Yes I think so because of the
depressing prices of Oil and Gas. The monetary reserves accumulated over time
when oil and gas prices were high is slowly being used up to cover the government
deficit is this prolonged slump in Oil and Gas prices. Maybe another 1 or 2
years of cash reserves left and if Oil and Gas prices do not go up soon to
above USD 80, then not only Kuwait but OPEC countries will be short of cash big
time. Middle-East OPEC countries have a fixed exchange rate with USD and it helped
when oil prices were high with the depressed oil prices, the exchange rate will
be under stressed as the OPEC countries will have to depreciate their currency
for more local currency for running their governments and keeping their
population contented with their life styles they are accustomed to.
The whole of middle-east is
like a gunpowder keg and waiting to explode
Is Kuwait on the verge of an economic crunch?
Author: Al-Hayat (Pan Arab)Posted November
11, 2016
The Central Bank of Kuwait recently issued the 2015 economic report, highlighting some economic facts worth
analyzing.
Summary
The Central Bank of Kuwait has
recently issued the 2015 economic report, highlighting some economic facts
worth analyzing.
The report pointed out that gross domestic
product (GDP) amounted to 40 billion dinars ($132 billion),
registering 1.8% growth compared to 2014. However, GDP for the oil
sector decreased by 1.7%, while it increased by 1.3% for non-oil sectors.
The price for Kuwaiti crude [oil] for 2015 was $47.8 [per barrel
(pb)], compared to $95.2 pb in 2014.
These data confirm that the oil sector,
which contributes 58% to GDP, has significantly declined, but the added value
for non-oil sectors was not sufficient enough to promote and stimulate economic
activity, which means that the economy is still far from achieving
diversification.
There is no doubt that the drop in price of Kuwaiti crude, from about $95 pb
to about $48 pb, i.e., by almost 50%, was a major shock to an economy that
has remained dependent on oil exports for a long time. The decline in
prices could have more deleterious effects this year, because the price of a
barrel of Kuwaiti oil is now $40 less than it was previously.
The report indicated that the country's
population last year grew by 3.6%, after growing 3.2% in 2014. The percentage
of Kuwaiti citizens rose by 2.5% [in 2015] compared to 2.7% in 2014, while
the percentage of non-Kuwaitis rose by 4.1% compared to 3.4% in 2014. The
number of Kuwaiti nationals amounted to 1.3 million, constituting 30.8% of
the 2015 population, after having made up 31.2% of the population in 2014,
while non-Kuwaitis totaled 2.9 million people in 2015, comprising 69.2% of the
population.
The growth in the percentage of non-Kuwaitis
is mainly linked to the labor market, which is still dependent on migrant workers. The report showed that the total number
of workers in Kuwait reached 2.4 million in 2015 at an [average] growth rate of
3.3%, 2 million of whom were foreigners, making up 83% of the total number of
workers, while only 400,000, or 7%, were Kuwaitis.
One can only assume that economic management
was yet again unable to stimulate the local labor force to engage in the
private sector, where expats mainly work, while the prevailing educational systems
in Kuwait are still far from producing the labor market’s requirements.
Activity on the Kuwait Stock Exchange
is one of the most important indicators of the Kuwaiti economy's performance.
The report showed all trading activity indicators and price levels registering
a significant decrease.
Trading value indicators fell by 35.2%,
while quantitative indicators fell by 21.6%. Also, the general price index
closed down, with a 14% drop from the 2014 closing level. The
capitalized value of listed companies decreased to 26.2 billion dinars ($86.5
billion) with a loss of 3.5 billion dinars ($11.5 billion), or by 11.8%
compared to [the figure from] the end of 2014.
There is no doubt that this decline
represents a great loss for many investors who put funds in quoted instruments,
which are often equity shares in companies listed on the financial market. A
large number of these investors are middle-income earners or have limited
savings and cannot find appropriate investments through which to exploit
their savings other than company shares. The status of the Kuwait Stock
Exchange is politically alarming and must be quickly addressed. Market
performance did not improve during the current year, and this year's results
are not expected to be rosy either.
Thus, based on these official data on the
national economy, one may deduce that Kuwait faces the challenges of declining
oil prices, the need to address the situation of various sectors and the
importance of stimulating the various core activities in the oil and non-oil
sectors. It must be acknowledged that the potential for recovery does
not depend soley on the financial and economic policies adopted in the
country, as the effects of the oil market and their developments in the coming
months and years are surely more influential.
It is crucial to launch efforts to
address important issues, including those related to the labor market, the
rationalization of the recruitment of migrant workers and the need to stimulate
the local labor force to engage in the private sector. All this is important in
order to address demographic imbalances.
The performance of the Kuwait Stock Exchange
must be improved. The stock exchange has adopted vital regulations and
conditions on listing and trading activities as well as regarding transparency.
This was especially the case after the creation of the Capital Markets
Authority and the Boursa Kuwait Securities Company.
The requirements of the market must be
met, including the establishment of companies acting in the capacity of market
makers to promote vitality in this activity. The Kuwaiti economy requires
serious review and confronting to regain its vitality
