Special Report: Kuwait - Policy dispute stunts development

23 October 2008

Kuwait’s economic indicators should be a source of envy for central bank governors worldwide. In 2007, the country posted a budget surplus of $43bn, all the more remarkable given the $26bn deficit it amassed immediately after the 1990-91 Gulf war.

The Central Bank of Kuwait predicts similar surpluses in future years if oil stays above $55 a barrel, creating a vast pool of cash to spend on the tiny population of 3.6 million.

But the country’s double-digit inflation mars the economic picture.

The central bank has made it a priority to tackle price rises, which are being felt by Kuwait’s middle class consumers, who until recently were used to an inflation rate of just over 1 per cent a year.

Some of the inflationary pressures, such as global food and energy price rises, are beyond the government’s control, but the rising cost of land is something it can and should tackle.

The state’s tight grip on land ownership has caused property prices to rocket by up to a third over the past 12 months, putting the small number of new developments beyond the reach of many Kuwaitis.

A botched legal reform banning speculative investments in new plots has only had the effect of pushing prices higher, giving Kuwait a reputation for extortionate real estate prices and a reluctance to deal with the root causes of inflation.

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