Kuwait: Risk Assessment
Country Risk Rating
Business Climate Rating
- Large financial buffers
- One of the world’s largest oil producers and exporters
- Strategic geographic location allowing the entry to key markets such as Eastern Asia, Europe and Turkey
- Solid public and external accounts
- Low level of economic diversification, oil accounts for about 45% of GDP leaving the country vulnerable to fluctuations in hydrocarbon prices
- Slow bureaucracy that weighs on operational environment for companies
- Continuous standoff between the legislative opposition and the emir-appointed cabinet, which sometimes blocks legislative work
- Shortage of expatriate workers and mismatch between job offers and jobs sought by the Kuwaiti workforce
Recovery is expected to be gradual
In line with the opening up of the economy, private consumption (about 40% of GDP) reached almost a decade-high level in 2021. It should continue expanding in 2022 as well, but at a slower pace because of the maturing recovery and fading base effect. Exports will become the key contributor to growth. Indeed, oil production will rise by nearly 13% in 2022 after falling in 2020 and 2021 consecutively due to the OPEC+ agreement. Due to the lack of economic diversification, trends in the oil sector will continue to be determinant for the Kuwaiti economy. Thanks to the rise in oil prices and increased global hydrocarbon demand, net exports will support growth in 2022. Investments (20% of GDP) will inch up in 2022 after completing several refineries, such as the Al-Zour refinery project and LNG import facilities. Other construction projects, such as developing Sheikh Jaber Al-Ahmad Al-Sabah Causeway, within Kuwait’s 2035 Vision program will also sustain investments. Government spending will also edge up in 2022, in line with higher oil prices and national savings (30% of GDP), which will alleviate pressure on the government to restrain expenditure, like cutting the public sector wage bill or introducing revenue measures such as a 5% VAT. These factors will also be supportive of domestic demand. Despite the low level of inflation, the central bank of Kuwait is expected to tighten its policy by raising its discount rate from its 1.5% level to follow the U.S. Fed’s example, as the Kuwaiti dinar is pegged to a basket of currencies dominated by the U.S. dollar.
Net creditor to the world with solid public accounts
Hydrocarbon exports (90% of total merchandise exports) will remain an important revenue source in line with high oil prices. This will feed into the sovereign wealth funds. The Kuwait Investment Authority (KIA) is responsible for the management and administration of Kuwait’s General Reserve Fund (GRF) and its Future Generations Fund (FGF). The GRF is the central repository of the state’s oil revenues and income and acts like the state treasury account, while the second is an intergenerational savings platform. The FGF’s assets cannot be withdrawn unless sanctioned by law. Some media reports suggest that investments in the sovereign wealth fund exceed USD 700 billion, over five times Kuwait’s GDP. Despite rising exports, the fact that imports will also increase due to better economic conditions and a higher income level will weigh on the current account surplus expansion in 2022.
After plunging into deficit in the fiscal year (F.Y.) 2019-2020, the budgetary balance improved and returned to positive territory in F.Y. 2021-2022, reflecting the rebound in hydrocarbon revenues (two-thirds of total fiscal revenues) and the removal of some COVID-19-related measures. The parliament will also work on passing a drafted debt law that envisages a debt ceiling of 60% of GDP, leaving flexibility for debt management and tapping into global debt markets. In the absence of the debt law, financing of the deficit has relied mainly on using the GRF’s liquid assets, which explains the low level of debt.
Tensions between the cabinet and the parliament will persist
The continuous struggle arising from tensions between Kuwait’s executive and legislative branches is a source of instability that weighs on the investment environment and the reform process. The National Assembly comprises 50 elected members, officially independent, as political parties do not exist, and 16 government-appointed ministers. After the resignation of its government in early November 2021, Sheikh Sabah Al Khaled Al Hamad Al Sabah was re-appointed as the prime minister. That resignation came as several opposition lawmakers wanted to question the prime minister over various issues, including his handling of the COVID-19 pandemic. Al Sabah resigned twice in 2020 before being re-appointed each time by royal decree. However, appointing the same prime minister to form a third government may not be enough to calm opposition leaders. Having said that, these constant cabinet reshuffles do not threaten the country’s political stability. Indeed, Kuwait benefits from a more independent legislative than its neighbors in the region. However, it will continue to delay important legislation, such as the passage of the debt law, and slow the development of the private sector and the quantization of its workforce, which would facilitate the reduction of the governmental sector staff that employs 80% of Kuwaiti nationals.