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Sunday , September 25 2022

Dependence on oil to hit long-term economic prospects

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Deficiency of reform hinders Kuwait’s ability to expand in non-oil activities

KUWAIT CITY, Jan 31: The ‘Global Finance’ magazine said Kuwait’s long-term economic prospects are still uncertain, if it continues to depend on oil prices, but if it can overcome political obstacles, the state has everything it needs to change its capabilities and catch up with its neighbors in the Gulf Cooperation Council countries, reports Al-Anba daily. In its report, the magazine mentioned that Kuwait enjoys rare freedom of expression and a lively political life, but the decision-making process is complicated, not to mention that Kuwait needs to reduce public spending if it wants to restore its previous financial position, but to add insult to injury the difficulty of reform hinders Kuwait’s ability to expand in non-oil activities. Specialists over a period of time have said that Kuwait’s predicament in the “public debt” is nothing but a matter of people’s lack of confidence in the government’s management of debts wisely, not to mention that they touched on other problems because the government competes with the private sector by giving citizens high salaries in government jobs, and the lifestyle of Kuwaitis has become ‘sensitive’ and it is not easy to change it overnight.

Diversification
The magazine indicated, in a report, that Kuwait lags behind the rest of the oil-producing countries in terms of economic diversification, as it did not do much in this aspect, which the report considered its biggest weakness, and this is evidenced by the fact that oil exports still exceed 90% of the total country’s exports and contribute 90% of revenue and 50% of GDP, making it vulnerable to price fl uctuations. The magazine added, “There is no evidence of this from Kuwait’s recording in 2020 a historic budget deficit of $36 billion, an increase of 175% compared to 2019 in the wake of the drop in energy prices,” but stressed this is not the end of the road, when the time is right, the huge financial reserves and a solid banking sector will allow Kuwait to implement reforms from a position of strength, as the International Monetary Fund indicates in its latest assessments. The report touched on the rapid response shown by Kuwait in the face of the repercussions of the corona pandemic, as it said that Kuwait is a small country that sits on enormous wealth and owns 8.5% of global oil reserves, and is considered one of the five richest countries in the world in terms of per capita GDP.

Strength
While its population is just over one million, the pandemic country entered from a position of strength thanks to the abundance of huge financial reserves and the economy was able to recover, albeit slowly, in 2021, and this year it is expected to record a growth of 4.3%. The magazine considers that the adoption of the public debt law tops the list of priorities on the agenda. Unlike most countries, Kuwait cannot borrow money from international markets, due to the absence of legislation governing this issue, and since it is the only member of the Gulf Cooperation Council that has a fully elected parliament, Kuwait enjoys rare freedom of expression and a lively political life, but the decisionmaking process is complicated, as most of the reform projects have been in the deadlock for years, while the negotiations have been constantly overshadowed by some corruption and fraud. Although the Kuwait Sovereign Wealth Fund is the third largest in the world with assets of more than 700 billion dollars, the aim of its establishment is to support future generations when oil runs out, and not to cover immediate needs, as assistant professor of economics at the Gulf University of Science and Technology Abdulaziz Al-Osaimi believes that the government is competing with the private sector by giving citizens high salaries in government jobs. For his part, the CEO of the Kuwait Financial Center Company “Markaz” Ali Khalil said that the absence of a public debt law means managing any financial deficit by drawing from the reserve, and such funding gaps cannot be allowed to continue, whether with or without a debt law. The government has to implement reforms on both the revenue and expenditure sides. On the other hand, the magazine pointed to the impasse in the National Assembly in front of initiatives to impose new taxes, such as the income tax on individuals or the value-added tax on purchases.

Lifestyle
Manaf Al-Hajri, independent consultant and former CEO of Markaz, says Kuwaiti lifestyle is a sensitive topic and it will not be easy to change it overnight, but there is a great deal of inefficiency in the system, as productivity can see huge gains, even if People continued to enjoy the privileges granted to them. The CEO of Al Ahli Bank of Kuwait Group, George Richani, said that the Central Bank of Kuwait took steps to reform the financial sector years before the pandemic, and was strict with regard to liquidity and capital, and therefore we were ready when the pandemic came. The independent consultant and former CEO of Markaz, Manaf Al-Hajri, sees room for growth by addressing the inefficiencies in the economy, and believes that financing can provide a road map for policy makers and decision makers in companies alike.

Commented
Boubyan Bank CEO Abdullah Al-Tuwaijri commented on this matter by saying: As the banking industry moves beyond the banking business model, local banks will need to expand their employee base and attract new types of talent, and banks will need a new skill set in line with their changing business models and understanding their customers. Better, and to data scientists, researchers, specialists in artifi- cial intelligence, visual design, digital marketing, media experts, developers, and customer experience specialists, as well as hiring psychologists and graduates of philosophy and other diverse skills that can bring new perspectives. The magazine said that small and medium-sized companies are suffering from a slow recovery despite the establishment of the $7 billion special fund for them in 2013, and although some companies have achieved success, particularly in food technology, the general environment for startups in Kuwait still lacks incentives sponsorship, venture capital and collective investor networks. Many entrepreneurs complain that the lack of government support is driving businesses out of the country when they seek to expand.

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