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Khatija Haque - Head of Research & Chief Economist
Published Date: 28 April 2022
Kuwait’s OPEC+ agreed baseline production level will rise to just under 2.96mn b/d from April 2022, from the current baseline of 2.81mn b/d. Kuwait’s actual production in March 2022 was 2.64mn b/d with Q1 2022 production up 12% y/y. We assume that the new baseline production level will be achieved by end-2023, which implies a 10% increase in oil GDP this year and 5% in 2023. Headline GDP forecasts now stand at 6.7% in 2022 and 4.1% in 2023.
Because Kuwait’s fiscal year runs from 1 April to 31 March, the upgrades to oil price and production assumptions have had an impact on budget projections for both FY2022 and FY2023. We have revised the budget forecast for the current fiscal year up to -5.7% GDP from -11.2% previously. While the monthly budget data to February 2022 show a surplus for the fiscal year, there is usually a significant jump in expenditure in the final month of the fiscal year.
The 2022/23 budget assumes an average oil price of USD 65/b and makes provision for KWD 21.9bn in total expenditure, with a deficit of KWD 3.1bn. With our revised oil price forecast for 2022 (USD 112/b) and 2023 (USD 100/b), we expect Kuwait to record a surplus of KWD 5.6bn or 10.1% of GDP.
Source: Haver Analytics, Emirates NBD Research
Political gridlock continues to weigh on execution of development plans
Kuwait's government resigned on April 5th, just months after its formation, extending the political gridlock that has blocked critical economic and social reforms. The country has seen repeated cabinet reshuffles and changes in government, restricting the ability of the state to carry through with significant policy reform, such as increasing crude output capacity. It marks Kuwait's third collective government resignation in the past year and a half. A host of new faces, including some picks to appease opposition blocs, had been appointed to ministerial posts as recently as December, with their resignation now reflecting their failure to make reforms. This has led to delays in projects, including in the key oil and gas sector.
Acknowledging the impact of the political gridlock on budgetary executions, S&P in January affirmed its long- and short-term foreign- and local-currency sovereign credit ratings on Kuwait at "A+/A-1" with a negative outlook, noting "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."
With oil prices now likely to remain high for the next couple of years, this is less of an immediate risk but the structural issue around debt issuance in the future remains to be resolved.
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