Kuwait’s Economy in Recession Due to OPEC+ Oil Cuts
Kuwait’s economy is in recession and is expected to stay in recession in 2024, according to the International Monetary Fund (IMF). This is mainly because of the decision by OPEC+ to cut oil production last year.
Oil-Dependent Economy
In 2023, Kuwait’s economy shrank by 3.6%, with both the oil and non-oil sectors facing big declines. The oil sector saw a 4.3% drop due to OPEC+ production cuts, while the non-oil sector shrank by 1%, mainly because of lower manufacturing activity. In the second quarter of 2023, Kuwait’s GDP shrank by 1.5%, with the oil sector falling by 6.8%, partly offset by a 4.2% recovery in the non-oil sector.
The IMF said that lower oil prices and production have weakened Kuwait’s trade and fiscal balances, though the country’s financial stability has been maintained. Kuwait still has a strong external position, with a current account surplus of 31.4% of GDP in 2023. Its official reserves were $47.6 billion at the end of 2023, enough to cover 9.2 months of imports.
Lower Oil Prices
Kuwait’s economy has been hurt by lower oil prices and production. This has reduced both export earnings and government revenue. The IMF also noted that Kuwait’s financial situation remains stable, thanks to strong institutions and monetary policies.
As a major oil exporter, Kuwait’s economy is very sensitive to oil price changes. OPEC+ cuts have led to lower export earnings and a wider trade deficit. The government’s revenue has also dropped significantly.
Fiscal Situation and Credit Growth
In the fiscal year 2023/24, Kuwait’s central government ran a deficit of 3.1% of GDP, while the general government, including the sovereign wealth fund and state-owned enterprises, had a surplus of 26.1% of GDP. Credit growth slowed due to higher interest rates, but banks remained stable with strong capital and low non-performing loans (NPLs).
Diversification Efforts
Kuwait’s economy is very dependent on oil, which exposes it to global risks. The IMF pointed out that Kuwait needs to speed up fiscal and structural reforms to diversify its economy away from oil. These reforms would help make the economy more resilient and encourage private investment.
The IMF also welcomed Kuwait’s efforts to transition to a more diverse economy and stressed the need for a clear plan of reforms to support this shift.
Published: 10th December 2024
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