Kuwait to lead Gulf with highest current account surplus in 2024-2025

• Kuwait’s vast public foreign assets, which consist of official reserves and sovereign wealth fund assets, amount to about $780 billion, or 440 percent of GDP.

• The GDP of the six Gulf countries is projected to grow by 4.4 percent by 2025, compared to only 1 percent expected for the current year.

• The Gulf region’s GDP is set to grow next year, led by the UAE and Saudi Arabia, driven by higher oil production and strong expansion in the non-oil sectors, particularly digitization and AI.

The Institute of International Finance forecasts that Kuwait will achieve the highest current account surplus in the Gulf in 2024 and 2025.

Although the surplus is expected to shrink due to lower oil prices, it is still projected to remain strong, at approximately 18 percent of GDP by 2025. This year, Kuwait’s current account surplus is expected to reach 23.3 percent of GDP, before decreasing to 18.1 percent in 2025, compared to 28.4 percent in 2023, according to Al Rai newspaper.

The institute also projected Kuwait’s fiscal balance to reach 4.4 percent of GDP in 2024 and 3.7 percent in 2025, compared to 7.9 percent in 2023. Meanwhile, the Kuwaiti economy is expected to contract by 2.2 percent in 2024, mainly due to a decline in oil production as part of the OPEC+ alliance agreement to reduce output. According to the figures, Kuwait will be the only economy in the Gulf to shrink this year, with growth anticipated to return in 2025, potentially reaching 2.9 percent.

Political stalemate in Kuwait impedes urgent economic reforms

In a separate note, the report highlighted that political differences and years of stalemate in Kuwait have hindered progress on urgent economic reforms. It also pointed out that Kuwait lags behind its regional peers in global competitiveness rankings and ease of doing business, with the Kuwaiti economy remaining one of the most oil-dependent in the region.

Non-oil GDP growth has averaged just one percent over the past three years, compared to around five percent in other Gulf countries.

Investment ‘both private and public’ has been weak over the past two decades, averaging 17 percent of GDP, compared to approximately 24 percent in the Gulf nations. Government capital expenditure has consistently fallen short of budgeted estimates.

The report also noted that inflationary pressures in Kuwait have been contained, thanks to subsidies on food, electricity, and gasoline prices.

Positive net investments

Meanwhile, the report stated that Kuwait is considered one of the world’s most important net creditors, meaning it has substantial positive net investments. It is expected that capital flows out of Kuwait will continue to significantly exceed flows into the country (non-resident capital).

The report pointed out that foreign direct investment flows face challenges due to the difficult business environment and limited investment opportunities. Kuwait’s debt and other investments remain relatively small.

According to estimates by the Institute of International Finance, the country’s vast public foreign assets, which consist of official reserves and sovereign wealth fund assets, amount to about $780 billion, or 440 percent of GDP.

These assets, accumulated from ongoing current account surpluses over the past three decades, are strategically invested globally in a diversified portfolio of stocks, fixed-income securities, and shares in multinational companies. These large financial reserves have provided Kuwait with the flexibility to pursue financial reforms and adjustments at a more gradual pace.

Gulf GDP set for major growth in 2025, led by UAE and Saudi Arabia

According to Bloomberg, which published the report, the GDP of the Gulf region is expected to experience a leap next year, led by the UAE and Saudi Arabia. The increase in oil production is expected to offset the anticipated decline in crude prices and stimulate the economy, further driving strong growth in the non-oil sector, especially in the digitization and artificial intelligence sectors.

The GDP of the six Gulf countries is projected to grow by 4.4 percent by 2025, compared to only 1 percent expected for the current year. Meanwhile, the non-oil sector is forecast to expand by 4 percent, driven by private consumption and public investments, according to the Institute’s expectations. The Institute includes commercial and investment banks, asset managers, insurance companies, professional service firms, stock exchanges, sovereign wealth funds, hedge funds, central banks, and development banks worldwide.

The report highlighted that the region’s economies have handled the global situation and the tensions in the Middle East well. However, the large current account and budget surpluses that helped mitigate the impact of these challenges have begun to shrink due to declining oil revenues and increasing imports tied to investments needed to diversify the economy.

Average price of oil may fall from $80 per barrel this year to $70 next year

The report predicted that the average price of oil would fall from $80 per barrel this year to $70 next year, assuming the situation in the region does not worsen. This could lead to a decrease in the current account surplus of the Gulf countries, from 4.4 percent of GDP in 2024 to 1.9 percent next year.

Trump’s return puts pressure on oil

The report pointed out that the return of Donald Trump to the presidency of the United States, a strong supporter of the independence of the U.S. energy sector and a critic of the shift to clean energy, may lead to an increase in oil production in the U.S. This would increase supply in 2025, alongside the cancellation of the OPEC+ production cuts, which would put downward pressure on crude prices.

The OPEC+ alliance agreed in early November to postpone the increase in oil production until next year, extending their additional voluntary cuts of 2.2 million barrels per day for one more month, until the end of 2024.

According to the report, Trump’s imposition of strict sanctions on Iran would reduce global oil supplies by about one million barrels per day, potentially raising prices to $100 a barrel, especially if Iran retaliates by attacking oil tankers in the Strait of Hormuz.

However, the rise in prices in this scenario would not benefit Gulf countries, due to a sharp decline in the volume of oil exports, which could lead to a shift in the combined current account balance of the region into a deficit.

The institute’s expectations for Kuwait

• 23.3 percent current account surplus in 2024.
• 18 percent current account surplus in 2025.
• 28.4 percent current account surplus in 2023.
• 4.4 percent fiscal balance of GDP in 2024, and 3.7 percent in 2025.
• 2.2 percent contraction in the economy in 2024.