KUWAIT CITY: The general budget of Kuwait has entered an era of deficit expected to extend until 2027, primarily due to its significant reliance on oil exports, reports Al-Seyassah daily. The weekly economic report highlighted several key topics from the past week, focusing on the gross domestic product (GDP) during the fourth quarter of 2023, foreign direct investment (FDI), and foreign ownership in the Kuwaiti banking sector as of June 2024.

GDP Contraction in Q4 2023 — The Central Administration of Statistics released preliminary GDP data for Q4 2023 on June 13, indicating a 4.6% decline at current prices compared to Q4 2022, dropping from approximately 13.504 billion dinars to 12.883 billion dinars. At constant prices, the GDP fell by 4.4%, from about 10.802 billion dinars to 10.332 billion dinars. This decline was attributed to a 6.4% decrease in the added value of the oil sector, with the non-oil sector also contracting by about 2.3%.

Impact of Oil Dependency — The high dependency on oil exports makes it challenging to control economic performance and public finances. During periods of high oil prices and production, growth rates soared, with the oil sector’s contribution to GDP reaching 57.6% in Q3 2022, resulting in a budget surplus. However, the decline in oil prices and production in 2023 led to economic contraction and reduced the oil sector’s contribution to 47.2%, pushing the general budget into a deficit expected to persist until 2027 or beyond.

Sector Contributions to GDP — Data from the Central Statistical Administration illustrates the reliance on oil revenues, with the oil sector contributing 47.2% to GDP. The next largest contributor is the public administration, defense, and social security sector, financed by oil revenues, at 10.7%. Other sectors, such as manufacturing (7.9%), transportation, storage, and communications (6.2%), and education (5.6%), also heavily depend on public expenditures or oil revenues, underscoring the economy’s unsustainability.

Record Jump in Foreign Inflows — The UNCTAD report on global FDI flows in 2023 showed a global shrinkage of about 2%, reaching approximately $1.3 trillion. GCC FDI flows followed this trend, decreasing by 6.1%. Despite this, Kuwait received the fifth-highest FDI in the GCC, with an inflow of about $2.11 billion in 2023, a significant increase of 178.8% from $758 million in 2022.

Foreign Ownership in the Banking Sector — Foreign ownership in the Kuwaiti banking sector grew to 3.7 billion dinars in the first half of 2024. The banking sector, which represents 61.6% of the stock exchange’s capital value and 54.5% of its profits, attracted substantial indirect foreign investment. In conclusion, Kuwait’s economy faces significant challenges due to its dependency on oil exports, leading to economic volatility and budget deficits. However, the country has seen positive developments in foreign investment, particularly in the banking sector, which may provide a cushion against these economic challenges

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