MEED magazine says Kuwait‘s financial sector has found important bright spots particularly in the banks that have crossed the crisis from a position of strength with high levels of capitalization and liquidity, which are still strong fundamentals.
MEED emphasized that a healthy banking sector can only compensate for much of the weakness in other aspects of the non-oil economy, but it can hardly compensate for the underlying structural and financial weakness indefinitely.
She stated that the decline in project market activity is not a good omen for opportunities, activities and non-oil projects in Kuwait, but the strong growth in oil and gas revenues during the current year creates great satisfaction for the government, in light of expectations for the performance of the state’s general budget this year, which indicates a surplus for the first time since 2014, after transferring the share of the Future Generations Fund estimated at 10% of the revenues.
And oil prices increased, driven by the conflict in Ukraine, and high demand in the recovery period after the Corona virus, which naturally pushed towards easing pressures on the budget and enabling Kuwait to achieve unexpected economic gains in 2022, like other major energy exporters, but the magazine said the main problems remain, and the increasing proportion of the budget operating expenses in the budget compared to “capital” is one of the contributing factors to the dramatic stagnation in the activity of the project market in Kuwait.
MEED pointed to the opinion of the International Monetary Fund at the conclusion of its mission to review Article IV of Kuwait for the year 2021, which stated that “the country’s continuing political stalemate has impeded reforms and increased macroeconomic weaknesses.”
And she touched on the recent high expectations of Kuwait’s real GDP growth rate in 2022 to reach 8.5%, while it still depends specifically on energy exports, as the oil sector accounts for 40% of GDP, 70% of exports, and 90% of revenues.
MEED stated that in general, the high oil price provides the best economic performance for Kuwait since 2014, when prices last stabilized above the $100 per barrel level, which led to the strengthening of expectations of an increase in Kuwait’s primary financial balance for the current year.
Mead added that the rise in oil prices is usually an invitation to oil exporters in the Gulf Cooperation Council countries to open their portfolios and engage in some aspects of spending on projects that suit the requirements of their people.
This is true of Kuwait through its performance in 2014 and 2015, when contract award activity rose to more than $20 billion annually.
Oil revenues fell by 42.8% in the fiscal year 2020-2021, in contrast to the rise in the cost of wages and government subsidies to 73% of total spending, while spending on capital and infrastructure projects fell to only 9%, and this is accompanied by political resistance to structural reforms that may affect Public sector wages or government subsidies, and so far in 2022, contracts have been awarded at just over $1 billion, compared to $24.9 billion and $28.6 billion in 2014 and 2015 respectively.
The non-oil sector is suffering from constraints as a result of the decline in the number of expatriates in the country by about 190,000 people by September of last year throughout the spread of the Corona epidemic, which helped to exacerbate the burdensome travel restrictions and the loss of expatriates trapped abroad to their residence in Kuwait, and the net result was a significant deterioration in the demand for basic non-oil goods and services.
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