By Andrew Vought
February 13, 2017
Mired in an era of cheap oil, Kuwait is looking for answers. Along with its petrochemical-rich neighbors, Kuwait has been dealing with this harsh reality since 2014. Throughout previous decades, Kuwaitis consistently relied on oil to fund government spending and to grow their immense sovereign wealth fund. The Kuwait Investment Authority (KIA) holds nearly USD 592 billion in assets. When global oversupply caused prices to drop below USD 40 per barrel, Kuwaiti officials had to accept an ineluctable truth. Their state could no longer rely on commodity prices as the sole source of wealth for government coffers. Like Saudi Arabia, Kuwait has unveiled a plan, dubbed “Kuwait 2035” and marketed as the “New Kuwait”. Sheikh Mohammad Abdullah Al Mubarak Al Sabah, the Minister of State for Cabinet Affairs, described the plan as a set of “initiatives that will transform our economy, create jobs, attract foreign direct investments and facilitate knowledge transfer in the fields of renewable energy, information technology, and the services sector.”
Founded in 1953, KIA, the world’s oldest sovereign wealth fund, manages surpluses from oil revenue. The fund adheres to the Santiago Principles, which ensure transparency, risk management and accountability, regulatory accountability, and financial stability. Following 16 years of surpluses, Kuwait posted a large budget deficit in 2015-2016, and the government recently approved a 2017-2018 budget that projects a deficit for the third consecutive year. Finance Minister Anas Al Saleh estimated the coming shortfall to be USD 21.6 billion. This figure is an improvement from the 2016-2017 fiscal year (which ends on April 1, 2017), during which the shortfall is projected to be USD 29 billion. Rising oil prices are the cause of this uptick.
The “New Kuwait” development plan is designed to transform Kuwait’s economy through 164 strategic programs. The plan features seven “pillars” which will ensure diversification and growth. Pillar 1 targets public administration to reform bureaucratic practices and reinforce transparency, accountability, and efficiency. Pillar 2 seeks to diversify the economy and reduce dependency on oil revenues, which comprise around 90 percent of government revenue. Pillar 3 focuses on infrastructure development. The remaining pillars target domestic living standards, public healthcare, the domestic labor market, and Kuwait’s global position.
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Andrew Vought is a contributor to Gulf State Analytics.