Wages And Salaries In Kuwait May Face A Shortage Of Liquidity Within Months

A report published by Oxford Economics and commissioned by the Institute of Chartered Accountants in England and Wales ICAEW, titled Economic Update: the Middle East for the second quarter of 2021, stated that Kuwait’s economic prospects are slowly improving, taking advantage of high oil prices, however, the country will need to strengthen Its non-oil economy, as the reduction of oil production according to the OPEC Plus agreement would slow the pace of recovery, Al-Rai daily reported.

The report also points out that Kuwait has significant savings estimated at 435 percent of GDP, but they are legally earmarked for future use and cannot be accessed to meet current needs. Within months, the government may face a shortage of cash to pay wages and salaries, which represent about 75 percent of total government spending.

The report stated that the GDP growth forecast in Kuwait was 2.5 percent for the year 2021, and it will be supported by the expansion of the non-oil sector. This growth comes in the wake of the unprecedented decline in GDP 2020, estimated at 8.0 percent, the sharpest decline since the 1991 war.

Oil production is expected to rise only marginally this year, the growth of the oil sector in Kuwait will reach only 0.9 percent. Given that the oil sector represents about 50 percent of the gross domestic product, the economic recovery in Kuwait will falter until the end of the OPEC Plus agreement in April 2022.

While the non-oil GDP is gradually recovering, the report ruled out returning to the pre-pandemic level until 2022. The Economic Updates report indicates that ending the curfew imposed due to the Coronavirus would allow more businesses to return to their activities, including seating and eating inside restaurants, which will boost families’ spending.

However, with some activities continuing to be suspended, such as direct teaching in schools which is not expected to resume until September, the pandemic continues to pose ongoing challenges to businesses. Oxford Economics estimates that non-oil growth will reach 3.1 percent in 2021 and 4.7 percent in 2022.

Vaccine provision and distribution rates in Kuwait affect consumer and business confidence in the recovery. Despite the recent acceleration of the vaccination rate, Kuwait still lags behind many of its neighboring countries, with only about a third of the population receiving at least one dose. However, the recent decision to ban the travel of unvaccinated citizens and their immediate relatives should encourage increased vaccination rates among citizens, which gives cause for optimism that herd immunity can be achieved before the end of this year.

Another factor that affected growth was the decrease in the number of foreigners in Kuwait, which was reported to have decreased by 4 percent in 2020 after the pandemic hit. The Economic Updates report expects that there will be no significant recovery in the near term, especially as Kuwait increasingly adopts national immigration policies, as the government aims to reduce the proportion of residents to 30% from the current 65 percent. This approach will affect recovery and diversification, limiting actual and potential growth, and contradicts the policies and reforms introduced by the UAE and Qatar, which adopt foreign participation to stimulate growth.

“Kuwait’s reliance on oil at a time of such volatility will certainly hamper diversification efforts,” said Michael Armstrong, Certified Public Accountant and ICAEW’s Regional Director for the Middle East, Africa, and South Asia. The government’s ability to enhance its activity in the non-oil sector in the coming months will determine the speed of the country’s recovery.

Budget constraints are also weighing on growth prospects. According to the report, Kuwait’s budget deficit widened to nearly 29 percent of GDP, one of the largest deficit rates in the world, as oil revenues fell by more than 32 percent.



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