Kuwait: Plan in motion

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The Kuwaiti government has approved a four-year economic development plan that, if successfully implemented, could boost public and private spending and lessen the economy’s dependence on oil.

The National Development Plan (NDP), as the scheme is known, was unanimously approved by the Kuwaiti parliament on February 3, 2010. It calls for several hundred projects and initiatives in areas such as housing, health care and transport, with total spending projected to reach $108bn.

The prime minister, Sheikh Nasser Mohammed Al Ahmed Al Sabah, held a press conference in July 2010 to outline the programme. He said the plan would put the country on the path towards further economic development, and noted that government spending will likely lead to an “improvement in the state’s infrastructure and improve general services”.

Some are sceptical, however, that the government will be able to meet the plan’s ambitious goals. The IMF wrote in its July 2010 staff report for the Article IV consultation for Kuwait that the country’s economic outlook was “broadly positive” but that downside risks included “the inability of the government to meet the development plan’s spending targets”. The report also noted that “red tape and bureaucratic hurdles could discourage private sector participation”.

Government officials have acknowledged this potential obstacle. “Bureaucracy always constitutes a real bottleneck for carrying out any development project,” Sheikh Ahmad Fahd Al Sabah, the minister of state for development affairs, said during the prime minister’s July press conference.

Nevertheless, the private sector is expected to account for around 50% of the spending set out in the project. At the time of the NDP’s announcement in February 2010 the secretary-general for planning, Adel Al Weqayyan, told the press that the private sector would participate via joint stock companies and partnership projects between state and businesses.

Indeed, at the Kuwait Financial Forum, an event held in November 2010, the prime minster emphasised the private sector’s role in the country’s economic development, according to local media. In his remarks at the same event, Hamad Al Marzouq, the chairman of the Kuwait Banking Association, suggested that the government’s financing strategy would help ensure the success of the programme.

Investors will have an opportunity to learn more about the plan at an event scheduled for April this year. “Kuwait Conference: Financing Development, Developing Finance”, a meeting run in partnership with the Kuwait Ministry of Finance, will be held on April 11-12 in Kuwait City, and is expected to be attended by 350 delegates.

“The conference sessions will seek to explain the NDP to the international capital markets, to promote financial investment in public and private sector opportunities in Kuwait, and to provide a platform for global understanding of Kuwait’s financial strategy,” announced conference organiser Euromoney, a group that plans meetings related to cross-border investment and capital markets.

An increase in private and state spending will likely boost the domestic economy. Indeed, in July 2010 the IMF reported that Kuwait’s non-oil real GDP was expected to grow at 2.5% during 2010, compared to 2% for the overall economy, attributing this differential to the government spending set out in the NDP. According to the IMF, the scheme “provides the needed fiscal expansion to support recovery in the immediate term”.

More recent data indicates that the economy should continue growing. The IMF has projected real GDP growth of 4.4% in 2011, compared to 2.3% in 2010, according to its “Regional Economic Outlook” report for the Middle East and Central Asia, published in October 2010. At a press conference on March 13, 2011, Sheikh Salem Abdulaziz Al Sabah, the governor of the Central Bank of Kuwait (CBK), said the IMF had forecast nominal GDP growth of 8.3% for 2011.

At the same news conference Sheikh Salem also discussed inflation, which in annual terms fell to 5.2% in January 2011, after reaching 6% in December 2010, mainly driven by higher food prices. According to Sheikh Salem, inflation will remain at around 5-6% during 2011. The government has no plans to adjust the policy interest rate, which presently stands at 2.5%. It was last changed in February 2010, when it was lowered as a means of stimulating the economy after the slowdown of 2009. The CBK called the current interest rate “suitable”, according to local press reports.

Kuwait’s economy has almost certainly benefitted from the increase in oil prices since the global economic crisis of 2008-09, with the commodity trading at particularly elevated levels in early 2011 due to instability elsewhere in the region. However, if successfully realised, the spending set out in the NDP could give the economy a further boost in the short run and set the stage for longer-term growth.

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