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Kuwait Country Risk Report Q1 2017

  • October 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

We expect the Kuwait's economic growth to accelerate modestly over 2017 and 2018, forecasting real GDP growth of 2.7% and 2.5%, respectively, from 1.7% in 2016. After a long period of stagnation, the Kuwaiti investment outlook appears to be improving, while an uptick in oil output will support growth over the coming quarters. However, we again highlight Kuwait's ever-volatile political situation as the key downside risk to economic activity. Kuwait has seen a flurry of populist legislation recently, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability. We expect tensions to remain between the government and the legislative branch, even with the election of a renewed 'loyalist' parliament. In addition, the passing of a new election law in June will increase the opposition's grievances. We forecast average consumer price inflation for Kuwait of 3.5% in 2017 – compared to 3.0% in 2016 – before edging up moderately to 3.8% in 2018. While we expect a slight fall in Kuwaiti food inflation over the near term on the back of lower global prices, a tight supply picture in the real estate market will fuel housing inflation over the coming quarters, in a trend seen across the GCC.

Table Of Contents

Kuwait Country Risk Report Q1 2017
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Economic Growth To Accelerate From 2017................................................................................................................................8
Kuwait's real GDP growth will accelerate over the coming quarters, as the government's capital spending boosts the construction
sector, and oil production growth accelerates. Real GDP growth will average 2.6% in 2017 and 2018, compared to 1.7% in 2016.
TABLE: MAJOR PPP PROJECTS BY VALUE (USDMN)..........................................................................................................................................8
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................10
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Little Risk To Sovereign Profile Over The Coming Years.........................................................................................................11
Kuwait's budget deficit will narrow gradually over the next three years, as the government pushes ahead with fiscal consolidation, while
oil prices edge higher. The government will easily finance its deficit, by drawing on its colossal foreign reserves, and by issuing debt.
Structural Fiscal Position........................................................................................................................................ 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.............................................................................................................................12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................12
External Trade And Investment Outlook................................................................................................................ 13
Current Account Surpluses Increasing Again From 2017, As Oil Prices Rise........................................................................13
Like the UAE and Qatar, Kuwait's current account will easily weather the storm of low global oil prices. After falling sharply over the past
two years, the country's current account surpluses will increase substantially from 2017, on the back of rising oil prices.
Outlook On External Position.................................................................................................................................. 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................14
TABLE: BREAKDOWN OF IMPORTS.....................................................................................................................................................................15
TABLE: BREAKDOWN OF EXPORTS....................................................................................................................................................................15
Monetary Policy........................................................................................................................................................ 15
Little Impact From 2017 Rate Hike...............................................................................................................................................15
The Central Bank of Kuwait will follow the US Federal Reserve when it hikes rates by 25 basis points in 2017, given that its currency is
pegged to a basket of currencies heavily dominated by the US dollar. This will have very little impact on the country's economic growth
and inflation.
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
Little Risk To Political Stability, Despite Slow Fiscal Reforms.................................................................................................20
Kuwait's National Assembly will continue to block fiscal consolidation reforms that impact Kuwaiti citizens, and divert austerity towards
expatriates. As a result, the country will remain a reform laggard in the GCC. This will pose little risk to Kuwait's stability, given the
colossal financial buffers at its disposal.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................20
TABLE: MENA SOVEREIGN WEALTH FUND ASSETS.........................................................................................................................................21
Long-Term Political Outlook................................................................................................................................... 22
Democracy: No Turning Back......................................................................................................................................................22
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.
Chapter 4: Operational Risk................................................................................................................... 25
SWOT Analysis......................................................................................................................................................... 25
Operational Risk Index............................................................................................................................................ 25
Operational Risk....................................................................................................................................................... 26
TABLE: OPERATIONAL RISK.................................................................................................................................................................................26
Business Crime........................................................................................................................................................ 27
TABLE: BUSINESS RESPONSE TO RISK.............................................................................................................................................................27
Government Intervention......................................................................................................................................... 30
TABLE: BUSINESS TAXES.....................................................................................................................................................................................32
Chapter 5: BMI Global Macro Outlook................................................................................................... 37
Global Macro Outlook.............................................................................................................................................. 37
Broad Recovery But Three Notes Of Caution.............................................................................................................................37
TABLE: GLOBAL FORECASTS, 2015-2020...........................................................................................................................................................37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %....................................................................................................................................38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...................................................................................................................................39
TABLE: KUWAIT - MACROECONOMIC DATA and FORECASTS ...........................................................................................................................41

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