Kuwait

Politics:

• Analysis

  Kuwait politics: Quick View - MPs threaten to grill ministers while pushing

  Event

  Members of parliament (MPs) have threatened to submit motions to question the first deputy prime minister and interior minister, Sheikh Ahmed Hamoud al-Sabah, the deputy prime minister and finance minister, Mustafa al-Shamali, and the oil minister, Hani Hussein.

  Analysis

  The threat of interpellations comes despite the strong pro-government bias of the new parliament, which was elected in December 2012. Faisal al-Duwaisan, a Shia MP, has warned that he will submit an interpellation request against the interior minister following a closed-door parliamentary session on security matters in the country and the ministry's handling of the opposition protests. MPs are also seeking to question the oil minister over alleged financial and administrative irregularities. Meanwhile, Mr Shamali has been attacked by MPs over his continued opposition to a debt relief plan for Kuwaiti citizens.

  Despite Mr Shamali's insistence that the government will not support the plan, on January 28th the parliamentary finance and economic committee approved the proposal for the cancellation of interest on loans taken out by Kuwaitis between January 2002 and April 2008. In addition, it also gave the go-ahead to a plan to disburse KD1,000 (US$3,545) to Kuwaitis without debt who would not benefit from the relief scheme. The proposals must next be approved by the National Assembly.

  In an effort to bolster their legitimacy following the lowest turnout in Kuwaiti history in the December elections, MPs have also submitted a new draft law stipulating that the government should grant every Kuwaiti citizen KD5,000 to be deposited in "family portfolios" and a monthly payment of KD300 for Kuwaiti women out of work. Local media reports have also suggested that citizens who were granted KD1,000 by the emir in 2011 on the occasion of various national days may receive KD2,000 this year to mark the same celebrations. Although such populist measures are affordable in the short term with a reported US$261bn of oil savings held by the Kuwait Investment Authority, they come at the cost of long-term fiscal sustainability.

  January 30, 2013

• Background

  Kuwait: Political and institutional effectiveness

  Political outlook: Political and institutional effectiveness

  We expect the fractious nature of parliament to continue to undermine political effectiveness in 2012-16. Substantial progress was made on legislating important economic and social bills, including a privatisation bill, a new labour law, a bill to create a capital markets authority and the five-year development plan in the first half of 2010. However, since then political stalemate has returned, precipitating three cabinet resignations, in March 2011, November 2011 and most recently in June 2012. The latest resignation followed an unprecedented court ruling, which dissolved the sitting parliament and reinstated the previous legislature. A new election is likely to return a similar result to the previous one with opposition candidates performing well and possibly extending their hold on parliament. Decision-making capacity will continue to be crippled by acrimonious relations between the executive and parliament, which will continue to exert its authority by blocking government initiatives. A favourite method of stalling proposals is for parliament to insist on detailed scrutiny for potential mismanagement or to make allegations of corruption. Continued political bickering will hinder economic development. Traditionally, there have been strong ties between leading business families and politicians, and although these are waning, they can still come into play over economic issues where entrenched interests are at stake. The legal system is slow and often biased in favour of local firms.

  July 13, 2012

• Structure

  Kuwait: Political structure

  Official name

  State of Kuwait

  Form of state

  Constitutional emirate

  Head of state

  The emir, chosen from the Al Sabah family; currently Sheikh Sabah al-Ahmed al-Jabr al-Sabah, who acceded in February 2006

  Legal system

  Based on the constitution of 1962, as amended or suspended by emiri decree

  Legislature

  Unicameral National Assembly of 50 elected members plus 15 unelected cabinet ministers. The assembly has been dissolved seven times by emiri decree, most recently in June 2012

  National elections

  A parliamentary election was held on December 1st 2012 amid a boycott by the opposition. As a result, the new National Assembly is dominated by pro-government members of parliament

  Political groupings

  Political parties are not allowed, but there are various groupings: the Sunni Islamist Islamic Salafi Alliance and Islamic Constitutional Movement (Muslim Brotherhood); the Shia Islamist National Islamic Alliance and Justice and Peace Alliance; and secular groupings such as the centrist Popular Action Bloc and the liberal National Democratic Alliance. Many members of parliament are loyal primarily to tribal interests

