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Kuwait economy: Resilient and buoyant

Growth momentum continues in tune with ‘New Kuwait’ vision

By Sajeev K Peter

His Highness the Amir Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah
His Highness the Crown Prince Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah

Kuwait’s economy has remained resilient in the face of a global slowdown following two years of the COVID-19 pandemic. Riding a wave of strong growth, it bounced back to pre-pandemic levels immediately after the country eased coronavirus-related restrictions on May 1, 2022. The government’s swift and decisive responses to the COVID-19 crisis and strong vaccination efforts have helped the economy recover sharply from the pandemic-induced slowdown.

This acceleration in growth momentum is in tandem with Kuwait’s 2035 vision that aims at transforming Kuwait into a financial and trade hub regionally and internationally, making it more attractive to investors. The development plan, formulated under the guidance and patronage of His Highness the Amir Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah and His Highness the Crown Prince Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah, also envisages a more crucial role for Kuwait’s private sector in driving growth, creating competition and promoting production efficiency.

According to the International Monetary Fund, Kuwait’s overall real GDP growth is estimated to have rebounded from -8.9 percent in 2020 to 1.3 percent in 2021. It was projected to further climb to above 8 percent in 2022, supported by rising oil production, high oil prices and sustained improvement in domestic demand. Although IMF estimated that growth is likely to moderate in 2023, in view of slowing external demand and oil production cuts under the OPEC+ agreement, the country’s economy is forecast to maintain its growth momentum through 2023.

The authorities have successfully contained inflation and checked the direct adverse spillovers from supply chain disruptions resulting from Russia’s war in Ukraine. The country’s overall fiscal and current account surpluses also have improved significantly from last year, thanks to higher oil prices and increased oil output.

The IMF said in a recent report that in 2023, Kuwait’s production will increase more modestly. It has estimated a 2 percent GDP growth in the oil and gas sector, leaving the non-oil sector to drive headline GDP growth. Kuwait currently produces more than 2.8 million barrels of oil per day. Kuwait Petroleum Corporation (KPC) has announced its plan to increase oil production capacity to 4.75 million barrels per day (mmb/d) by 2040. In addition, KPC has announced intentions to increase natural gas production to 4 billion cubic feet per day by 2030. However, future production increases will depend on actual implementation of several upstream projects, including the development of heavy oil capacity of 60,000 barrels per day.

CBK’s prudent policies

The Central Bank of Kuwait’s prudent oversight and proactive monitoring of financial risks have helped Kuwait’s banking system weather the pandemic shock. Kuwaiti banks remain well-capitalized and liquid while their financial soundness indicators are healthy and private sector credit growth remains strong. According to KPMG, Kuwait’s banking industry bounced back to growth in 2021 after the COVID-19-induced slowdown, reaching record highs in terms of net profit and return on equity (RoE). Propelling this remarkable comeback was a combination of support from the government and well-timed enterprising measures that helped the sector brave the odds and come out robust and resilient.

Infrastructure projects

Overhauling infrastructure is a key pillar of ‘New Kuwait’ 2035 vision. Kuwait, currently seeking to secure a position in the top 35 countries in the world by 2035 in all development indicators, has resumed work on key infrastructure projects after a lull of over two years. Rising oil prices have also added much-needed impetus to the country’s drive to put infrastructure projects back on track. According to recent reports, these major projects include 14 public sector developments with a total value of approximately $59 billion and four partnership projects worth nearly $3.2 billion.

The projects comprise mainly the airport expansion, Silk City, island development, trans-Kuwait rail network and rail link with nearby Gulf countries, Mutlaa City and the Clean Fuel Project. The country has currently over 700 active projects with a combined value of $230 billion. Once completed, these mega projects – 20 percent of them are near completion – will catapult the country into a modern city-state, bringing about a radical transformation to its information and communication technology (ICT), transportation, logistics, trade and power generation and transmission sectors.

Aviation sector

Kuwait International Airport is currently witnessing a series of path-breaking developments, in addition to a number of future projects to modernize the infrastructure of the aviation sector in the country. With the opening of Terminal 4 at Kuwait International Airport as part of the first phase, Kuwait’s aviation industry marked a significant milestone in its history. Today, in the post-COVID era, Kuwait has the top priority to speed up its ‘New Kuwait’ development projects, focusing on diversification and structural reforms.

Digital transformation

Digital transformation is another key pillar for Kuwait’s 2035 vision, and the country is focusing on adopting smart and digital technologies to innovate services, drive the economy and improve quality of life. According to GlobalData, the country’s ICT market is expected to reach $10 billion by 2024 and the country’s digital information strategy is pushing greater investment in Kuwait’s ICT market and enhancing operational efficiency and performance of key sectors.

The ICT goal also aims to push the country’s plan to transform it into a digital society and economy by improving government performance through digital transformation and building a robust cyber security infrastructure to prevent attacks and protect digital assets.

Renewable energy

Kuwait is on track to meet 15 percent of its energy requirements from renewable energy sources by 2030 as part of its New Kuwait 2035 strategy. Realizing the fact that renewable energy is the way forward, Kuwait like its GCC counterparts is also executing a number of green projects like Shagaya Renewable Energy Park and Al-Dibdibah photovoltaic (PV) solar project, among others. “Many other sectors have also been contributing to the ‘New Kuwait’ vision 2035 to use renewable energy while producing energy, and solar and wind power have become a tangible reality,” an official working for Shagaya project points out.

Currently, the country is reliant on fossil fuels for energy generation and water desalination. According to the ministry of electricity and water, by 2030 Kuwait’s energy demand will triple and the ministry estimates that the amount of fossil fuel available to generate energy in Kuwait is not enough to maintain the country’s current rate of social and economic growth.

Importantly, Kuwait Institute for Scientific Research (KISR) has initiated energy efficiency and energy management programs to help alleviate Kuwait’s mounting energy challenge. Since 1980s, KISR has explored the potential of capturing energy by alternative means, pioneering research in concentrated solar thermal technologies as well as photovoltaic panels. The RET Program is continuing this tradition, leading the nation’s efforts to find the renewable energy solutions most appropriate for the unique climate conditions of Kuwait.

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