21/09/2021
45451 times read
21/09/2021
45451 times read
Central Bank of Kuwait presents report to Cabinet
KUWAIT CITY, Sept 21: The Central Bank of Kuwait presented an analytic comparison report to the Cabinet concerning the necessary components for the recovery of Kuwait’s economy in light of the structural imbalances, as per the Horizon Global Research indicators, which determine the position of Kuwait’s economy on the global map, reports Al-Rai daily. According to the report, Kuwait has been ranked 108th globally in terms of its ability to absorb economic shocks. Saudi Arabia was ranked 92th, and the United Arab Emirates 102th. Kuwait scored 50.65 points in one of the indicators related to the strengths and weaknesses of Kuwait, which constitute the basics for recovery. It is lower than the average of 54.98 points among the countries of the Middle East and North Africa, and is less than the global average of 60.28 points. The axis of the ability to absorb economic shocks includes six main indicators and 17 sub-indicators that represent the extent to which the state and its economy are able to withstand shocks. The first indicator relates to the factor that affects the absorptive capacity of a country is industry and sectoral diversity, which represent the extent of the country’s dependence on weak economic and industrial sectors that are vulnerable to shocks. In this indicator, the State of Kuwait scored a very low score of about 3.04 points. It has been ranked last in the world - 122 out of the 122 countries covered by the index - while Saudi Arabia was ranked 113th and the UAE 120th.
Dependence
This result appears obvious in light of the Kuwaiti economy’s dependence mainly on the oil resource. The oil sector contributed about 45 percent of the gross domestic product at the current price, as an average for three years preceding the COVID-19 crisis. For some years, the oil prices were at high levels, contributing about 63 percent of GDP as in 2014. This concentration is reflected in the high contribution of oil exports to the total merchandise exports, which is about 93 percent, and the high contribution of oil revenues to the total general state revenues, which is about 90 percent. The analytical reading of the Central Bank of Kuwait affirmed that this is undoubtedly reflected in the high degree of risks that the economy may be exposed to in times of various crises, all of which are reflected at different degrees on the economic activity, and directly affect the factors necessary for the recovery process. This represents a major weakness in the economy. Therefore, the economy of Kuwait came second-last (rank 121) globally in the sub-index of the risks of GDP. It was also ranked 117th globally in the labor and employment risk index. In both sub-indices, it is after Saudi Arabia and the UAE. In general, the Central Bank of Kuwait revealed that Kuwait ranked third in the Arab world and 54th globally in the economic recovery index from the effects of the COVID-19 pandemic. The general index for Kuwait scored about 54.90 points out of 100 points. The second indicator is the debt level, which assesses the sustainability of a country’s financial resources. This will in turn affect the ability of the decision-makers to issue new debts.
Recession
Globally, with the economy contracting by 3.3 percent in 2020, as reported by the International Monetary Fund (IMF) in April 2021, countries with high levels of debt have less respite to absorb the shock and will be more vulnerable as the recession continues and the financial conditions tighten. In this aspect, the Central Bank of Kuwait highlighted to the Cabinet that the past years witnessed the accumulation of debts across most countries due to the continued low interest rates that encourage borrowing. It said, “ If companies and families are affected, the default may lead to a financial crisis, and the countries with high levels of debt are more at risk of a prolonged stagnation”. The Central Bank explained that Kuwait ranked first in the world in this indicator, ahead of Saudi Arabia, which ranked third in the world, and the UAE, which ranked 17th globally. One of the reasons for Kuwait’s progress in this indicator is the low levels of external debt as a percentage of GDP. The gross domestic product of Kuwait when compared to other countries, the strong sovereign credit rating of Kuwait, and the relatively low inflation rates are factors that represent strengths of the national economy’s ability to withstand crises and recover from them faster. The third indicator is the labor market conditions. This indicator assesses the conditions and strength of the labor market before the crisis of the COVID- 19 pandemic. Kuwait and Saudi Arabia ranked 48th globally on this indicator, while the UAE ranked 15th globally.
In this regard, the Central Bank of Kuwait stressed that the low unemployment rate in Kuwait constitutes an element of strength, as Kuwait ranked among the top ten countries in the world in terms of the unemployment rate index. The fourth indicator is the international markets. This indicator assesses the extent to which countries depend on international markets (trade and investment), as external demand often declines or dwindles in times of crisis, which weakens the country’s ability to handle the crisis and then recover from it. This indicator includes two components - trade openness, which is measured by the ratio of the country’s total foreign trade volume (import and export) to that country’s GDP, and investment openness, which is measured by the ratio of total direct investment flows (inward and outward) to GDP. According to the Central Bank of Kuwait, Kuwait ranked 62nd globally (89th globally for the trade openness index and 28th globally for the investment openness index), while Saudi Arabia ranked 46th globally and the UAE ranked 110th globally. It highlighted what has settled in economic thought and reached a lot of economic literature regarding the positive role of economic openness, with its various elements, whether commercial, investment or financial openness, in the country’s economic growth process.
Growth
The Central Bank of Kuwait explained that economic thought, for example, included many ideas that reflect the importance of the role of foreign trade as a major driver and locomotive for economic growth, through the distribution of production materials between the different countries of the world, in a way that ensures better economic use, and the resulting trade in exploiting the potential of market expansion to improve production, and the application of the principle of specialization and international division of labour. Scientific observations in various countries show that developing countries that have recorded continuous growth in their foreign trade, especially exports, achieve higher rates of growth in their national income. This relationship would not have aroused interest had it not been for the fact that many empirical studies confirmed that link. The modern era witnessed the experiences of many countries that were able to push their economic development through exports. Perhaps the most prominent of these experiences is the group of Southeast Asian countries. Despite these benefits that foreign trade brings to economic growth, it makes the national economy more exposed to the world externally and more affected by the global economic crises. The fifth indicator is social flexibility, which assesses the degree of social stability of a country in terms of the degree of equality in the distribution of income. The COVID-19 pandemic has contributed to exacerbating income inequality and increasing the spread of poverty, because it affects more people with lower incomes. According to the Central Bank of Kuwait’s analytical reading, countries with higher levels of income inequality will be the least able to absorb the economic shock caused by the pandemic, and will need to provide more income support to their residents.