Kuwait lack of reforms weighs on outlook

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KUWAIT CITY, March 8: Global Finance magazine said that Kuwait is reaping the benefits of high oil and gas prices, but the lack of reforms weighs on the country’s economic outlook, noting that high energy prices during 2022 led to an increase in oil revenues in Kuwait by 85%, which led to a GDP growth of 8.5 percent, and the fiscal deficit decreased by 70 percent, for the time in 3 years, reports Al-Anba daily. Quoting the CEO of the National Bank of Kuwait, Salah Al-Fulaij, the Global Finance said: “While the world faced tensions due to the war in Ukraine and its impact on the global economic scene, the operating environment in Kuwait was mainly positive, due to the rise in oil and intense demand after the pandemic, which encouraged consumer spending.”

Although the country has the ninth largest oil reserves in the world, it seems relatively immune to the looming global recession, high levels of inflation, and disruptions to supply chains, and yet the Global Finance believes that Kuwait faces strong challenges of its own. In this context, the magazine says that Kuwait in the past year was fortunate with the rise in oil prices, as it quoted Yaqoub Ahmed Baqer Al-Abdullah, assistant professor in the Finance Department at Kuwait University, as saying: “The rise in oil prices gave the economy some freedom with regard to liquidity, But looking at things from a larger perspective, the situation is really unsustainable.”

While other Gulf states are actively reforming their economies to be less dependent on fossil fuel production, oil still accounts for 91 percent of both Kuwaiti exports and revenues, according to Ministry of Finance data, making Kuwait a very rich country with a very weak economy nonetheless. This and the economy moves in conjunction with the movement of oil prices.

When prices fell in 2014, the country’s budget recorded a deficit for 5 years, which it covered by withdrawing money from the General Reserve Fund, and in 2020, when oil revenues declined due to the Corona pandemic, the GDP shrank by 9.9% and Kuwait is almost unable to pay the salaries of government sector employees. “Oil prices will continue to fluctuate, which will affect Kuwait’s GDP,” Jihad Al-Humaidhi, CEO of Ahli United Bank Kuwait, was quoted by “Global Finance” as saying. Al-Humaidhi believes that rapid reforms in areas such as economic diversification, financial management, labor market and housing are necessary in this stage.

Regardless of the negative repercussions, the magazine says that oil is still the basis for Kuwait. In late 2022, the government started operating a new oil refinery in Al-Zour and plans to expand production until 2027. The government also announced an investment of $120 million to build the largest petroleum research center in the the world, with the aim of improving production and refining techniques. For their part, international and local observers have repeatedly warned Kuwait of the “oil curse” and called for financial reforms, but the rentier culture is deeply rooted, as citizens are accustomed to a comprehensive care system that provides them with all their needs, from housing and health to pensions and even employment.

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