Real GDP growth will remain weak this year due to expected cut in oil production. Non-oil GDP should get a boost from public expenditure, especially investment spending, and from a slight growth in private consumption. Inflationary pressures could increase slightly but will remain moderate. High fiscal surpluses are funnelled into the sovereign funds, which guarantee the Emirate’s long-term solvency. Faced with this situation, the government has little incentive to set up fiscal consolidation measures. High and recurrent trade and current account surpluses ensure the stability of the dinar.
Kuwait is a major producer of oil and is a member of the Organization of Petroleum Exporting Countries (OPEC). Total oil production is equivalent to half the country’s gross domestic product (GDP). Oil revenues account for more than 80% of fiscal revenues and more than 90% of export revenues. Economic growth depends on oil production and on private consumption, which benefits from generous redistribution of oil revenues. The economy is poorly diversified and progress in this respect is likely to remain limited in the medium term given political constraints.
The political situation is the main weakness of Kuwait, with strong tensions between parliament and the executive, with detrimental economic consequences. The Kuwaiti dinar (KWD), which is linked to a basket of currencies (in which the USD is largely overweighed), benefits from this sound financial position. However, this situation highlights the impact of political risk on the fiscal situation.
Kuwait is a member of the Gulf Cooperation Council (GCC).
