Kuwait: Elections change composition of Assembly

Legislative elections were held for the second time in two years at the end of September. Opposition candidates made significant gains in the 50-seat Assembly, with 27 new members elected. A new government has been formed, led by Sheikh Ahmed Nawaf Al-Ahmed Al-Sabah, with Hussein Ismail appointed as oil minister. The new parliament is set to hold its first session next week. 

Parliament has yet to pass this year’s state budget or a public debt law that would allow the government to tap capital markets for financing, although the need for this is no longer urgent given Kuwait’s expected budget surplus this year and next.

We expect real GDP to grow 6.7% this year on the back of 10% growth in oil and gas GDP. Inflation has accelerated this year reaching 4.2% y/y in August, driven by higher food, education and medical services, as well as clothing and footwear prices.

Private sector credit growth has accelerated sharply, reaching 10.8% y/y in May before slowing to 9.4% y/y in June and July. This is the fastest rate of annual credit growth since 2009 and was relatively broad-based.  Personal loan facilities have grown by around 15% y/y in the three months to July, with strong growth in loans to purchase securities. Loans to industry have increased by around 12% y/y and construction and real estate financing by around 5% y/y.   

While the macroeconomic outlook for Kuwait is relatively benign for the next couple of years given our base-case scenario of elevated oil prices, the gridlock between parliament and the cabinet needs to be resolved in order for structural reforms to be approved and implemented.  These reforms are needed to boost Kuwait’s non-oil growth potential and improve management of the country’s budget over the medium and long term.

Earlier this year, the cabinet proposed a raft of reforms including restructuring the public sector, investing in infrastructure and human capital and reforming the budget including changes to the tax regime and passing the public debt law.  It remains to be seen whether the new cabinet and parliament will be able to make progress on these initiatives.