Economy of Kuwait
Kuwait has a geographically small, but wealthy, According to the World Factbook of the CIA, relatively open economy with crude oil reserves of about 102 billion barrels – more than 6% of world reserves. Kuwaiti officials plan to increase production to 4 million barrels of oil equivalent per day by 2020. Petroleum accounts for over half of GDP, 92% of export revenues, and 90% of government income.
With world oil prices declining, Kuwait realized a budget deficit in 2015 for the first time more than a decade; in 2016, the deficit grew to 16.5% of GDP. Kuwaiti authorities announced cuts to fuel subsidies in August 2016, provoking outrage among the public and National Assembly, and the Amir dissolved the government for the seventh time in ten years. In 2017 the deficit was reduced to 7.2% of GDP, and the government raised $8 billion by issuing international bonds. Despite Kuwait’s dependence on oil, the government has cushioned itself against the impact of lower oil prices, by saving annually at least 10% of government revenue in the Fund for Future Generations.
Kuwait has failed to diversify its economy or bolster the private sector, because of a poor business climate, a large public sector that employs about 74% of citizens, and an acrimonious relationship between the National Assembly and the executive branch that has stymied most economic reforms. The Kuwaiti Government has made little progress on its long-term economic development plan first passed in 2010. While the government planned to spend up to $104 billion over four years to diversify the economy, attract more investment, and boost private sector participation in the economy, many of the projects did not materialize because of an uncertain political situation or delays in awarding contracts. To increase non-oil revenues, the Kuwaiti Government in August 2017 approved draft bills supporting a Gulf Cooperation Council-wide value added tax Where it entered into force in 2018.
Gross domestic product
As fuels contribute about half of Kuwait’s gross domestic product (GDP), the economy contracted by 3.5 per cent in 2017 due to oil production cuts related to a 2016 OPEC agreement to this effect. The oil sector itself contracted by 7.2 per cent, but growth in the non-oil sector remained intact at 2.2 per cent, supported by steady growth in household spending and increased government consumption spending. Investment spending fell in 2017 after a jump in 2016, when the government stepped up the implementation of its 2015-2020 development plan, according to the World Bank.
Following the difficulties it faced after the collapse of oil prices in mid-2014, Kuwait maintained its economic stability in 2018. It succeeded in achieving remarkable economic progress thanks to its huge financial reserves and open economic policies, enabling it to diversify its economy away from oil revenues.
In its latest economic report, the National Bank of Kuwait forecast a GDP growth of 2.6 per cent by the end of 2018. Another recent World Bank report projected that Kuwait’s real GDP would continue to rise in the next two years (2019-2020) to reach 3.5 per cent.
Fitch Solutions also estimated Kuwait’s economy would grow by 3.7 per cent in 2019, supported by improved oil production and increased crude oil prices, and by an average of 3.4 per cent between 2019 and 2022.
Fitch Solutions anticipates that Kuwait’s budget deficit for 2019-2020 will reach 6.7 per cent of GDP. The budget deficit declined in 2018-2019 to about $21.62 billion, representing 17 per cent of GDP, down from 22 per cent in 2017-2018.
According to the Ministry of Finance, the budget deficit is declining gradually because of better management of state expenses and the reduction of subsidies. The ministry expects to achieve a budget surplus by 2020-2021, stressing that the economy has become more flexible regarding the developments in oil prices compared to some Gulf countries.
|Indicators||measuring unit||2016||2017||Change ±|
|GDP (at constant 2010)||Billion US$||142.857||138.762||-4.095|
|GDP growth (annual)||%||3.5||-2.9||-|
|GDP per capita (constant 2010)||US$||35,250.9||33,545,6||-1705.3|
|GDP (at current value)||Billion US$||110.912||120.126||9.214|
Source: World Bank.
Agriculture and Fishing
In 2007, agriculture and fishing contributed just 0.2 percent to Kuwait’s GDP. Most of the country’s food, even most of its fish, has to be imported (at a cost of about USD 1.8 billion in 2005). The country has a total area of irrigated agricultural land of 7,000 hectares (0.4 percent of the total land area). The primary crops are tomatoes, potatoes, cucumbers, gherkins, and aubergines. Kuwait’s principal livestock is not camels (just 5,000) but chickens (more than 32 million). Sheep (about 900,000) form the second type of livestock. Annually, this results in some 46,000 metric tons of locally produced chicken meat, 22,000 tons of eggs, and 30,000 tons of mutton and lamb. Kuwait’s 28,000 cows produce 40,000 metric tonnes of milk per year. The agriculture and fishing sectors employed 34,800 workers in 2006 (1.7 percent of the total labour force). Only 200 of them were citizens.
In 2007, in addition to importing more than USD 200 million worth of chicken meat and more than USD 100 million worth of prepared foodstuffs, Kuwait had to import large quantities of food staples, such as rice (USD 168 million) and barley and wheat (each costing more than USD 48 million). The country’s continually increasing dependence on food imports has led the government to acquire large tracts of farmland in Cambodia and Sudan. Given Kuwait’s own long historical struggle to nationalize its natural resources, the fact that it is now engaging in the controversial practice of buying or leasing farmland in underdeveloped countries (the so-called ‘farms race’) is striking.
International market position
Kuwait was ranked 52nd in the Global Competitiveness Index 2017-2018, down 14 places from 2016-2017. The country is suffering from a deteriorating macroeconomic environment due to low oil and gas prices. The fiscal deficit balance in 2016 turned from a 1.2 per cent surplus of GDP to a deficit of 3.6 per cent of GDP, with an increase in debt.
