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Shady Elborno - Head of Macro Strategy
Published Date: 26 January 2022
We estimate real GDP for Kuwait to have reached 1.4% for 2021 and forecast that to accelerate to 4.6% in 2022 largely on the back of higher oil output. We forecast non-oil growth in Kuwait in 2022 at 3%, with the hydrocarbon sector growing at a solid 6% as OPEC+ member countries continue to raise production. As of time of publication, there have been no quarterly GDP releases for 2021 to shed light on how different segments of the economy performed through the year.
Kuwait’s draft budget for the coming fiscal year starting 1 April 2022 (fiscal year 2022-2023) shows a deficit of KWD 3.1bn down 74.2% from the previous year. The GCC OPEC member sees oil income at KWD 16.7bn throughout the FY that ends in March 2023, up 83.4% from 2021-2022, according to statements by the Ministry of Finance. Total revenues were estimated at KWD 18.8bn, while expenses were seen at KWD21.9bn for the FY 2022-2023. The proposed budget includes KWD2.9bn in capital spending and needs an oil price of USD 75/b to break even.
The 2022/23 budget assumes an average oil price of USD 65/b, close to our forecast of USD 68/b (Brent). We expect spending to be lower than budgeted this year again as the government may be constrained by the inability to issue debt given ongoing parliamentary debates on the same that have produced little over the course of the past year. Kuwait recorded a deficit of KWD 682.4mn (a fraction of the forecasted KWD 12.1bn spending forecast for the 2021-2022 budget) in the first nine months of its financial year, which ends in March 2022, while revenues reached KWD 11.5bn for the same period according to Ministry of Finance figures. We estimate Kuwait’s budget deficit for the full fiscal year 2021-2022 to reach -11.2% of GDP, and we expect it to narrow to -7.7% of GDP in 2022-2023 on higher oil revenues and as the government won’t be transferring 10% of oil revenues to the Future Generation Fund next fiscal year.
Source: Haver Analytics, Emirates NBD Research
In late December Kuwait formed a new cabinet with a new finance minister and including three opposition lawmakers following a standoff between previous governments and the parliament. This is Kuwait’s third cabinet in 2021 after the previous governments resigned in the standoff that had hindered state efforts for fiscal reform. The government has tried to temporarily boost finances while more structural and fiscal reforms remain deadlocked, including a debt law to tap international markets. State media said Emir Sheikh Nawaf Al-Ahmad Al-Sabah, who had taken steps to defuse the standoff, approved the cabinet despite having handed over most constitutional duties to the crown prince.
S&P this month affirmed its long- and short-term foreign- and local-currency sovereign credit ratings on Kuwait at "A+/A-1", with negative outlook. Acknowledging the impact of the political gridlock on budget funding dynamics, it noted "The negative outlook primarily reflects risks over the next 12-24 months relating to the government's ability to overcome the institutional roadblocks preventing it from implementing a financing strategy for future deficits,". It also added that the government has almost exhausted the General Reserve Fund's liquidity.
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