Report on Macroeconomic Performance of Kuwait

            It can be said that Kuwait is quite a rich nation has developed a good and welfare state for its citizens that enjoy a high income per capital. The nation is attempting to position itself like a gateway for the investment in the sector. The economy is dominated by the public sector and the three-quarters of the wealth is concentrated. IMF says that Kuwait has almost the 7^th DP (PPP) per capita in the whole globe. However, most of the wealth is focused in the local citizens’ ends while major of the employees seem to live in inadequate conditions. Therefore, at the ending of 2018, an agreement was signed by the county with India according to the condition of expat workers (most of the expat workers are actually Indians). The rate of unemployment is almost not present and it is measured at only 1.1 percent. The macroeconomic performance of the nation is presented by this paper.

GDP Growth of Kuwait

                At constant prices, GDP indicates the growth of economy for measuring the economy’s performance gradually or compared it with other nations. It is also referred nominal growth domestic product. Real GDP is actually a macroeconomic assessment that seems to evaluate the worth of services and goods which are developed by an economic entity in a certain period and adjusted for the inflation. Furthermore, GDP is obtained by valuing all the development by an economy utilizing the average prices of a certain year. GDP is used by governments as a tool of comparison for analyzing the growth and purchasing power of an economy over the time. It is carried out by checking out the economic output of 2 durations or periods with the similar average rates and comparing them (Yamarone, 2016). Constant Prices of GDP rose to 9929.50 KWD Million in the very 2^nd quarter of 2018 from 9792.20 KWD Million in the very 1^st 2018’s quarter. These prices averaged the rate of 9093.87 KWD Million to 2018 from 1964 reaching also 19955.90 KWD Million which was the highest in the 2018’s fourth quarter while a low record of 572 KWD Million occurred in the 1965’s fourth quarter (TradingEconomics, 2018). The GDP expansion of Kuwait is represented by the following graph:

Source:

Trading Economics

            With the registration of negative growth in the year of 2017 (-3.3 percent because of a decrement in the prices of hydrocarbon), the economy healed during the year of 2018 and expanded almost 2.3 percent. This trend is actually expected to continue in the years to come and IMF is forecasting an approximate growth of 4.1 percent for both 2020 and 2019. Outside the industry of oil which seemingly represented fifty percent of the GDP of country, activity has remained assisted or supported by the five year development plan’s implementation (2015-2020), which seems to contain various huge infrastructures, refinery projects and a transport project (IMF, 2018). Additionally, the Annual Growth Rate of GDP in Kuwait is predicted to be almost 2.30% by the ending of this quarter, in accordance with the international macro models of the Trading Economics and the expectations of analysts. With expectations, the measurement of this rate in Kuwait is to be 2.30 in the span of twelve months. The Growth Rate of Kuwait is estimated to be at 3.90% in 2020, in accordance with the econometric models and projects (TradingEconomics, 2018).

Unemployment Situation in Kuwait

                Almost fifty-eight percent of the workers that unemployed deny to work in private sectors, preferring to be patient until there is a government job available, according to the statistics of government labor. It is suggested by the data that government is struggling to motivate employees more citizens to be employed in the private sectors through the distribution of benefits and matching stipends. These efforts have not succeeded. Approximately eighty-seven percent of the national workforce in Kuwait is working in the governmental sector and in accordance with the Labor Force 2015 Survey published by the Central Statistical Bureau or CSB of Kuwait. The Constitution of Kuwait guarantees the work of every citizen in accordance with the Article 41: “Every citizen of Kuwait has the right to be employed and select his wok. It is actually the duty of citizens required by the public good and personal dignity. The State will struggle to make them available to the Kuwaitis with equitable terms.” The sector of public is still the most attractive and compelling employer for several reasons: shorter hours of working, often less work, every public holiday, perks and benefits which are not always present in the private security and sector since the citizens cannot be rejected or fired except in circumstances which are extreme (Jabr, 2016). The rate of unemployment in Kuwait has decreased to almost 2.06 percent in the year of 2018 form that of 2017. This rate average to 1.53% to 2018 from 1983 with 3.60 as the highest in 2011 and lowest of 0.50 in 1990.  This rate in Kuwait is actually predicted to be 2.10% by the ending of this quarter in accordance with the expectations of analysts and international macro models of Trading Economics. Unemployment rate in a long-term is estimated to be around 1.99% in the year 2020, in accordance with the econometric models and theories (TradingEconomics, 2018).