To meet the challenges posed by continued low oil prices, according to the World Bank, Kuwait will have to increase its capacity to innovate by investing in higher education and training and promoting a more inclusive and effective labour market that will enable it to make better use of its human capital. According to the World Economic Forum, Kuwait has not improved significantly in most of these dimensions over the past decade, and in many cases, the situation has worsened. In particular, the efficiency of the labour market has fallen by more than one point, making it one of the most backward areas of advanced economies, along with innovation, higher education, training and technological readiness.
The total length of Kuwait’s road network has been estimated at almost 6,000 kilometres in 2006. That year, 975,000 private automobiles were registered, an increase of almost 30 percent in just four years. The 3,000 buses of the state-owned Kuwait Public Transport Company (KPTC) provide domestic services as well as regular services to Mecca, in Saudi Arabia. In addition, 18,000 private buses, 184,000 trucks, and 9,200 taxis facilitate the mobility of the nation’s inhabitants. In 2007, almost 7 million passengers used Kuwait International Airport, up from 4.3 million in 2003. The national airport is currently being expanded and modernized. It is designed to accommodate 20 million passengers per year in the near future and 50 million passengers at a later stage.
Kuwait’s largest commercial seaport is Port al-Shuwaikh, west of Kuwait City. The second largest commercial port is located near the Shuaiba Industrial Area, 56 kilometres south of Kuwait City. Here, the Gulf is much deeper, allowing larger vessels to moor. It is for just this reason that the oil terminals of Mina al-Ahmadi and Mina Abdullah are also located along this short stretch of coast. The Kuwait Ports Authority is directed by a member of the ruling Al Sabah, a sure indication of the prime importance of these ports in the country’s economy. Nevertheless, plans for their privatization are being discussed.
For an in-depth overview of Kuwait’s energy sector click on the button below.
Banking and finance
The finance, real estate, and business services sector is the second contributor to the nations’ GDP, after oil (17 percent in 2007). The global financial crisis hit Kuwait late but hard. Local money supply and credit conditions deteriorated rapidly in the final months of 2008, and the money market remained tight through 2009. The Kuwait Stock Exchange (KSE) plummeted 45 percent in autumn 2008. Local investment companies recorded a combined loss of more than USD 32 billion, and two of them collapsed. The Kuwaiti government reacted with an emergency financial-stability law, which provided a safety net for struggling banks, in return for stricter risk-management regulation. All local bank deposits were guaranteed by the state, and a USD 5.4 billion emergency investment fund was established to shore up the ailing stock market. Some local investment firms have been partly bailed out by the government. The KSE rebounded partially in the second quarter of 2008, with a 182 percent increase in traded shares. The local real-estate market, which was especially hard-hit by the sudden financial contraction, also appeared to recover.
Consumer debt stood at an estimated USD 25 billion in late 2009. Kuwaiti citizens expect the government to bail them out of financial difficulties, as it has often done in the past. The state appears to be able to afford this in the short term. Due to lower spending and recovering oil prices, the state continued to run a billion-dollar budget surplus in 2012, but the nation’s long-term investment portfolios have suffered. This is partly because the state drew from these funds to finance its economic stimulus and safety packages, such as the stock-market investment fund, and partly because of losses in overseas investments, particularly in American banks. The Kuwait Investment Authority, which manages the emirate’s sovereign-wealth funds, is said to have lost USD 31 billion in the second half of 2008. This amounts to roughly 15 percent of its estimated total investments portfolio. The state has also dug deep into its foreign-exchange reserves, which were estimated at USD 17 billion in 2008.
Like all smaller Gulf Cooperation Council states, Kuwait considers the development of a local tourist industry an important part of its economic diversification package. Most investment money has gone into increasing hotel capacity. The number of guests visiting Kuwait has increased spectacularly, from 90,000 (280,000 nights) in 2004 to 292,000 (408,000 nights) in 2007. In 2004, most foreign visitors came from Saudi Arabia (896,000, or 30 percent). Since their number greatly outweighed the number of hotel guests, these were almost exclusively day-trippers. They certainly did not come to admire the country’s museums; the number of museum visitors in Kuwait decreased from 64,000 in 2004 to 33,000 in 2006. The hotel and restaurant sector contributed only 0.6 percent to GDP in 2007. Because of Kuwait’s ban on alcohol consumption, the country is less competitive than the UAE in the market for European tourists.
According to the CIA World Factbook, Kuwait’s labour force totalled 2.24 million in 2011. The Public Authority for Civil Information (PACI) estimated that Kuwait’s labour force totalled 2.09 million in December 2007 (61 percent of the total population). Only 15 percent of the labour force consisted of nationals (324,300), down from 17.4 percent (341,200) in 2006. 75.4 percent of the foreign population were registered as economically active, compared with just 30.8 percent of the national population. The latter low figure is not the result of the absence of local women in the labour market – the share of females in the local labour force grew from 41.7 percent in December 2006 to 43.7 percent at the end of 2007. The foreign labour force is overwhelmingly male (about 80 percent).
The large majority of nationals work in public administration (78.8 percent). At the end of 2007 just 2 percent were employed in the private sector, which was still a marked increase of 15.7 percent over December 2006. As of December 2008, 16,641 citizens (4.9 percent of the national workforce) were registered as unemployed.
In principle, both citizen and non-citizen workers can establish and join labour unions in Kuwait, although the latter can do so only after five years of residence and only as non-voting members. There are many restrictions: strikes are allowed only after government approval and compulsory external arbitration of the dispute; union financing depends on state subsidies, and no more than one union may be established in any occupational trade. Only 3 percent of the Kuwaiti workforce is unionized.
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Yahya ibn Abi Kathir (769-848)