Main Events 2019 – Local Economy

Crude oil exports are still the main drive for the Kuwaiti economy performance. The stagnation of the oil market and the reduced supplies by producers to support prices slows growth rates of the local economy which has long waited for diversification of its sources. According to Economist Information Unit, the local economy achieved real positive growth in 2018 and estimates it would achieve about 1.8% growth in 2019 contrary to Standard & Poor’s Agency which projects this growth to score only 1% for 2019.Since their historical decline in the fall of 2014, oil prices have remained between an average of US$ 60-70 per barrel. Kuwaiti oil prices have fallen from an average of US$ 68.5 per barrel in 2018 to an average of US$ 64.3 per barrel in 2019. But public expenditures in the budget for the fiscal year 2019/2020 rose to KD 22.5 billion up from KD 21.5 billion in the estimates for the preceding fiscal year. While final account for the previous fiscal year had a real deficit of about KD 1.3 billion, current budget which adopts oil price of US$ 55 per barrel estimated the hypothetical deficit at KD 7.7 billion after deducting 10% for the future generations reserve. Actual figures indicate until the end of 2019 (9 months of the fiscal year) a potential actual deficit by up to KD 3.9 billion, according to the monthly follow-up report of Ministry of Finance. On December 24, 2019, Kuwait and the Kingdom of Saudi Arabia signed an agreement on oil production operations in their common zone (on and offshore). That would return about 250 thousand barrels per day to Kuwait after 5 years from the stoppage. Such production has costs that will be estimated later according to the agreement.The Central Bank of Kuwait’s monetary policy remains cautious, and is concerned mainly with supporting the fragile growth of the economy and the competitiveness and repatriation of the Kuwaiti Dinar. During the second half of 2019, the US Federal Reserve reduced the base interest rate on the Dollar three times and the Central Bank of Kuwait followed once. As such, margins between interest rate on the two currencies returned to 1% down from 0.5%. The subordination base interest rate on the US Dollar and the discount rate on the Kuwaiti Dinar decreased since the first change (increase) for the US Federal Reserve on 19/12/2015 followed by 10 other changes by increase and decrease, while discount rate on Kuwaiti Dinar changed only 4 times, and this was a sound policy.

Kuwait passed a law to develop the Northern Region which would create 220,000 jobs by 2035 by productivity the highest in the world equal to the Singaporean worker productivity and with a goal to diversify income sources away from oil at a cost of about US$ 450 billion. This is a good approach in principle. However, the government also approved another strategy which also costs US$ 450 billion whose goal is to increase the country’s dependence on oil by raising its production capacity to 4 million barrels per day by 2040. In fact, we do not know how to reconcile the two strategies from a position of support or opposition to either of them. Nor how the country can afford to invest all these amounts in both, nor how to create competitive job opportunities with high productivity at a high-cost but low-quality education system or output. Boursa Kuwait showed great results during the year as its liquidity level increased by about 86.3% compared to 2018 measured by average daily trading value (ADTV). This resulted after three upgrades on three global indices with the latest in December 2019 on MSCI Index. It was also upgraded to an emerging market rank. Consequently, Boursa’s All-Share Market index gained 23.7%, with about 32.4% share to the Premier Market index and about 3.6% to the Main Market index. Until December 25th 2019, the value of foreign investments in Kuwait banking sector amounted to about KD 1,744.4 million. About KD 1,080 million or 61.9% of their total, went to the “National Bank of Kuwait” and KD 421

million or 24.1% of their total, went to the “Kuwait Finance House”. About KD 111.2 million or 6.4% of their total went to “Gulf Bank”. This means that 92.4% of foreign investments in the banking sector went to three banks. With the abundance of liquidity, the market value of listed companies at Boursa Kuwait increased from KD 29.187 billion in 2018 to KD 36.355 billion, adding nearly KD 7.168 billion to the wealth of investors therein. 

Two public offerings were completed in Kuwait for both Shamal Azzour Company and Boursa Kuwait Company itself. The first was covered by 127% and the second was covered by 850%.

On November 14, 2019, the Kuwaiti government resigned over corruption cases. On December 17 a new government was formed with half of its members from the previous government. The new government adopted fighting corruption as a priority. It is still premature to pass judgment for or against it. It gave signals of its attempt to reduce the size of costly entities, most of which are artificial foundations for job opportunities and loyalty procurement. That is a good approach. The government also included three professional women, which is also good. It also corrected the mistake of ministries being run by certain people, which is a third good thing. However, it maintained the basic and most serious problem which is the allocation of shares within these entities.