Source:

Trading Economics

Inflation in Kuwait

            It can be said that the effect of inflation is felt by different groups unevenly in the national economy—some groups of the people earn by making a massive fortune while others lose. The rate of inflation in Kuwait was measured at 0.60% in 2019 February. In Kuwait, this rate averaged to 2.87% to 2019 from 1995 with 11.70 percent as the highest in 2008 August and -1.15 percent as the lowest in 1998 April. In Kuwait, the rate of inflation is predicted to be 2.50 percent by the ending of this certain quarter in accordance with the expectations of analysts and international macro models of Trading Economics. The rate of inflation is estimated by looking forward in Kuwait to be 2.0 in the time of twelve months. The rate in a long-term is estimated to be almost 3.50% in 2020 in accordance with the econometric models and theories (TradingEconomics, 2018).

Source:

Trading Economics

Government Budget Deficit in Kuwait

                Budget proposals were unveiled by Kuwait that predict a smaller deficit regardless of the high spending. However, little signs of reforms are endorsed by the finance minister. Similar to other economies of Gulf, Kuwait has actually sought to introduce the taxes and manage subsidies better since the decrement in the prices of oil from 2014 initiated a shortfall of budget. However, its struggles have not moved beyond a single blueprint, described by the rising crude rates and political opposition. Tumultuous relationships among the government and elected parliament have developed almost 7 administrations in this time (MacDonald, 2019). A surplus was recorded by Kuwait equivalent to the 6.60% of GDP of the nation in 2017. In Kuwait, the Government Budget in Kuwait averaged up to 8.26 percent of the GDP to 2017 form 1990 with 43.30 as its highest in 2005 and -151.31 percent being the lowest in 1991. In Kuwait, the Government Budget is predicted to be 11.5% of the GDP by the ending of this quarter in accordance with the expectations of models and international macro models of the Trading Economics. The Government Budget in long-term is estimated to be almost nine percent of the Gross Domestic Product in 2020 in accordance with the econometric models and theories (TradingEconomics, 2018).

Source:

Trading Economics

Oil Price and Budget Risk due to Drop in Oil Price

        The exposure of Kuwait to international market comes from the production of oil and the prices of oil being analyzed by the OPEC or Organization of the Petroleum Exporting Countries and the global market. Most of the yearly crude oil of the nation and its products are seemingly exported, and the consumer items and necessary capital including durable, clothing, and food are imported. Almost ninety-five percent of the crude oil development of the nation in 2015 was exported, either in refined or crude form, and commodity trade (which means import and export of services and goods) was responsible for almost seventy-percent of the GDP of country which points to the vulnerabilities of the country to developments in the market of oil. Meanwhile, barring the 2 years following freedom or liberation (1991 and 1992), through the last forty-years, the nation has actually experienced a great surplus in its current balance of account. In the current account, the surplus has led to an outflow of the capital along with a large portion of the private and public capital in invested in foreign nations (Burneya, et al., 2017). The fall of November in the prices of oil and the announced production falls by the OPEC will affect the Kuwait economy’s growth outlook. The sector of oil is responsible for almost half of the GDP in original or real terms and almost 90% of government revenues, meaning recent developments which have yet to be captured in the documented forecasts will have an immense effect on the public and growth finances in the upcoming year. Meanwhile, the news regarding economy which is non-oil across the last month was combined with the sales of real estate recovering to almost sold levels in the month of October but the spending of consumer was weak in November, probably due to the severe conditions of weather (Kuwait Times, 2018).

