Kuwaiti economy heavily relies on its oil revenue. But with the stalling global economy, fluctuating oil prices have been denting the country?s economic potential.
Emir of Kuwait, His Highness Sheikh Sabah Al Ahmad Al Sabah, highlighted the key issues that his country?s economy would be facing in a summit last week. He emphasized on the importance of making adjustments regarding the state budget and the role of the private sector.
Mohammed Al-Kadi, a member of the central bank’s board, confessed to Arabic daily Al-Qabas in an interview that Kuwait’s economy is the most vulnerable among GCC countries. “The other GCC states are able to deal with any emergency crisis because spending in these countries on salaries, wages and subsidies did not reach the level of Kuwaiti budget,? he admitted. Kuwait is already struggling to keep a balance between state subsidies and rising budget deficit.
During the global financial crisis, Kuwait’s economy was the most hit in the Gulf. The country was sent into contraction due to the plunge in oil prices, which as per the International Monetary Fund (IMF) was estimated at 5 %.
As the debt crisis has kept the US and several EU countries in a rut, analysts are of the view that the rest of the globe also needs to make decisions on how to cope.
KUWAIT?S ECONOMIC STATUS
In comparison with the other Gulf Cooperation Council (GCC) countries, Kuwait relies mostly on its oil revenues. Up to 85% of the income comes from oil refining and gas sales. Around 40% of Kuwait’s gross domestic product (GDP) goes into government spending.
As a member of Organization of Petroleum Exporting Countries (OPEC), the country has limited influence compared to the other members. This is mainly due to the fact that it contributes to 2.5 % of global oil production, when on the other hand, Saudi Arabia, contributes to 12%, giving it an upper hand.
Although many job opportunities are provided within the public sector of the country, it does not match up with the stable number of Kuwaitis who are entering the work force with expectations of jobs that will meet their needs for future development.
Figures released in the World Investment Report 2011, issued by the World Conference on Trade and Development (Unctad) suggest Kuwait managed to attract a mere $81 million?(Dh 297.47 million) foreign direct investment among the GCC states. In terms of the Global Competitiveness Report for 2010-2011, Kuwait was ranked at No. 35, again the lowest among the Gulf states.
Another report published by the Heritage Foundation and the Wall Street Journal of the US reveals Kuwait ranks 61st in the 2011 Index of Economic Freedom. Again a low among the GCC countries. On the other hand, politically-unstable Bahrain achieved a number 10 position in the same report. However, critics of the report point out to the fact that Heritage Foundation is known for adopting conservative ideologies with a tendency to embrace private sector at the expense of public sector initiatives.
THE NEED FOR CHANGE
His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, on Monday said that all Kuwaitis need to work together to tackle challenges of the national economy.”We should observe and fathom, as wisdom dictates, the changes and developments taking place in our world. We should sense the hazards of the international economic crisis and its negative effects on our national economy, and we should work as a single hand to tackle the flaws in the economic conditions,? the Kuwaiti ruler emphasised.
The Amir also pointed out that the potential of youth needs to be employed and urged public and private employers to take them into consideration. Analysts believe the changes advocated by the Emir of Kuwait, and the steps taken in accordance are important to convince Kuwaiti investors to invest a sizable amount of their investments in their home country.
July 2008, saw the oil prices hit a record of $147 (Dh539.9) per barrel. And then in 2009 preceding the global financial crisis it plummeted to $40 (Dh 146.90). Now, the average prices are expected to remain just above $100 (Dh 367.25) as demand is rising again.
Last month, Kuwait’s central bank governor, Sheikh Salem Abdul-Aziz Al-Sabah, complained that the state’s “one-sided” dependence on oil and the government’s control of all sectors are the main causes for the imbalance in its economy. The treasury official’s warning underlines the need for the decision makers of the country to see and understand the need for change. Political analysts believe a lot depends on the steps they take to implement the changes, not just announcements.
Sources: Gulf News, Arab News, Arab Times, Kuwait News Agency