  Executive

  Power is exercised by the emir through the Council of Ministers (cabinet), which is headed by the prime minister, who is chosen by the emir

  Council of Ministers

  Note. The cabinet resigned following the December election and a new one has yet to be appointed. Sheikh Jabr Mubarak al-Hamad al-Sabah remains prime minister

  Crown prince: Sheikh Nawaf al-Ahmed al-Jabr al-Sabah

  Prime minister: Sheikh Jabr Mubarak al-Hamad al-Sabah

  Deputy prime minister & defence minister: Sheikh Ahmed Khaled al-Sabah

  Deputy prime minister & foreign minister: Sheikh Sabah Khaled al-Sabah

  Deputy prime minister & interior minister: Sheikh Ahmed Hamoud al-Sabah

  Deputy prime minister & finance minister: Mustafa al-Shamali

  Key ministers

  Commerce & industry: Anas Khaled al-Saleh

  Finance & Education: Nayef Falah al-Hajruf

  Electricity & Water: Abdel-Aziz al-Ibrahim

  Health: Ali Saad al-Obaidi

  Information: Mohammed al-Mubarak al-Sabah

  Justice: Jamal Ahmed al-Shihab

  Oil & awqaf & Islamic affairs: Hani Hussein

  Planning & development: Rola Dashti

  Public works: Fadhil Safar

  Transport and social affairs & labour: Salem Mutheeb al-Athniya

  Head of emiri diwan

  Sheikh Nasser Sabah al-Ahmed al-Sabah

  Central Bank governor

  Mohammed al-Hashel

  March 22, 2013

• Outlook

  Kuwait: Key developments

  Outlook for 2013-17

  • The emir, Sheikh Sabah al-Ahmed al-Jabr al-Sabah, will remain the ultimate political authority but will face pressure from the opposition to implement constitutional reforms.
  • Despite the election of a nominally pro-government parliament in December 2012, some tensions between the executive and legislature have resurfaced over the latter's attempts to push through populist measures.
  • The government will continue to run fiscal surpluses over the forecast period owing to high oil prices and consistent growth in oil output. Current spending will remain high as the government wage bill rises.
  • Kuwaiti interest rates will broadly track the trend in US rates, largely because the Kuwaiti dinar is pegged to a US dollar-dominated basket of currencies. The dinar will depreciate slightly against the dollar up to 2016.
  • Real GDP growth will slow to 4.6% in 2013 as growth in oil production and exports slows. Rising oil output and increasing public and private investment will support growth of 4.8% on average over the forecast period.
  • Inflation averaged 2.9% in 2012. It is forecast to average 4% in 2013-17, accelerating from 2016 as global commodity prices and domestic consumption pick up.
  • The current account will record robust surpluses throughout the forecast period owing to strong oil export revenue, which will more than offset rising import costs and deficits on the non-merchandise account.

  Review

  • The government and parliament have preliminarily agreed to write off interest on some citizens' loans. The populist measure raises questions about long-term fiscal sustainability and moral hazard.
  • A parliamentary committee has approved a proposal to reduce the number of expatriates employed in the public sector from 28% to 20% of the total.
  • The fiscal surplus rose to KD16.1bn (US$57bn) for the nine months to end-December 2012. Expenditure was down by 1.2% year on year with capital spending lower by 18.6%.
  • Parliament has approved a KD2bn fund to support small and medium-sized enterprises as part of efforts to diversify the economy away from dependence on the hydrocarbons sector.
  • The finance minister, Mustafa al-Shamali, has announced that KD5.4bn will be allocated to the 2013/14 (April-March) tranche of the four-year development plan.

  March 22, 2013

Economy:

• Background

  Kuwait: Country fact sheet

  Fact sheet

  Annual data		2012a	Historical averages (%)		2008-12
  Population (m)		3.8	Population growth		2.4
  GDP (US$ m; market exchange rate)		171,454	Real GDP growth		4.2
  GDP (US$ m; purchasing power parity)		180,410	Real domestic demand growth		1.5
  GDP per head (US$; market exchange rate)		44,902	Inflation		5.2
  GDP per head (US$; purchasing power parity)		47,247	Current-account balance (% of GDP)		37.6
  Exchange rate (av) KD:US$		0.280b	FDI inflows (% of GDP)		0.3
  a The Economist Intelligence Unit estimates. b Actual.

