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Next government expected to enact strict spending cuts

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KUWAIT CITY, June 29: Fitch Solutions expects that the risks of policy-making in Kuwait will remain high in the coming months, even after the holding of the National Assembly elections, which means that the passage of political and economic decisions will remain suspended until after the parliamentary elections, reports Al-Qabas daily. The agency said in its report that this is in line with “our previous view, which prompts us to maintain the rating of policy-making in Kuwait in the short-term political risk index unchanged.” The agency indicated that the upcoming National Assembly elections in Kuwait will lead to limited improvements to the political and economic challenges, as it is likely that any new Kuwaiti government will continue to face strong opposition from the parliament, given that the fundamental differences between the executive and legislative authorities remain unaddressed.

“The differences between the government and the parliament,” the agency, says, “have continued and deepened since the last elections in December 2020, therefore we believe that the upcoming elections will not likely address the deep differences between the two parties.” This makes us believe that basic legislation will continue to delay in the short-term even after the elections. The sources added that the law on issuing debt bonds will not be approved in Kuwait until the end of 2023. Given our previous expectations that Kuwait will witness successive financial deficits in the medium term, and the failure to pass the law on the issuance of debt bonds, the next Kuwaiti government will approve strict spending cuts.

The agency pointed out that the Foreign Investment Law is one of the other draft laws that will be postponed in Kuwait, which would ease visa requirements for foreigners and give them greater rights to own property in the country. The agency indicated that the political impasse in Kuwait will lead to further delay in achieving appropriate reforms for the businesses planned within the “Kuwait 2035” strategy, pointing out that this confirms its view that the growth of the non-oil economy of Kuwait will remain weak in the medium term, and will remain dependent on government spending.

Consequently, GDP growth in Kuwait will remain closely linked to oil production, which is expected to slow steadily in the next few years. Despite the high risks that threaten the political and economic expectations for Kuwait, the agency says, the upcoming elections constitute an opportunity to make better political and economic decisions. “While we expect that some efforts to resolve the political crisis will achieve limited success, we do not rule out the appointment of a government that the opposition will deal with better. This may reduce the opposition that was previously faced by governments, which may lead to the passage of major bills in Kuwait earlier we expected.”