The Washington-headquartered IMF estimates that Kuwait’s gross domestic product (GDP) rose by 8.2 per cent in 2011. It is likely to grow by about 6.6 per cent in 2012. Inflation was high in 2011, but not unmanageable at 4.7 per cent, while unemployment among Kuwaiti nationals is about 2 per cent.
Meanwhile, the government has money to spend on new projects. Analysts at National Bank of Kuwait (NBK) say the state ran its 13th consecutive budget surplus in the 2011/12 financial year, of KD11.3bn-12.4bn ($40.3bn-44.18bn), well over 20 per cent of GDP and a record for the country. NBK estimates that oil revenues topped KD29.2bn for 2011/12, a 45 per cent rise from the same period a year earlier thanks to average crude prices of $110 a barrel.
Economic expansion in Kuwait is driven by crude oil exports, leaving the Gulf state vulnerable to the consequences of falling prices and demand. Hydrocarbon revenues represent 90 per cent of export revenues and 95 per cent of government income, while large budget surpluses seen over the past decade have mostly been the result of slow state spending and rising oil revenues.
Approximately 80 per cent of Kuwaiti nationals are employed by the government, while the private sector depends largely on state-financed projects.
The government has been aware of the problems related to an unbalanced economy. But plans to privatise publicly owned assets, including state carrier Kuwait Airways, and to develop new infrastructure and economic zones have flagged, partly because of political wrangling between the executive and legislative branches of government. In 2010, the government approved a $110bn economic development plan in a rare example of bipartisan cooperation with the legislature. However, given about 15 per cent of spending targets were hit in the first two years, the state may struggle to meet its targets by 2015.
Kuwait’s private sector remains small, despite efforts by the government to attract capital. Foreign investment would help to invigorate and diversify the emirate’s economy, but the difficult political environment has deterred some international investors.