to KD 32.8 billion, as oil exports fell as a result of lower oil prices which were down 3% y/y in 2013. Meanwhile, goods imports continued to grow at a solid pace of 9% y/y to KD 7.4 billion - in line with the average growth seen in the past three years.  The services account deficit continued to widen, by some KD 0.9 billion to KD 3.5 billion. This was led by KD 2.9 billion imports of travel services. Year-on-year, imports of transportation and travel services rose by a combined KD 1.0 billion - more than offsetting a KD 0.2 billion contraction in imports of construction services. This growth in travel spending is consistent with a growing and healthy economy.

Meanwhile, net investment income rose to KD 3.2 billion - up KD 0.4 billion from the previous year. These inflows comprise receipts from income-generating assets primarily held by the government. Income from direct investments and ‘other investments’ were down slightly, but these were more than offset by a large KD 0.6 billion rise in inflows from portfolio investments. Outflows from current transfers were generally unchanged from the previous year at KD 4.8 billion, with workers’ remittances amounting to KD 4.4 billion. The latter was down slightly by 0.3%, unexpectedly given the 3.5% increase in the number of expatriates in the workforce during the year.

Looking forward, for 2014 we expect the surplus in the current account to be trimmed further to around 30 - 35% of GDP as a result of softer exports and stronger imports. Lower oil prices and cutbacks in production levels are likely to limit oil exports. Meanwhile, steady and firm growth in the non-oil sector of around 4-5% is likely to lead to a solid rise in imports this year. 

 Capital and financial account
The combined capital and financial accounts record the net change in ownership of foreign assets - be they debt or equity, currencies and deposits, or other items. For the most part, these changes broadly mirror changes in the current account - but in the opposite direction: a rise in the current account surplus generates a rise in the deficit on the capital and financial account, as large surplus funds need to be invested and are too large for the local economy.

The combined capital and financial accounts saw a deficit of KD 20.4 billion in 2013 - almost KD 2.0 billion lower than the record outflows seen in the previous year.
The narrowing deficit was attributed entirely to the ‘other investments’ component of the financial account, which saw outflows decline by some KD 3.5 billion to KD 11.2 billion. This volatile account is mostly made up of investments in shorter-term deposit accounts and net overseas loans, and has constituted the single largest source of outflows since 2009. Lower outflows in this component stemmed mainly from a KD 4.2 billion reduction in government investments in foreign currencies and deposits, following three consecutive years of increases.

Meanwhile, the ‘portfolio investments’ account saw its deficit widen further by some KD 1.3 billion to KD 8.7 billion in 2013. This came from increased Kuwaiti investments in foreign securities of some KD 5.1 billion to KD 7.9 billion - their highest post-financial crisis level. This more than offset a KD 3.8 billion reduction in investments in foreign debt instruments.
The ‘direct investments’ component - or long-term equity stakes - also saw higher outflows, whereby net investments abroad rose by some KD 0.3 billion to KD 1.8 billion. Higher net outflows were due to a KD 0.3 billion increase in investments by Kuwaitis abroad to KD 2.3, while foreign direct investments (FDI) in Kuwait remained broadly unchanged at around KD 0.5 billion.

Meanwhile, the smaller capital account saw inflows edge up to KD 1.3 billion in 2013 - an all-time high. This account is largely driven by UN compensation payments to Kuwait.
Balance of payments surplus and foreign reserves
Combining all of the above, the surplus in the balance of payments reached KD 1.0 billion in 2013, compared to KD 0.9 billion in the previous year. This is also equivalent to the change in reserve assets held by the CBK. Reserves accumulated for the tenth consecutive year.
The overall position of the balance of payments showed a surplus of KD 16.3 billion in 2013, down from an all-time high of KD 20.7 billion in 2012. This broader balance takes into account not only changes in reserve assets held by the CBK, but also those holdings of external assets by key government bodies - notably the Kuwait Investment Authority, Kuwait Petroleum Corporation, and Kuwait Airways Corporation.

By National Bank of Kuwait

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