Kuwait: Economic and Political Overview
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Kuwait is a very rich country and has developed a welfare state for its nationals, who enjoy a very high per capita income. Kuwait's economic growth was negative at -0.6% in 2019 as lower oil output and weaker oil prices offset the steady expansion of the non-oil sector. Due to the COVID-19 pandemic, it plummeted to -8.9% in 2020 but came back to positive territory at 1.3% in 2021 before reaching over 8.7% in 2022. It was expected to slow down to 2.6% in 2023 and 2024, subject to the post-pandemic global economic recovery (IMF, January 2023). Government spending, employment and credit growth are expected to support economic activity in the short term; nonetheless, this will depend on stable oil prices and higher oil output.
Kuwait’s public finances were relatively healthy in 2020, with a debt-to-GDP ratio of 11.7% that year. Despite the international context created by the COVID-19 pandemic the ratios decrease to only 8.7% in 2021 and 7.1% in 2022. It is expected to remain low with 6.9% in 2023 and 6.5% in 2024. Government spending is also expected to increase in the coming years amid plans to boost credit, employment and wages. At the same time, tax collection remains low as the government has delayed the introduction of a VAT and an excise tax on tobacco and sugary drinks. The excise tax and the VAT are set to be introduced in 2023. Low fiscal revenues combined with reduced oil export earnings, due to falling global oil prices and OPEC oil production in the wake of the Covid-19 pandemic, haven't put pressure on the current account surplus: it went from 3.2% in 2020 to 16.3% in 2021 and 29.1% in 2022. The current account balance is estimated to decrease to 23% in 2023 and 19.8% in 2024 (IMF, January 2023). Inflation ticked up to 3.4% in 2021 from 2.1% a year earlier, and then 4.3% in 2022. It should stabilise at 2.4% in 2023 and 2024 (IMF, 2023). Kuwait's plans to introduce a new debt law continues to be delayed, with the Parliament expected to review the law proposal in the medium term. Contrary to most countries, Kuwait can’t borrow money on international markets, for lack of legislation. A lack of debt law means that the government has been unable to issue debt since October 2017 and had to resort to General Reserves Fund for financing purposes. The continued drawdown from the Fund also weighed on Kuwait Investment Authority's assets - manager of the said fund - despite mandatory transfers from the government to its Future Generations Fund.
Persian Gulf nations, among the world’s richest at the turn of the century, have lost ground as the oil price receded. Bahrain, Kuwait, Oman and Saudi Arabia are all dropping out of the global top 20 as living standards stagnate or decline. Most of the country's wealth is concentrated in the hands of local citizens, while the majority of workers (especially from Asia) live in poor conditions. Unemployment rate is almost non-existent.
The Kuwait Investment Authority’s assets will continue to act as a fiscal backstop. It is the world's oldest sovereign wealth fund. As of April 2022, it was the world's 3rd largest sovereign wealth fund with 738 billion USD in assets under management. As oil export earnings recover in the medium term, underpinned by improvements in global demand conditions, and as concerns over the pandemic wane, the current account balance will continue to expand. A downside risk to this is economic recovery in China, which constitutes 25 percent of Kuwait’s exports (World Bank, 2022).
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
| GDP (billions USD) | 105.95 | 136.80 | 184.56 | 164.71 | 165.21 |
| GDP (Constant Prices, Annual % Change) | -8.9 | 1.3 | 8.2 | 0.9 | 2.7 |
| GDP per Capita (USD) | 22,684 | 28,884 | 38,329 | 33,646 | 33,194 |
| General Government Gross Debt (in % of GDP) | 11.7 | 8.7 | 2.9 | 3.0 | 3.0 |
| Inflation Rate (%) | 2.1 | 3.5 | 3.9 | 3.3 | 2.6 |
| Unemployment Rate (% of the Labour Force) | 1.3 | 1.3 | 0.0 | 0.0 | 0.0 |
| Current Account (billions USD) | 4.22 | 32.38 | 52.58 | 32.44 | 27.69 |
| Current Account (in % of GDP) | 4.0 | 23.7 | 28.5 | 19.7 | 16.8 |
Source: IMF – World Economic Outlook Database, October 2021
Agriculture is very limited in the country due to lack of water and fertile land. The agricultural sector is constituted mainly by fishing activities and contributed only 0.5% to the GDP, employing 2% of the workforce in 2022 (World Bank, 2023).
With 102 billion barrels of oil in reserve (i.e. 6% of the world's total and representing 100 years of production), the country's industry is based on oil exploitation. This sector accounts for nearly half of Kuwait’s GDP, around 95% of exports, and approximately 91% of government revenue.(OPEC, 2023). By 2030, Kuwait is planning to invest more than USD 87 billion in the oil sector, especially in creating new oil refineries. Overall, the industrial sector contributed more than half of GDP (45.4%) and employed 22% of the total workforce in 2022 (world Bank, 2023).
The services sector represented around 69.1% of the GDP and employed 76% of the active population in 2022 (world Bank, 2023). The most important sub-sectors are mostly real estate and financial services, which were recently recoverd from the global financial crisis.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 1.8 | 22.1 | 76.1 |
| Value Added (in % of GDP) | 0.5 | 45.4 | 69.1 |
| Value Added (Annual % Change) | -3.9 | -12.2 | -3.2 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
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Source: Index of Economic Freedom, Heritage Foundation
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Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
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Latest Update: September 2023
