KUWAIT CITY: Kuwait’s non-oil growth is expected to improve to 3.5-4 per cent in 2017 and 2018, while inflation is also expected to remain in check as pressures from housing rent ease, and despite some upward pressures from subsidy cuts, a report said.
The country’s non-oil activity has remained resilient since oil prices began retreating in 2014, thanks in large part to a strong projects pipeline and relatively limited fiscal adjustment, added the latest Economic Update from NBK, a leading bank in the region.
Meanwhile, the fiscal deficit should narrow in 2017 and 2018 as oil prices improve and some additional fiscal adjustment is implemented.
Despite healthy non-oil activity, overall GDP growth is expected to take a hit in 2017 as Kuwait continues to apply cuts to crude oil production agreed upon in conjunction with other Opec members. Those cuts, which are aimed at supporting oil prices, are expected to reduce Kuwait’s average crude output by 7-8 per cent in 2017. Overall GDP is likely to shrink by around 2.4 per cent in 2017, before returning to positive growth of 3.2 per cent in 2018.
Capital spending has increasingly been driving non-oil economic activity, with the implementation pace holding up relatively well after a clear pick up in 2014. Project awards were healthy in 1Q17 at KD1.4 billion ($4.6 billion) according to Meed Projects. The figure is similar to the quarterly average in 2016. Another KD 6.2 billion in projects are in the bidding stage and could be awarded in 2017. The projects pipeline remains solid, given the government’s commitment to its development plan.
The government remains committed to an ambitious capital spending program. Indeed, the Kuwait National Development Plan (KNDP) was re-launched in 1Q17 under the “New Kuwait” slogan. The plan, also dubbed Kuwait Vision 2035. It seeks to transform the country into a financial, cultural and trade leader. The plan brings together a number of ongoing initiatives into a renewed and more comprehensive vision for the country’s development, which includes structural and fiscal reforms as well as capital spending plans.
The KNDP targets investment of KD 34 billion through 2020, about a third of which will come from the private sector. A number of schemes are being implemented as public-private partnership projects (PPP), including the Al-Zour North and Khairan integrated power generation and water desalination projects.
As a result of the infrastructure investment push, aggregate investment is expected to continue to see healthy growth. Expenditures on gross capital formation grew by 13 per cent in 2015 and could see real growth of 8-9 per cent on average in 2017 and 2018. This could further push up the share of investment in the economy to 23 per cent, the highest level recorded in over 20 years, and up from 19 per cent in 2015.