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  Background: Formerly a British protectorate, Kuwait gained independence in 1961 as an emirate under the hereditary rule of the Al Sabah family. The economy has come to be almost entirely dominated by oil, allowing the government to enjoy substantial powers of patronage, and drawing in expatriate workers. Kuwait has long had a troubled relationship with Iraq, which periodically contested the countries' shared border arrangements during the late 1960s. In 1990 Kuwait was temporarily annexed by Iraq under the regime of Saddam Hussein. A US-led military coalition ousted Iraq in the 1991 Gulf war, after which Kuwait became closely aligned with the US. Political tensions with Iraq have risen periodically since, but improved in early 2012 with the two countries approaching the UN to help them delineate their borders.

  Political structure: Ultimate executive power is held by the emir, who appoints the prime minister and the government-in which the ruling Al Sabah family usually holds key ministries. Kuwait also has a strong electoral tradition, however, with a vocal National Assembly (parliament), which can reject government legislation and cross-examine cabinet ministers. Previously kept in check by the ruling family's power of patronage, the elected legislature of 50 members of parliament (MPs) has grown in confidence in recent years, forcing the resignation of several ministers. A nominally pro-government parliament was elected in December 2012 amid a boycott by the opposition.

  Policy issues: Executive-legislative tensions have resulted in repeated early elections, but do not endanger Al Sabah dominance. Many of the political elite continue to reject foreign investment in the upstream oil sector to boost production capacity. Iran and Iraq are seen as potential security threats. Sunni-Shia relations are broadly good, but can be affected by regional developments, as demonstrated during the popular uprising in Bahrain in early 2011. Although poorly paid expatriate workers have sometimes rioted, they do not threaten political stability.

  Taxation: There is no individual income tax, and tax on nationals is limited to zakat (charitable) deductions. Long-standing proposals to introduce a 15% flat-rate income tax on Kuwaiti nationals are highly unlikely to be approved by parliament. There is no general consumption tax, and few indirect taxes. In 2008 taxes on foreign businesses, which formerly ranged up to 55% in the energy sector, were cut to a flat rate of 15%, and capital gains tax on stockmarket holdings was abolished.

  Foreign trade: The trade surplus widened to an estimated KD88.2bn (51.4% of GDP) in 2012, from KD82.3bn in 2011, as oil prices and exports rose, more than offsetting a near 10% increase in the import bill.

  Major exports 2011	% of total	Major imports 2011	% of total
  Crude oil	92.7	Intermediate goods	39.0
  Non-oil	7.3	Consumer goods	36.5
  		Capital goods	24.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  South Korea	14.8	US	12.1
  Japan	11.4	India	10.2
  India	10.8	China	9.4
  China	8.0	Saudi Arabia	8.1

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  March 22, 2013

• Structure

  Kuwait: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 22, 2013

• Outlook

  Kuwait: Country outlook

  Kuwait: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Tensions between the government and the opposition remain high following the election of a pro-government parliament on December 1st, which was made possible by an opposition boycott of the vote. The National Assembly was elected with the lowest turnout in Kuwait's history--official reports put it at 39.6% while the opposition claimed it was even lower at 26.7%--raising serious questions about its legitimacy. Given parliament's track record of obstructionism, this new configuration, while lacking credibility, has the potential to contribute to more efficient decision-making. However, the new National Assembly is already demonstrating similar tendencies to its predecessors, with members of parliament threatening to question government ministers and blocking progress on large infrastructure projects. Tensions between the government and parliament have been exacerbated by the National Assembly's efforts to bolster its legitimacy by seeking to push through a spate of populist measures. For example, in early March, the government and parliament came to a preliminary agreement on writing off interest on some citizens' loans. The finance minister, Mustafa al-Shamali, had been facing interpellation by parliament over his rejection of the debt-forgiveness proposal.

