Dynamic Private Sector Key to a Resilient Economy

THE TIMES KUWAIT REPORT

Uncertainty currently prevailing in global markets has led to international financial institutions forecasting a sluggish near-term outlook for the world economy. In April, the International Monetary Fund (IMF) downgraded its global economic growth forecasts for 2025 and 2026, citing increased risk to the world economy due to uncertainty caused by tariff escalations between the United States and China.

In its ‘World Economic Outlook’ (WEO) released in early April, the IMF forecast global growth in 2025 to slide by a sizable 0.5 percentage points to 2.8 percent, from the earlier prediction of 3.3 percent. The WEO also predicted a similar trend in 2026, with global growth expected to be down 0.3 percentage points to 3 percent. The Fund added that trade tariffs and evolving policy shifts in major economies was resetting the global trade system and fueling uncertainty.

For its part, the World Bank noted that trade protection policies in major economies put at risk global growth, especially in the developing world. The Bank urged countries at risk to support and promote a dynamic and innovative private sector, as a means to build resilience to the expected downturn in global growth from ongoing trade tussles between major global economies.

Although Kuwait is relatively less impacted by direct US trade tariffs, nevertheless, tariff escalations between the US and China that have catalyzed the present sharp drop in global oil prices, are inimical to the country’s economy. A persistent drop in global oil prices is expected to strain the resilience and fiscal revenues of Kuwait and other heavily hydrocarbon reliant economies.

In addition, reduced imports by major global partners such as the European Union (EU) and China, due to the ongoing economic uncertainty, are likely to add pressure to Kuwait’s fiscal balances.

Kuwait has significant exposure to Chinese and EU markets. In 2024, Chinese imports from Kuwait totalled $11.5 billion, while EU imports stood at over $7.6 billion.

Latest figures from Kuwait’s Central Statistical Bureau project that gross domestic product (GDP) is set to decline by 3.3 percent in 2024, bringing about a KD1.7 billion drop in total GDP, from KD50.8 billion in 2023 to KD49.1 billion last year. The contraction is attributed largely to falling oil prices, and compliance with extended periods of oil production cuts, mandated by the Organization of Petroleum Exporting Countries and its non-OPEC allies (OPEC+).

However, the National Bank of Kuwait (NBK), the country’s premier private lender, painted a less bleak outlook. In its recent economic update on the oil market, the NBK concurred that excess oil supplies in the market, and dampened demand from uncertainty fueled by ongoing tariff tussle between the US and China, had forced oil prices down in recent weeks.

But the bank pointed out that OPEC+ grouping had also recently unveiled an updated compensatory cuts for the eight exporters who participated in 2024’s voluntary cuts of 2.2 million barrels per day, but overproduced. All eight exporters, except for Algeria, which did not overproduce, are expected to reduce crude production by an amount equal to the volume they pumped above their designated quota during the January 2024 to March 2025 period. For Kuwait, this figure is on average 25,000 barrels per day (kb/d) for the next six months to September 2025.

While this could further crimp Kuwaiti oil revenues, the aggregate compensatory production cuts of 305 kb/d, which, if adhered to fully, could more than offset the 137 kb/d per month rate, at which OPEC+ is unwinding its voluntary supply cuts over the same period. This would lead to a tighter rather than looser market, helping to minimize global inventory builds resulting from the expected slowdown in oil demand growth, and stabilize prices.

On the other hand, the World Bank shared the IMF’s more downbeat prospects for the global economy, and more specifically, for the MIddle East and North Africa (MENA) region. In its latest economic update on the MENA region, the World Bank estimated growth to reach a modest 1.9 percent in 2024, with forecasts that it would rise moderately to 2.6 percent in 2025. The expected growth uptick in 2025 is based on OPEC+ winding down its production cuts, and consumer consumption increasing as inflation in the area eases.

The Bank’s update on the MENA economies, titled ‘Shifting Gears: The Private Sector as an Engine of Growth in the Middle East and North Africa’, cautions that its forecasts are clouded by the prevailing uncertainty in the global economy, ongoing conflicts, extreme weather-related shocks, and the impact of volatile trade dynamics on global growth and inflation.

In addition to its take on the region’s economic prospects, the World Bank report also underlines the critical role of the private sector in driving regional growth, creating jobs and spurring innovation. Pointing out that stronger growth in MENA economies is being held back by the absence of a thriving private sector, as well as declining labor market productivity, the report calls for injecting more dynamism in this sector.

The report recommends two avenues to improve productivity in the region: The first is, making better use of existing talent and resources within firms by improving management practices. The second is by making better use of potential talent outside firms, by fostering greater participation of women entrepreneurs in the private sector.

The effects of improving management practices are substantial, with several studies showing that management practices account for around a third of the gap in total factor productivity. Better managed firms not only are productive, they have higher operating profits, are more outward-oriented, and invest more on research and development, as well as in developing human capital. Providing leadership opportunities for women is also shown to be effective in increasing women’s voice in decision-making processes, as well as in promoting female participation in labor markets, which is lower in MENA than anywhere in the world. Female managers also tend to hire women workers, with surveys showing that on average the share of women workers in firms run by women in the MENA region is almost twice that in firms run by men.

More women in the workforce has also been shown to have a positive impact on economic growth. Empirical evidence reveals that GDP per capita would be around 50 percent higher in the typical MENA economy if gender employment gaps were closed. But increasing female participation would need firm policy and process interventions from the government, especially in places where men are unlikely to work with women, let alone work under their supervision.

Policymakers can use structural policies to increase women managers in firms, including policies to directly promote women to leadership positions, and by reforming laws that discriminate against women. These policies could be combined with other measures to create employer- and employee-level incentives to hire and accommodate women in the workplace.

Additionally, policymakers can encourage more firms to hire female employees by addressing the employer-side costs of integrating women into the workplace, which is often cited as a hurdle to employing women. Governments can also promote private sector innovation by reducing governance-deficits such as corruption. This could strengthen the quality of management practices, significantly improve the business environment and foster innovation.

As the government in Kuwait goes about proactively implementing economic, social, and political reforms, it could be well-served by heeding to the suggestions put forward by the World Bank report. This could bode well not only for the economy, but also for the sustainable future of Kuwait.