KUWAIT:Latest data from the Central Bank of Kuwait (CBK) revealed another large surplus in Kuwait’s current account for 2014. However, at 32 percent of GDP the surplus was somewhat smaller than in 2013.The current account – a measure of net international trade in goods, services, factor income and transfers – saw its surplus narrow from KD 20.2 billion in 2013 to 15.1 billion in 2014. The surplus was mainly driven lower by a decline in the goods and services balance, as oil export revenues declined and the deficit in net services outflows swelled to a new high. Higher investment income though helped offset some of that decline.
We expect Kuwait’s external position to narrow further to 9 percent of GDP in 2015,as the impact of lower oil prices comes into full effect and a relatively strong non-oil economy keeps import growth buoyant. While oil prices have recovered from lows seen in early 2015, they remain around 42 percent lower than a year ago.
The goods and services balance slid from KD 25.6 billion in 2013 to KD 22.0 billion in 2014, mainly on the back of a 10 percent year-on-year (y/y) decline in oil exports. Solid import growth and a widening of the net services deficit also contributed to the decline in the trade balance. The fall in oil exports was due to a 9 percent y/y drop in oil prices and a 2 percent y/y decrease in production. Imports grew at a slower but still strong pace of 7 percent y/y in 2014, rising to KD 7.8 billion. Meanwhile, net services outflows continued to rise and hit a new high of KD 5.0 billion in 2014. The rise was predominantly driven by a KD 0.4 billion increase in travel spending, as travel keeps gaining in popularity.
The strong increase in inflows in investment income helped offset some of the deterioration in the goods and services balance. This segment grew by 12 percent y/yin 2014 and climbed to a record high KD 4.2 billion. A bulk of these inflows originates from income-generating assets mostly held by the government and the sovereign wealth fund (KIA). The rise came on the back of solid increases in all of the components, including direct and portfolio investments both of which grew by a solid 11 percent y/y.
Higher worker remittances were another source of pressure on the current account. Outflows from current transfers also reached a new high of KD 6.1 billion in 2014, after rising by KD 1.2 billion. This came as worker remittances rose by 19 percent y/y and soared to KD 5.3 billion reflecting a healthy growing economy.
Capital and financial account outflows declined in 2014 to KD 15.4 billion from KD 19.2 billion in 2013;the main reason was lower net direct investments overseas and net ‘other investments’ outflows. Net ‘portfolio investments’ was the only component that witnessed an increase.
Direct investment outflows were down by 17 percent y/y and stood at KD 3.6 billion in 2014. The deficit in net ‘other investments’ narrowed significantly from KD 9.1 billion in 2013 to KD 0.8 billion 2014. It was the single largest source of outflows between 2009 and 2013. This component tends to be rather volatile and is mostly comprised of investments in foreign currencies and deposits.
Portfolio investment outflows rose in 2014, from KD 6.0 billion in 2013 to a record high of KD 11.7 billion. This came as investments in foreign equity securities and debt instruments were markedly higher in 2014, very likely at the expense of a drop in foreign currency and deposit holdings.
Meanwhile, the smaller capital account saw inflows ease slightly from an all-time high of KD 1.3 billion in 2013 to KD 1.1billion in 2014. A bulk of this account is made up of UN compensation payments to Kuwait.
Kuwait’s broad BOP balance, which includes net investment accounts of key government entities as well as changes in the reserves assets at CBK, saw its surplus fall slightly from KD 16.6 billion in 2013 to a still relatively high KD 15.7 billion in 2014.
