The story that has emerged in Kuwait in recent years is one of substantial economic promise and yet, at the same time, a track record of soft growth, slow reform and subdued project activity. 

On the face of it, with its low breakeven oil price and high reserves with respect to its budget, the country should be better placed to spend than either Saudi Arabia or the UAE. However, this has not been reflected in the government’s fiscal behaviour, either in terms of project spending or in its ability to fulfil its commitments without recourse to debt markets.

One reason for this has been the government’s internal monetary pledges economic programmes, most notably the Future Generations Fund, which draws off 10 per cent of all state revenues. While positive for the country’s long-term savings and asset growth, this is weighing on Kuwait’s finances.

Equally, while the country’s population remains the third wealthiest in the GCC, with a purchasing power parity-adjusted GDP per capita of $67,000 in 2018, according to the World Bank, the country’s weak economic diversification away from oil has yielded limited non-oil growth in the past three years.

Even the all-important oil sector has seen little recent investment since 2015, when the $16bn-worth of contract awards in the sector accounted for more than half of the total project activity in the country.

Kuwait’s banking sector remains strong and is nevertheless seeing improving profitability, having weathered the introduction of IFRS 9 (International Financial Reporting Standards) thanks to its relatively high capital adequacy ratios.

And in spite of a slow start to the year in terms of project activity, the country has $32bn-worth of public projects, primarily in the petrochemicals and transport sectors, in its near-term pipeline, raising the prospect of greater project activity in the latter half of 2019 and in 2020.

Kuwait Market Focus in features