THE TIMES KUWAIT REPORT
Kuwait welcomed 2023 on an optimistic note, with the economy looking up as oil revenues soared on the back of increases in oil production and prices. On the political front, relations between the executive and legislative wings in the National Assembly appeared to be in harmony, with the concord and cooperation in parliament, apparent since the new government took office in October of last year, still holding.
While conciliatory moves by the government proactively appeased opposition to policies by legislators, the administration also revealed its keenness to drive the country’s development process forward with His Highness the Prime Minister Sheikh Ahmad Nawaf Al-Ahmad Al-Sabah chairing a meeting of a high-level economic ensemble in early January. The meeting, which included top state officials along with heads of several public sector entities, discussed financial, economic and developmental issues relevant to growth of the national economy.
The discussion also sought to remove obstacles that impeded progress, so as to further contribute to Kuwait’s Vision 2035 and reap a prosperous future for the country. Moreover, at the start of the year, international oil price, a critical component in Kuwait’s development story, was predicted to maintain its high level in 2023. Oil markets, having closed 2022 on a high pitch, were looking at revived growth in the Chinese economy to drive oil demand in the year ahead.
On the supply side, the embargo on oil exports from Russia by the European Union, and the decision by the G7 industrialized nations to place a price cap on Russian oil from December, as well as, the decision by the Organization of Petroleum Exporting Countries (OPEC) and its non-OPEC allies (OPEC+) in November, to cut oil production by two million barrels per day in 2023, were expected to further tighten oil markets and sustain oil prices at current levels throughout the year.
Adding to the upbeat economic situation, the latest Balance of Payments (BOP) data provided in December by the Central Bank of Kuwait, also showed Kuwait’s current account registering a sizeable surplus of KD15.0 billion in third-quarter of 2022 (3Q22) — more than double the surplus from the same period in 2021. Even with oil prices softening in 4Q22, current account surplus in the 4QBOP was forecast to reach KD18.1 billion, making the annual current account surplus in 2022 the highest recorded since 2014.
There were positive signs on other fronts as well; in early January an European cruiseliner filled with tourists docked at Shuwaikh Port, the visit and disembarkation of travelers from a cruise ship in Kuwait was the first such event since 2012. A statement on the occasion by the Kuwait Ports Authority said the arrival of over 1,000 tourists on board the Artania MS cruiseliner would help to boost “maritime tourism to Kuwait, in line with the country’s ‘Vision 2035’ development plan”.
But then, in late January, the apparent conciliatory mood that prevailed between the executive and legislative arms in parliament during the first few months of the new government appeared to evaporate. And, in a surprise move, on 23 January, His Highness the Prime Minister Sheikh Ahmad Nawaf Al-Ahmad Al-Sabah submitted the cabinet’s resignation. In his letter of resignation to His Highness the Crown Prince Sheikh Meshal Al-Ahmad Al-Jaber Al-Sabah, the premier cited differences on issues with the legislative wing as the reason for the resignation.
The latest standoff in parliament was prompted among others by some lawmakers presenting a debt relief bill that would essentially write-off the personal loans of citizens, estimated to total over KD14 billion. The government maintained that this was not economically feasible, given the high cost it would incur to the economy, and nor was it socially justifiable, as it would violate principles of justice and equality enshrined in the constitution.
Weighing in on the debt relief bill, the Central Bank of Kuwait (CBK) noted several shortcomings in the proposal to purchase loans of citizens. The bank pointed out that previous experiences have shown that some beneficiaries of the ‘Defaulting Fund’, and the ‘Family Support Fund’ that were set up earlier to assist citizens burdened by loans, resulted in encouraging the defaulters to borrow again, as they expected the state to keep writing off their loans.
The bank added that the debt write-off would also involve drawbacks in terms of its negative impact on the performance of the banking sector, governance standards, and monetary and financial stability of the economy. However, none of these evidence-based arguments held sway over the legislators who continued pressuring the government to approve the bill, including by filing a grilling motion against two ministers. The government responded by tendering its resignation.
Notwithstanding the political developments, the caretaker government last week unveiled the draft budget for fiscal year 2023/24. Conforming to past budgeting trends whenever oil prices tend to head upward, the draft budget presented by the Ministry of Finance envisions higher state spending. Despite a projected fall in revenues by nearly 17 percent from the current fiscal year, the government’s decision to loosen its purse-strings is projected to result in a budget deficit of KD6.8 billion in fiscal year 2023-24.