  ELECTION WATCH: A parliamentary election was held on December 1st 2012 under new electoral rules instituted by a controversial emiri decree. The opposition is now calling for the dissolution of the new National Assembly and the revocation of the emiri decree that amended the electoral system ahead of the election by reducing the number of votes per voter from four to one. The decree was approved by parliament in early January, however. The Economist Intelligence Unit expects that the assembly will not serve a full four-year term, owing to tensions between the government and parliament or between the government and the opposition, and that an early election will be called.

  INTERNATIONAL RELATIONS: Relations with Iraq soured in 2011 over Kuwait's plans to build the Mubarak al-Kabeer port, but have improved since. In April 2012 the two neighbours agreed to resume direct flights for the first time since the Gulf war and they have approached the UN for help in resolving a long-standing border dispute. In late January Kuwait's parliament approved a US$500m settlement with Iraq Airways as compensation for damage to Kuwait Airways' aircraft during the 1990-91 invasion. Iraq still owes Kuwait more than US$20bn in war reparations (which it is committed to paying) and a further US$16bn for loans that the former Iraqi president, Saddam Hussein, took out to finance his war against Iran in the 1980s. Iraq has asked Kuwait to forgive its pre-invasion debt. There is potential for tensions over unresolved issues to resurface. In mid-March, Kuwait complained to the UN and Iraqi government over a shooting incident on the border. Kuwaiti media reported that shots were fired from the Iraqi side at a border-demarcation team working in Kuwait.

  POLICY TRENDS: Structural economic reform, particularly liberalisation, is expected to proceed only gradually as political bickering and the unwieldy bureaucracy continue to lead to delays. With a pro-government parliament in place, there is a chance that progress on economic development, including the US$104bn 2010-14 Kuwait Development Plan, which aims to diversify the economy away from oil and to increase the role of the private sector, may pick up. However, we expect ongoing political turbulence and structural constraints to result in further delays.

  ECONOMIC GROWTH: We expect real GDP growth to decline to 4.6% in 2013 from an estimated 5% in 2012 as oil production and export growth slows after two years of sharp rises, owing to weak global growth and as Kuwaiti output approaches capacity. Kuwait boosted oil production in 2012 to 2.8m barrels/day (b/d) from 2.5m b/d in 2011. Constrained by domestic political tensions and bureaucratic problems, growth will average 4.8% a year in 2013-17.

  INFLATION: Inflation slowed to 2.3% in January, with food prices, which make up 18.3% of the consumer price index, rising by 1% year on year, and housing services costs increasing by 2.4%. Strikes by public-sector workers have forced the government to raise wages, exerting upward pressure on prices. The Kuwiati dinar will depreciate slightly against the US dollar up to 2016, but the government's extensive subsidy system will keep a lid on overall inflation, as will cautious credit growth. We expect inflation to average 4% in 2013-17, picking up from 2016 as global commodity prices rise and growth in private consumption strengthens.

  EXCHANGE RATES: The dinar is pegged to an undisclosed basket of currencies dominated by the dollar. We expect the dinar to depreciate marginally against the dollar to KD0.284:US$1 in 2015-16 from KD0.282:US$1 in 2013, but it will strengthen slightly in 2017 as the dollar weakens. The dinar will continue to be supported by large current-account surpluses, an extensive foreign asset base and the government's comfortable fiscal position. Furthermore, in the unlikely event of downward pressure building on the dinar, the authorities could manage interest rates or draw on the country's huge stock of foreign-currency assets to support it.

  EXTERNAL SECTOR: We expect the massive current-account surplus to narrow moderately in 2013 as oil export earnings decline in line with lower prices. Oil export revenue will continue to account for the bulk (about 91.5%) of export earnings in 2013-17. Slowly rising investment, by both the government and the private sector, should lead to steady growth in imports. In contrast to the healthy trade surplus, the non-merchandise balance is forecast to remain in deficit in 2013-17. Despite this, income credits are expected to grow steadily, chiefly reflecting earnings on the country's large and growing stock of foreign assets. Higher income inflows will more than offset an increase in income debits (owing to rising profit repatriation by foreign firms), boosting the income surplus to US$17.4bn in 2017. However, the current transfers account will continue to show a large and growing deficit as outward remittances from Kuwait's many foreign workers increase.

