Country Report Kuwait April 2009

Outlook for 2009-10

• The emir will remain the ultimate political authority. The spectre of two elections within the space of a year suggests that the long-running political crisis between the government and parliament will continue in 2009-10.
• Kuwaiti foreign policy will remain founded on a long-standing strategic alliance with the US. Efforts at Gulf Co-operation Council integration will also continue.
• We forecast a budget deficit of 5.6% of GDP in fiscal year 2009/10, the first since 1998/99, as oil prices decline in 2009 and oil output is cut. The fiscal account is expected to return to a surplus of 2.8% of GDP in 2010/11.
• Owing to higher degrees of OPEC output compliance and a worsening export market, we now forecast that real GDPwhich we estimate grew by 8.5% in 2008will contact by 0.7% in 2009, before picking up again by 4.4% in 2010.
• We forecast that average consumer price inflation will fall to around 7% in 2009 and further to 5.6% the following year, in line with slowing economic growth and depressed commodity prices.
• As a result of a forecast 59% fall in oil prices in 2009, export earnings are expected to drop sharply. This will dramatically reduce the current-account surplus, which is forecast to average 9.4% of GDP a year in 2009-10.

Monthly review

• Following weeks of acrimonious disputes between the government (which has resigned) and parliament, the emir has finally dissolved the latter paving the way for elections barely 12 months after the last national ballot.
• The crown prince is widely expected to be made the new prime minister, which would recombine the two roles after they were separated in 2003.
• The Economist Intelligence Unit's 2008 democracy index ranks Kuwait 129th out of 169 countries, putting it among the 51 authoritarian countriesbeside neighbours such as Bahrain, Oman, Qatar and the UAE.
• The acting government has passed a US$5.2bn economic stimulus package which has been held up by the dispute between the government and parliament. The emir is expected to approve it by decree.
• The cancellation of a contract for the estimated US$15bn Al Zour refinery on March 20th has raised yet more questions over Kuwait's attractiveness as a destination for foreign businesses.
• Kuwait's ongoing political impasse will have a strong impact on the country's economic outlook, with the economy expected to contract in 2009.
• Local investment companies have suffered combined losses of US$31.8bn in the six months to the end of January 2009.

Source: Country Report