Kuwait’s non-oil economy has maintained a relatively healthy pace of growth even as oil prices remained more than half their levels of two year ago, according to a recent report by the research unit of National Bank of Kuwait (NBK).
NBK Research sees non-oil growth improving in 2016 and 2017, in contrast to cooling activity in some neighboring GCC countries.
The driver is a government-led development plan, which is helping ramp up both public and private investment, boosting the private sector’s share of the economy and addressing capacity constraints in a number of areas.
The consumer sector is also expected to continue to support activity, though it is expected to see some healthy moderation.
It has been two years now since oil prices began to decline in mid-2014. As oil prices fell from over $100 per barrel, a sizeable fiscal surplus turned into a deficit, the report indicated.
The government moved ahead with spending cuts targeting non-essential areas in the fiscal year 2015-2016, more recently, it has introduced measures to reduce the subsidy bill.
Initiatives to increase non-oil government revenues are also pending, including a value-added tax and a corporate earnings tax, both of which require legislation.
The fiscal deficit is expected to narrow in 2017 as the price of oil gradually improves. NBK Research expects Brent to average around $45 a barrel in 2016 before rising to $55in 2017.
“Fiscal reforms will also help close the gap. However, the risk that oil prices will underperform our projection remains a significant downside risk for the outlook,” the report added.
Weaker prices would put further pressure on the fiscal and external positions and could push the government toward more significant expenditure cuts and possibly even some reductions or delays in capital spending. However, NBK Research deems such a scenario unlikely, the report stated.