The budget, which begins on 1 April 2023 and ends on 31 March 2024, shows revenues amounting to KD19.5 billion, and expenses totalling KD26 billion. The ministry attributed the sharp rise in expenditure to the increase in public sector wages and subsidies, which together amounted to KD20.8 billion, or nearly 80 percent of total expenditure.
Oil revenues of KD17 billion, which fell by over 19 percent from the KD21.3 billion in the current fiscal year, constituted 88 percent of total income, while non-oil revenues amounted to KD2.2 billion. The ministry explained that the drop in oil income in the next fiscal was from a fall in projected output to 2.6 million barrels per day, as well as due to calculating oil prices based on $70 a barrel for the next fiscal year, in place of the $80 a barrel in the current fiscal.
The play with numbers notwithstanding, the draft general budget for fiscal year 2023/2024 will now have to be submitted to the National Assembly for deliberation before final approval. However, the government’s abrupt resignation in late January, means that a new cabinet will have to take office before the next parliament session can be held and the draft budget reviewed and approved.
Besides a potential delay in approving the draft budget, the government’s resignation also threw the proverbial spanner in the country’s project activities. Many key development projects are now likely to be postponed until a new cabinet is sworn-in. The likelihood of delays in awarding new projects, and probable stoppage of ongoing construction activity in the months ahead, have caused dismay among many local and international contractors.
Project activity analysts now fear that given the prevailing political uncertainty, it is highly probable that policy- and decision-makers in ministries and other public sector entities will be unable and unwilling to make the necessary decisions required to move forward major tenders and award contracts any time soon. The country is reported to have more than $27 billion worth of projects in the bidding stage for 2023 that are now likely to lie in limbo.
The government’s resignation is also an issue of deep concern to all those who had hoped for a revival of the economy and an addressal of long festering systemic market weaknesses with the swearing-in of the new government in October. Moreover, many economic experts fear that if the past is any indication of future trend, the current upswing in oil prices could falter on the slightest unforeseen global externality. This vulnerability once again underscores the economic folly of being overly dependent on hydrocarbon revenues to continue sustaining the economy in the longer term.
Economic diversification, which is considered crucial to any sustainable economic development, and forms the core of the country’s Vision 2035 development plan, is enthusiastically embraced by everyone, from the government to parliament and by the public, as well as endorsed by local and international economic experts and institutions. Unfortunately implementation of diversification programs have in the past been hobbled by vested interests, as well as by incoherent and incohesive policies and plans.
Additionally, while a major preoccupation of diversification plans are on providing employment to the growing national youth demographic, not enough emphasis or priority is accorded to improving Kuwait’s existing low per capita productivity. Addressing skill gaps in the market, and adequately training and equipping young nationals to efficiently handle the jobs they are called on to undertake, is vital to drive any economic diversification plan forward.
In this regard, it is relevant to point out that in January, the government did initiate a move to ameliorate the national skill and experience gap, and provide employment opportunities for young nationals in the private sector through an agreement signed with the Google Cloud platform. Announcing the agreement, Minister of Commerce and Industry Mazen Al-Nahedh, who also doubles as Minister of State for Communications and Information Technology stated that the agreement would allow the government to capitalize on Google’s technology and expertise in digitalization in healthcare, education, disaster recovery and smart-living as part of Kuwait’s Vision 2035 development plan.
Minister Al-Nahedh explained that Google Cloud would invest in opening a state-of-the-art cloud architecture in the country that would promote the country’s digital infrastructure, manage its digital workloads, and enable important data to be stored securely within the country borders. He added that the government’s Communication and Information Technology Regulatory Authority (CITRA) would also work with Google Cloud to launch a national skilling program aimed at upskilling over 5,000 Kuwaiti students, and employees in both public and private sectors, in the domain of digital technologies, cutting-edge data analytics, machine learning, artificial intelligence and security solutions.
While this is certainly a laudable initiative on the part of the authorities, studies and reports on workforce productivity among citizens have shown that the national skill gap is only a manifestation of deeply entrenched cultural challenges that have remained unaddressed for far too long. These include among others, bringing about changes to the widely accepted historical social contract.
The mollycoddling welfare state has since its inception ensured that a portion of the hydrocarbon wealth trickles down to the citizens in the form of highly paid sinecure jobs in public sector, free education, health coverage, prodigious state subsidies and benefits in a tax-free environment.
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