Current Account Deficit

            The presentation of balance of payments in Kuwait conforms to the definitions and classifications of the 5^th edition of the Balance of Payments Manual of the IMF. The balance of transactions of payments is actually classified largely in accordance with the normal or standard components of the BMP5. These components are categorized in 5 main categories: Reserves, Net transactions, Financial account, Capital account, Current account, and the baseline item for the complete balance. But in the current account, there are some issues in the identification of transactions of detailed service and income components for the employees’ compensation, portfolio investment, and direct investment. In the financial account, there are actually issues in evaluating the nonfinancial private sector’s transactions with respect to the portfolio, direct, and other investments. Reserves are actually obtained from the CBK’s records and therefore, exclude the movements in accounts for the Investment Authority of Kuwait, Petroleum Corporation of Kuwait, and other assets that seemingly constitute different official positions; such elements are divided, as eligible, in the account of finance in other investments or direct, portfolio (Arab Times, 2018). The surplus of Current Account was recorded by Kuwait up to 5.90% of the GDP of country in 2017. In Kuwait, Current Account to the Growth Domestic Product averaged up to 19.23% to 2017 from 1980 with 54.57 percent being the highest in 1981 and -242.19 percent being the lowest in 1991. In Kuwait, Current Account to Growth Domestic Product is predicted to be almost 10.80% by the ending of this quarter, in accordance with the expectations of analysts and international macro models of Trading Economics. Kuwait Current Account in the long-term to GDP is estimated to be almost 7.50% in 2020, in accordance with the econometric models and theories (TradingEconomics, 2018).

Conclusion  on Macroeconomic Performance of Kuwait

Overall, Kuwait seems to have the 6^th largest reserves of oil in the whole world and the 30^th highest GDP of the world (2017 est.). Its open economy is actually dominated by the government sector and industry of oil. It is third largest producer of oil in OPEC. The revenues of oil in 2016 comprised approximately 44% of the Growth Domestic Product. A proportion of its revenue is contributed by Kuwait into Generations Fund of Future managed by the KIA or Kuwait Investment Authority. It is recognized to be the fourth biggest fund of sovereign in the whole world.

In the Middle East, Kuwait has one of the wisest and oldest economic systems with the exchange of stock dating back over fifty-five years and a banking system that is well-developed. The New Vision of Kuwait 2035 plan of national development aims to transform the nation into a cultural, commercial, and financial hub for northern regions of Gulf. It focuses on the development at a long-term with priorities including empowering the private sector infrastructure projects for reducing the dependency of Kuwait on export revenues of oil. Reforms have been implemented by Kuwait for allowing hundred percent ownership of foreign investments which are inward in most of the gas and non-oil sectors and is currently seeking to promote the foreign businesses into the nation. Financial services, construction materials, water desalination, cement, construction, shipping, and real estate are included in major industries Real GDP actually expanded by almost 2.6% in 2017.

References on Macroeconomic Performance of Kuwait

Arab Times, 2018. Kuwait’s current account records $7.1bn in 2017. [Online]
Available at: http://www.arabtimesonline.com/news/kuwaits-current-account-records-7-1bn-in-2017/

Burneya, N. A., Mohaddes, K., Alawadhi, A. & Al-Musallam, M., 2017. The Dynamics and Determinants of Kuwait's Long-Run Economic Growth, s.l.: Kuwait Institute for ScientiÖc Research.

IMF, 2018. World Economic and Financial Surveys, s.l.: International Monetary Fund.

Jabr, A., 2016. 58 percent unemployed Kuwaitis unwilling to work in private sector – Efforts to Kuwaitize private sector largely failed. [Online]
Available at: https://news.kuwaittimes.net/website/58-percent-unemployed-kuwaitis-unwilling-work-private-sector/

Kuwait Times, 2018. Oil price softness, OPEC cuts to impact Kuwait’s growth outlook. [Online]
Available at: https://news.kuwaittimes.net/website/oil-price-softness-opec-cuts-to-impact-kuwaits-growth-outlook/

MacDonald, F., 2019. Kuwait Budget Has Smaller Deficit, Lacks Engines for Change. [Online]
Available at: https://www.bloomberg.com/news/articles/2019-01-21/kuwait-budget-plan-targets-lower-deficit-of-7-7-billion-dinars

TradingEconomics, 2018. Kuwait GDP Annual Growth Rate. [Online]
Available at: https://tradingeconomics.com/kuwait/gdp-growth-annual

Yamarone, R., 2016. The Economic Indicator Handbook: How to Evaluate Economic Trends to Maximize Profits and Minimize Losses. s.l.:John Wiley & Sons.