Kuwait Economic Performance
1Q/2008 Update

Kuwait’s macroeconomic performance has been strong with prudent macroeconomic management supporting high growth especially in the non-oil economy. The large increase in oil revenue generated substantial fiscal and external current account surpluses, enabling the country to build up its foreign assets to as high as KD5.7bn at the end of 2007. The economy which over the years has witnessed double digit growth in nominal GDP and a relatively higher growth in real terms when compared to its neighbors in GCC, witnessed nominal GDP growth of 8% to KD31.84bn in 2007. Nominal GDP of Kuwait has grown at a CAGR of 22.1% during (2004-2007) and is anticipated to rise to KD35bn at the end of 2008. Expected increase in nominal GDP is directly as a result of increase in oil prices during the year, which rose from US$58.9/barrel to US$66.4/barrel at the end of 2007 and is currently standing at US$89.7/barrel at the end of March 2008. Increase in price of Kuwaiti crude is a clear indication of better revenues in the next fiscal year, resulting in a higher surplus. The authorities also plan to increase oil production capacity from the current level of 2.7mb/d to 4mb/d in 2020 and recently it has announced an increase in output by 300,000b/d.





Although real GDP numbers have not been revealed so far, it is expected to be close to KD19.2bn, growing at a rate of 6.2%. Money supply growth a measure of future inflation in the country has grown by 19% in 2007 and 7% YTD in 2008.

Analyzing trade activities, exports rose humungously from KD6.16bn to KD17.68bn at the end of 2007. Unsurprisingly, oil continued to lead total exports as well as the whole economy like in previous years. Oil continued to account for more than 90% of total exports over the period 2004-07, reaching 95.2% by the end of 2007. Imports on the other hand rose at a CAGR of 14% during 2003-7. This resulted in a trade surplus CAGR of 43% during the said period, ending at KD12.2bn. At the end of first quarter, Kuwait was able to generate export revenues of KD5.8bn and imported goods worth KD2.1bn, which resulted in a surplus of KD3.6bn.





The authorities abandoned the peg to the U.S. dollar in May 2007, and pegged the KD to an undisclosed basket of currencies in an attempt to dampen imported inflation related to rising world food prices and the depreciation of the U.S. dollar. The move coincided with speculative inflows as some market participants expected a large revaluation (similar speculation occurred later in other GCC countries). In the event, the KD appreciated by 5.9 percent against the U.S. dollar during 2007. The real effective exchange rate (REER) of the KD has been trending upwards since 2005 and for the current year to end of March it stood at 272Fils against a dollar.





Kuwait banking sector is well capitalized and highly profitable. The recent global financial turmoil appears not to have affected the financial system of Kuwait. Given the rapid increase in credit and the direct and indirect exposure of Kuwait’s banking sector to domestic and international stock and real estate markets, the CBK is monitoring banks closely, including through regular stress testing and in the current calendar year it decreased its discount rate by 50bps to 5.75%.

The State of Kuwait's current population is estimated at roughly 3.5mn people; counting both locals and foreigners. Roughly 1mn (or nearly one third) of Kuwait's population is local, with 2-2.5 million residents registered as foreigners/non-locals. It is estimated that one in every 3-4 people in Kuwait are of Kuwaiti citizenship. The foreign population of Kuwait mainly consists of Egyptians followed by Indian, Bangladeshi, Pakistani, Filipino and Sri Lankan residents. Other foreigners consist of European, North American and Northeast Asian communities - but these are negligible.

In the year 2007, close to 121,000 jobs were created which was lower when compared to 145,000 jobs created in 2006. As a result, the total labor force increased however at a declining rate to report a growth rate of 6.2% in 2007, as compared with 8.1% reported by the end of 2006. A major change during the year 2007 was the decline in total jobs created by the public sector by 23,000 jobs.

Backed by robust economic activity, Kuwait’s population rose by 6.8 percent to 3.4mn at the end of 2007. The expatriate population in the country rose by 8.5% to 2.35mn, while the native population rose 3.1% to 1.05mn or just 31% of the total. During 2001-07, Non-Kuwaiti population has increased at a CAGR of 8.5% whereas the Kuwaiti population has increased at a CAGR of 3.3%





On the unemployment front, PACI data revealed that total labor force in Kuwait stood at 2.1mn by the end of 2007. Nationals accounted for 15.5% of total labor force while expatriates accounted for 84.5%. Unemployment rates stood at 6.13% among Kuwaiti nationals while it was as low as 0.89% among non-Kuwaitis.