Country Report Kuwait June 2009

Outlook for 2009-10

• The emir will remain the ultimate political authority. Disputes between parliament and the government are likely to persist in 2009-10 because changes to parliament have not been reflected in the make-up of the new government.
• 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.
• Following a slight upward revision to our oil price forecast, we now expect a budget surplus of 2.4% of GDP in fiscal year 2009/10. The surplus is forecast to widen to almost 7% of GDP in 2010/11.
• Owing to greater OPEC quota compliance and weakening demand for Kuwaiti exports, we forecast that real GDPwhich we estimate grew by 8.5% in 2008will contact by 0.7% in 2009, before growing 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, because of sharp falls in commodity prices.
• As a result of a substantial 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 just over 16% of GDP a year in 2009-10.

Monthly review

• The hegemony exercised by the Sunni Islamist conservative bloc has come to an end following a surprising outcome to the May 16th parliamentary election. The liberal and Shia constituencies have increased their influence.
• Despite the shift in the parliamentary balance, the likelihood of the political crisis between the legislature and the executive continuing has risen following the reappointment of the prime minister for the sixth time in three years.
• Some new MPs have already challenged the caretaker cabinet's Financial Stability Law, which parliament must now approve.
• The government has said that its economic priority is to revive banking sector lending, which it aims to do through the Financial Stability Law.
• As well as stabilising the banks and investment companies, the government is under pressure to set up a capital markets authority to help regulate the Kuwait Stock Exchange, the region's second-largest bourse.
• Data from the Central Bank of Kuwait have shown that the current-account surplus widened sharply in 2008, but that the overall balance-of-payments surplus narrowed owing to a massive rise in outward investment.
• Kuwaiti officials have signalled that investment in the oil sector will continue at a cautious pace in the coming years.

Source: Country Report