Kuwait has strong economic fundamentals

Last week’s decision by Standard & Poor’s (S&P) to grant positive ratings to Kuwait’s economy is a deserved action. The rating agency has assigned long-term and short-term ratings of AA and A-1+, respectively, together with a stable outlook.

To be sure, the move is supported by strong economic fundamentals. Exceptional economic realities entail the ability of registering sustained surpluses in the fiscal system. In fact, S&P projects budget surplus above 20 per cent of the gross domestic product (GDP) for the next four years. Undoubtedly, this kind of hard statistics provides comfort to stakeholders including creditors doing business with Kuwait.

Another source of comfort relates to increasing annual state contributions to the Future Generations Fund from the customary 10 per cent to 25 per cent of oil revenues. Again, this kind of conservative economic policy provides cushions to those dealing with Kuwait. The commendable policy, which dates back to several decades ago, has noble objectives of ensuring fair distribution of the country’s wealth for current and future generations.

Certainly, one such proof of success of this policy concerns the level of sovereign wealth funds (SWF). According to the authoritative Sovereign Wealth Institute, Kuwait’s SWF amounted to nearly $300 billion (Dh1.1 trillion) at the start of 2013. This amount puts Kuwait’s SWF in the seventh place worldwide.

Economic challenges

However, the S&P report puts the value of Kuwait’s external assets to representing a whopping 2.5 times of the GDP. This translates into SWF being in excess of $400 billion when adding indirectly state-owned enterprises.

Still, the country needs to overcome some economic challenges. Recently, the IMF opted of revising downward its forecast of real, adjusted for inflation, GDP growth rate for Kuwait for 2013 from 1.8 per cent to 1.1 per cent. The unexpected development partly attributed into inability of carrying through intended spending plans.

In reality, the country is slow in carrying out the ambitious $110 billion development scheme, in turn approved in 2010. The plan includes spending billions of dollars on infrastructure projects such as expansion of road network. In addition, the fact that Kuwait is not capable of performing well in numerous recently-released international indexes and surveys poses cause for concern. For instance, the Travel & Tourism Competitiveness Report 2013, issued by the World Economic Forum (WEF), granted Kuwait global ranking number of 101, certainly not a pleasant one. In reality, Kuwait is the sole GCC country not ranked within in the top 100 places.

Also, Kuwait is the least performer amongst fellow GCC on the Network Readiness Index (NRI). The index serves as cornerstone of the Global Information Technology Report 2013. WEF and INSEAD, a business school stand behind the annual report. With a ranking number 62 worldwide, Kuwait proves as the only GCC country not ranked amongst the exclusive top 50 club of nations.

Competitiveness

The NRI is turn derived from performance of ranked countries on 10 pillars generated through four sub-indexes. These sub-indexes comprise of 1) environment (political and business conditions) 2) readiness (infrastructure, affordability and skills 3) usage (individual, business and government) and 4) impact (economic and social).

Moreover, the 2012-13 version of Global Competitiveness Report, likewise issued by WEF, considers Kuwait as the least competitiveness economy within the GCC region.

Nevertheless, Kuwait has the potential and the necessary experience for ensuring a soft-landing for its economy. Suffice to say that Kuwait served as regional leader in setting up an investment authority on the one hand and liberalising its telecom industry on the other.

Concurrently, there is need for sticking to spending plans, and thus possibly reducing budgetary surpluses for the sake of economic growth.