Following news that low oil prices will see Kuwait’s budget deficit widening in 2020;
Richard Thompson, Editorial Director at GlobalData, a leading data and analytics company provides his view:
“Kuwait is an extremely wealthy, oil-rich country with huge investment requirements. However, for many companies in Kuwait, the market over the past few years has been characterised by its failure to invest in infrastructure and other strategic projects.
“The bad news for companies in the country who have already had four very challenging years is that budget does not give any reason to be optimistic about any increase in investment spending by the government any time soon. Salaries and subsidies account for 71% of the 2020-21 budget, while capital expenses make up 13% of planned expenditure.
“The news that Kuwait is not only running a budget deficit but that the deficit is increasing will come as a surprise to many companies in the country who are struggling to find new business opportunities. Where they are winning work, they are often not being paid. They will be asking how Kuwait can be overspending when they are seeing no spending happening.
“Kuwait allocates 10% of its budget to the Kuwait Investment Authority’s Future Generations Fund (FGF). The IMF considers this to be simply moving money internally and not expenditure, as Kuwait is reporting.
“The most significant aspect of Kuwait’s 2020-21 budget announcement is that it shows how completely dependent the government is on oil exports, which account for about 87% of the country’s income. It highlights the urgent need to diversify the Kuwaiti economy to create new revenue streams.
“So, while business in Kuwait is feeling the pain, the government says that the budget highlights that the government is focused on delivering the economic reforms set out in its New Kuwait 2035 strategy - aimed at steering the economy away from its reliance on oil revenues. A key part of the plan is to use private sector partnerships or PPPs to deliver investment projects.”
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