The credit rating agency Standard and Poor’s has made the right move in retaining Kuwait’s ratings, namely AA for the long-term and A-1 for short-term with a stable outlook. The assumptions were made on some significant data available with S&P.
Kuwait’s budget has been recording surpluses of at least 10 per cent of GDP for the past 10 years. S&P projects a surplus of 30 per cent of the GDP for fiscal year 2015. (Of the Gulf Cooperation Council (GCC) countries, Kuwait and Qatar run fiscal years between April and March.) The report stands out for placing emphasis on the role of returns on Kuwaiti investments in bolstering the country’s financial position. The projected surplus of 30 per cent of GDP is partly a reflection of the rock-solid accrual of investment income.
Investment outcome constituted 9 per cent of the GDP in 2013. Kuwait’s GDP of $176 billion constitutes around 11 per cent of total GDP of the GCC and makes it the fourth largest within the bloc.
There is plenty of evidence to Kuwait’s financial strength. The authorities had set aside 25 per cent of total revenues to the Future Generations Fund for fiscal year 2013, up from 10 per cent in the past.
The move to raise contribution to the special account is partly meant to avoid meeting demands from members of the parliament to make fresh grants as bonuses to the nationals. Such requests tend to be repetitive in Kuwait and especially from legislators prone to make populist stances, and possibly with an eye on re-election prospects.
The S&P report suggests that Kuwait enjoys a sizable net asset position, compromising 2.7 times the GDP. Undoubtedly, this is something extraordinary in today’s world where maintaining such positions are an exception.
This fact is supported by the latest Sovereign Wealth Institute data, placing Kuwait’s sovereign wealth fund at $410 billion. Certainly, this fund is a major contributor to investment income, which amounted to about $16 billion in 2013.
Still, the prospects look promising in part due to steady oil production. Oil output stands at 3.2 million barrels per day in 2013, but projected to rise to 3.5 million bpd by 2017 thanks to determined efforts to augment capacity. Historically, the government has faced difficulties convincing the elected parliament of the logic of expanding oil output from for onshore fields.
Arguably, the legislators saw little need for enhancing oil output given the country’s strong financial position, registering budgetary surpluses year after year. Still, MPs wanted to put in a regulation in the constitution denying foreign firms the chance to own stakes in the country’s oil sector.
In reality, the oil factor is one of the constraints facing the Kuwaiti economy. The report points out that the oil sector accounts for about 60, 80 and 90 per cent of the country’s nominal GDP, government revenues and exports, respectively. Kuwait’s economy is the least diversified within the GCC. Possibly, the state’s strong financial strength has provided little need for it to diversify away from oil.
However, the opportunity is there for using oil proceeds to diversify, and therefore to solidify the economy from external shocks. Currently, the country’s wellbeing is partially at the mercy of developments in the global oil markets.
In totality, Kuwait enjoys a sort of financial position not easily matched by other countries, and, not surprisingly, envied by many.
The writer is a Member of Parliament in Bahrain.