  March 28, 2013

• Forecast

  Kuwait: Country forecast summary

  Country forecast overview: Highlights

  • The Al Sabah family is expected to remain in power in 2013-17, with internal differences over the political succession expected to remain contained. Al Sabah dominance will be underpinned by the extensive use of patronage.
  • A pro-government National Assembly (parliament) was elected in December following a decision by the opposition to boycott the poll. With a supportive legislature in place, the government can no longer use parliamentary obstructionism as an excuse for slow economic development. However, renewed antagonism between the government and parliament has emerged. The Economist Intelligence Unit expects that the National Assembly will not serve a full term and that a new election will be held early in the forecast period.
  • Unable to influence decision-making directly, the opposition will organise more popular protests, calling for the dissolution of the new parliament. However, numbers at protests have dwindled and the opposition is unlikely to be able to mobilise the wider public in the same way as before the election.
  • Kuwait will follow an expansionary fiscal policy, using its oil revenue to raise spending on infrastructure and redistribute wealth. There is potential for its ability to carry out capital investment to improve as a result of the election of a pro-government National Assembly, but recent moves by parliament to review contract awards indicate that ongoing inertia is likely. We forecast that the fiscal surplus will average just over 22.5% of GDP in 2013-17.
  • The oil sector will remain the key driver of economic activity. We forecast that real GDP growth will average 4.8% in 2013-17, as oil output rises and increased efforts to draw in foreign investment to boost production in the northern oilfields and investment in the gas sector start to bear fruit. Kuwait stands to benefit from high oil prices resulting from the geopolitical tension in the Middle East.
  • Consumer price inflation is expected to average 4% a year over the forecast period as global non-oil commodity prices stabilise. Inflation will begin to pick up from 2016 in line with rising commodity prices and as domestic private consumption growth accelerates. Extensive government subsidies will mitigate inflationary pressures.
  • We expect the current-account surplus to remain large throughout the forecast period, at an annual average of about 37.2% of GDP. The non-merchandise account is forecast to remain in deficit in 2013-17, but this shortfall will only partly offset the trade surplus, which will continue to be supported by Kuwait's high oil revenue relative to its population size.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	5.0	4.6	5.2	4.5	4.9	4.8
  Consumer price inflation (av; %)	2.9	4.1	3.7	3.5	4.1	4.6
  Budget balance (% of GDP)	30.3	23.0	22.1	21.4	22.6	23.3
  Current-account balance (% of GDP)	44.4	39.6	38.4	37.1	35.9	35.4
  Exchange rate KD:US$ (av)	0.280	0.282	0.283	0.284	0.284	0.283
  Exchange rate KD:€ (av)	0.360	0.375	0.371	0.360	0.358	0.357

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  March 22, 2013

View detailed map

Country Briefing

Land area

17,818 sq km, including 2,590 sq km in the Neutral Zone, sovereignty over which is shared by Saudi Arabia and Kuwait

Population

3.7m, comprising about 1.18m Kuwaitis and 2.51m expatriates (end-2011)

Main towns

The country is divided into five governorates. The Public Authority for Civil Information listed the following population breakdown at end-2011:

 Kuwait City (capital): 510,505

 Farwaniya: 973,561

 Hawalli: 798,380

 Ahmadi: 715,776

 Jahra: 465,860

 Mubarak al-Kabeer: 227,587

Climate

Hot for most of the year and generally dry

Weather in Kuwait City

Hottest months, June to September, 28-50°C (average daily minimum and maximum); coolest months, December to February, 8-18°C; rainfall erratic

Languages

Arabic; English is widely spoken and is the official second language

Weights and measures

Metric system and regional measures

Fiscal year

April 1st-March 31st

Currency

Kuwaiti dinar (KD) = 1,000 fils

Time

3 hours ahead of GMT

Public holidays

Since September 2007 Kuwait has had a Friday-Saturday weekend. Secular holidays include New Year's Day (January 1st), National Day (February 25th) and Liberation Day (February 26th). All Islamic holidays are observed in accordance with the lunar calendar. This may mean that the following dates are approximate: Mawlid al-Nabi (the birthday of the Prophet, January 24th 2013); Eid al-Fitr (end of Ramadan, August 8th); Eid al-Adha (Feast of the Sacrifice, October 15th); Islamic New Year (November 4th)

January 21, 2013