Islamic Finance 

Kuwait: Country Overview

| 29 August, 2018 | General
Kuwait: Country Overview

This article is an extract from the Islamic Finance in Kuwait: Broadening Horizons report.

The report can be downloaded from HERE.

Extract: Islamic Finance in Kuwait - Broadening Horizons

Sustained Growth

Like all members of the Gulf Cooperation Council (GCC), Kuwait’s hydrocarbon revenues have been affected by the lower-for-longer oil price era, which began in 2014. Yet the decline in crude prices is proving beneficial to Kuwait in the long term as the government trims state spending and successfully invests in further diversifying the economy.

The country’s GDP will expand 2.6% in 2018, economists polled by Reuters on average forecast, while the World Bank predicts Kuwait’s economy will grow 3.5% in both 2019 and 2020, which would make it the fastest-growing economy in the GCC.

The non-oil sector, which in the fourth quarter of 2017 accounted for 52.5% of GDP at current prices, will help power this expansion, as will consumer confidence, which is at a two-year high.

Instead of significantly running down Kuwait’s vast financial reserves, the government has wisely exploited low interest rates to issue debt that in turn is being used to upgrade the country’s infrastructure as part of a comprehensive development program better known as the New Kuwait 2035 initiative.

Government debt will be about 41% of GDP by the end of 2021-22, S&P Global Ratings forecasts. For context, that would still be considerably lower than the European Union and countries such as Japan, India and Singapore. “We project the government will remain in a comfortable net asset position when we account for its assets at the KIA,” the ratings agency wrote, estimating the assets held by state-owned Kuwait Investment Authority (KIA) are worth nearly four times the country’s annual GDP.

CBK Country Report_GCC GDP Forecast 2018-2020

Prudent Spending

Kuwait is expected to be the only GCC country to achieve a fiscal surplus in the 2017 financial year, according to the International Monetary Fund, as careful management of the nation’s spending gives confidence to investors and citizens alike. Monthly inflation was benign at 1.0 in January versus a year earlier, while real estate sales – a barometer of consumer sentiment – were up 26% over the same period.


Kuwait’s finances are standing out among most governments globally, and the country’s public and external balance sheets and enormous financial assets were by cited by S&P as the ratings agency affirmed Kuwait’s AA/A-1+ long- and short-term foreign and local currency sovereign credit ratings, giving Kuwait a stable outlook.

To put that in perspective, no sovereigns outside North America or Europe have a higher rating than Kuwait apart from Australia, while Kuwait’s ratings are equal to those of France, the United Kingdom and New Zealand, and higher than those of Saudi Arabia and China.

Stable Outlook

The government’s policy response to the sustained decline in oil prices has been swift, decisive and effective. Kuwait has raised fuel prices along with electricity and water tariffs, while public sector wage rises have been capped as part of measures to better balance the budget and increase non-oil revenues.

Already, Kuwait has reduced energy subsidies from 11% of GDP in 2014 to 8% in 2016, the IMF estimates. S&P also commended the government for prioritizing improved revenue collection, selling off underused assets including land, and privatizing state-owned enterprises.

Other global institutions have also taken note as Kuwait’s reforms have made a material improvement to its already enviable financial position. Moody’s in May 2017 upgraded its outlook for Kuwait to stable from negative after the country successfully increased the strength of its institutions. The ratings agency cited improved communications between the likes of the Ministry of Finance, CBK and the Kuwait Investment Authority, as well as a new debt management unit at the MoF.

Another key initiative is the imminent introduction of a three-year budgeting framework that aims to cap spending at around 2017-18 levels. “The planned move to multi-year budgeting marks a significant institutional improvement,” Moody’s wrote.

New Kuwait 2035 Initiative

The Kuwait National Development Plan, launched in January 2017, aims to transform Kuwait into a regional financial, cultural and institutional leader. The country will gauge its success based on 20 key global indicators, which will benchmark Kuwait against other nations. Its target is to be in the top 35% for all indicators.

The plan is divided into seven pillars – global position, infrastructure, human capital, public administration, healthcare, economy, and living environment. In particular, Kuwait is revamping its transport and logistical infrastructure to better serve its residents and support expansion of its tourism sector. Among 10 major new projects are:

- Kuwait International Airport’s $4.64 billion Terminal 2, which is 22% complete and will be finished in 2022

- A regional highway, estimated to cost $911.32 billion, which is 87% built and will be completed in 2022

- The $3.3 billion Mubarak al-Kabeer Port, due to be finished in 2019

- A metro and rail system that combined will cost around $14.6 billion

- The 36-kilometre Sheikh Jaber al-Ahmad al-Sabah causeway, which is 79% built and is expected to be completed this year at a cost of $3.1 billion


Read the full Islamic Finance in Kuwait - Broadening Horizons report

Report: Islamic Finance in Kuwait: Broadening Horizons

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Read the full Islamic Finance in Kuwait - Broadening Horizons report.