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Kuwait Country Risk Report Q4 2016

  • July 2016
  • -
  • Business Monitor International
  • -
  • 37 pages

Core Views

We expect the Kuwaiti economy to see modest growth over 2016 and2017, forecasting real GDP growth of 1.5% and 2.0% respectively,from 1.4% in 2015. After a long period of stagnation, the Kuwaitiinvestment outlook appears to be improving, while an uptick in oiloutput will support growth over the coming quarters. However, weagain highlight Kuwait's ever-volatile political situation as the keydownside risk to economic activity.Kuwait has seen a flurry of populist legislation recently, includingseveral measures specifically targeting expatriate workers. This runsthe risk of increasing uncertainty within the private sector, as well ascementing perceptions of the country as a hub of policy instability.We expect tensions to remain between the government and thelegislative branch, even with the election of a renewed 'loyalist'parliament. In addition, the passing of a new election law in Junewill increase the opposition's grievances.We forecast average consumer price inflation for Kuwait of 3.3%in 2016 – similar to 2015 – before edging up moderately to 3.8% in2017. While we expect a slight fall in Kuwaiti food inflation over thenear term on the back of lower global prices, a tight supply picturein the real estate market will fuel housing inflation over the comingquarters, in a trend seen across the GCC.

Table Of Contents

Kuwait Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Key Risks..5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
Gaining Momentum From Government's Five-Year Plan8
Kuwait's real GDP growth will gather limited momentum in 2016, driven by an uptick in oil production and large investments associated
with the five-year development plan passed in February 2015. Economic growth will remain below potential however, as household
spending declines in the low oil price environment.
TABLE: SELECTED INFRASTRUCTURE PROJECTS9
GDP By Expenditure Outlook. 10
TABLE: GDP GROWTH FORECASTS..10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Sovereign Profile Not At Risk11
Kuwait's budget balance will turn back to surplus in FY2017/2018, as global oil prices edge up and the government pushes ahead with
moderate fiscal consolidation. Kuwait's sovereign profile is not at risk over the coming 18 months, given the country's immense financial
buffers.
TABLE: FIXED INVESTMENT FORECASTS.11
TABLE: NET EXPORTS FORECASTS..11
Structural Fiscal Position. 12
TABLE: MIDDLE EAST and NORTH AFRICA - CREDIT RATINGS..12
External Trade And Investment Outlook. 13
2016 Current Account Deficit Is A Small Bump In The Road.13
Kuwait's current account deficit in 2016 - the first in decades - will be short-lived. Oil prices will head broadly higher over the coming
quarters, and the current account will turn back to surplus. Given its immense foreign reserves and the small size of the current account
deficit, Kuwait's external profile will remain strong over the coming quarters.
TABLE: FISCAL FORECASTS..13
Outlook On External Position. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE..14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS14
Monetary Policy.. 15
Modest Inflation Amid Slower Growth, Rising Rates..15
Annual inflation in Kuwait will rise modestly over the coming quarters, with the government's removal of some energy and food subsidies
resulting in increasing prices. Inflationary pressures will nevertheless remain under control, as slow real GDP growth and rising interest
rates - in line with the US Federal Reserve - temper demand-pull inflation.
TABLE: MONETARY POLICY16
Chapter 2: 10-Year Forecast. 17
The Kuwaiti Economy To 2025.. 17
High Wealth, Yet Challenges To Growth.17
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2025,
keeping the government in surplus.
TABLE: LONG-TERM MACROECONOMIC FORECASTS. 17
Chapter 3: Political Outlook. 19
SWOT Analysis 19
BMI Political Risk Index. 19
Domestic Politics.. 20
Election Law Reform To Increase Political Risk20
The change in the election law adopted by Kuwait's Emir Jaber al-Ahmad al-Sabah in June will exacerbate political tensions in the
country, and fail to improve the functioning of political institutions. Tensions between the opposition and the government will remain
elevated, while the royal family will continue to use the parliament as an arena to compete for power.
TABLE: POLITICAL OVERVIEW..20
TABLE: GENERAL ELECTIONS IN KUWAIT SINCE 2006.21
Long-Term Political Outlook.. 22
Democracy: No Turning Back22
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament which has consistently blocked
the government's reform efforts. Meanwhile, with six dissolutions of the National Assembly and subsequent elections since 2006, the
prospect of new polls and policy instability is always on the horizon.
TABLE: TRANSPARENCY INTERNATIONAL CORRUPTION PERCEPTIONS INDEX 2015.. 22
Chapter 4: Operational Risk. 25
SWOT Analysis 25
Operational Risk Index.. 25
Operational Risk. 26
TABLE: OPERATIONAL RISK26
Market Size and Utilities 27
TABLE: MARKET SIZE AND UTILITIES RISK . 27
Labour Costs 30
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE.. 31
Chapter 5:BMI Global Macro Outlook. 33
Global Macro Outlook. 33
Brexit Risk Casts A Long Shadow..33
TABLE: GLOBAL ASSUMPTIONS..33
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %34
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %.. 35
MACROECONOMIC FORECAST. 37
TABLE: KUWAIT - MACROECONOMIC DATA and FORECASTS. 37

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