Kuwait’s reported economic data points to poor performance in several key areas except for non-oil GDP growth.
Kuwait’s gross domestic product contracted 9.9% in 2020, compared with a growth of 0.4% in 2019, mainly because of last year’s sharp drop in oil prices, state news agency KUNA reported on Sunday.
Kuwait, which makes half its revenues from oil, had its finances squeezed by an oil price crash and by the COVID-19 pandemic, while a draft law that would allow it to tap international debt has stalled amid disagreement between successive parliaments and cabinets.
The International Monetary Fund estimated in April that Kuwait’s GDP contracted 8% in 2020.
KUNA based its report on the Central Bank of Kuwait’s governor, Mohammad al-Hashel, who cited preliminary estimates and statistics.
He said the headline inflation rate increased to about 2.1% in 2020 from about 1.1% in 2019.
Kuwait’s population, which mostly comprises expatriate workers and their families, declined by 2.2% in 2020 after growing 3.3% in 2019.
Sources told Reuters in April that Kuwait has reached an agreement with state-owned Kuwait Petroleum Corporation under which the company will pay the government billions in accrued dividends, part of government efforts to cover the deficit.
Poor resilience index
Kuwait ranked 86th in the FM Global Resilience Index for the year 2021, scoring only 42.1 points out of 100 points. It came last among the Gulf countries and ninth in the Arab world, reports Al-Rai daily. The Global Resilience Index 2021 is the only tool that collects data related to economy, supply chain and risk quality from nearly 130 countries in order to assess resilience worldwide.
The index measures the resilience of countries by evaluating certain factors such as political risks, corruption control, infrastructure, exposure to fire hazards, and others.
In terms of economic factors, Kuwait ranked 74th in the world with 44 points. In risk quality, it ranked 101st with 22.5 points, and in the supply chain aspect, it ranked 82th, recording 48.1 points out of 100.
The Economic Affairs Committee in the Council of Ministers warned about serious structural imbalances in public finance and exacerbation of the liquidity crisis with the depletion of the General Reserve Fund, reports Al-Rai daily quoting sources.
Sources said the committee estimated the budget deficit in the next five years to range between $150 billion to $166 bn.
It said the employment policy in the public sector is not sustainable and that there are significant imbalances in the labor market, considering more than 4 out of 5 Kuwaitis are working in government offices.
Kuwait has focused on increasing the number of nationals in the workforce, reducing the amount of required expat labor from 65% down to 30%, and the expat population has declined 4% as the pandemic hit hiring activity in key sectors, especially construction, real estate, and manufacturing.
Wages and salaries account for around 75% of government spending.
Non-oil GDP growth
Oil production cuts by OPEC+ and the continued pandemic are slowing economic recovery in Kuwait, a new report from Oxford Economics found.
While non-oil GDP is gradually recovering, it is unlikely to return to pre-pandemic levels until 2022, but the sector is expected to account for the bulk of Kuwait’s anticipated 2.5% GDP growth this year, according to the group’s Economic Insight report commissioned by ICAEW.
In 2021, non-oil GDP growth is expected to reach 3.1%, and by 2022, it should hit 4.7%.
According to the report, Kuwait’s budget deficit widened to almost 29% of GDP, one of the biggest globally, as oil receipts plummeted by over 32%. The deficit should decrease to about 16% of GDP in 2021.