‘Economic growth can only be sustained through diversification’

KUWAIT CITY, Nov 27: A government report on future oil price changes scenarios, and their impact on the performance of the Kuwaiti economy, concluded that the sustainability of the economy’s growth can only be through diversifying sources of income, which requires a concerted national effort in all its scopes.

The report, a copy of which has been obtained by Al-Anba daily, showed that in all cases, once oil prices drop in the medium term, the economy may be clearly affected, indicating its weakness through its dependence on oil as a main source of income if it does not rise to the required level to rely on it in the event of the collapse of the global oil markets.

The report added that this requires the need to make optimal use of the high global oil prices at the present time and direct revenues towards diversifying sources of income in various sectors of the state, and to develop serious policies in developing the agricultural, industrial, health, tourism, educational and other sectors, and eradicating corruption of all kinds, to achieve sustainable economic growth of Kuwait.

Model

According to the report, which was based on the use of the macroeconomic model of the General Secretariat of the Supreme Council for Planning and Development, the expectations of rising world oil prices for the year 2022 were modeled, bringing the average price of a barrel of global crude oil to $99 during the year, assuming unified estimates of the increase in the volume of Kuwaiti oil production during the years ( 2022-2026) and then 3 scenarios were applied assuming a drop in global crude oil prices and its impact on the performance of Kuwait’s economic indicators in the medium term.

The report stressed that the private sector must be involved to have an effective role in the growth and prosperity of the national economy, whose role is still marginal It must witness a broad and great renaissance in order for it to lead economic activity under a supportive institutional state apparatus, which is what Vision 2035 aspires to.

The report referred to the GDP figures, as the Kuwaiti economy witnessed a deficit of about 21.53% in 2020, and its growth was estimated at 19.27% for 2021 and 2022, and in the medium term, it is noted in the first scenario a slight growth of about 0.21%. In the second scenario, there is a deficit of about 6.60%, while in the third scenario; we notice a growth of about 2.91%.

The clear impact of the oil sector on the gross domestic product showed, as the oil sector witnessed a large deficit of about 39.19% in 2020, with an estimated growth of 51.82% for the years 2021 and 2022, and in the medium term, a decline is observed in all scenarios, in the first scenario, its deficit is estimated at 2.82 %, and in the second scenario, a large deficit of about 21.25%, while in the third scenario, a deficit of about 0.60%.

The non-oil sector of the GDP witnessed a deficit of about 6.68% in the year 2020, and its growth was estimated at 3.98% for the years 2021 and 2022. In the medium term, convergent growth is observed in all scenarios by about 5.04% and in the third it is witnessing a growth of 5.23%.

The report indicated that at the level of inflation rates in Kuwait, consumer price indices witnessed stability in 2020 during the Corona pandemic, but it was estimated that they had risen by 1.41% in 2021 and 2022, with a peak in the third quarter of 2022 by about 2.8%, and in the medium term In the first scenario, it is noted that the inflation rate decreased below zero by 0.06%, and in the second scenario it decreased below zero by about 0.26%, while in the third it showed a rise by 0.11%.

Payments

At the level of the balance of payments, it achieved growth in 2020 equivalent to 212.82% and estimated its growth for the years 2021 and 2022 by about 156.9%. In the medium term, it is noted in the first scenario a decline of about 3.54% and in the second a decline of about 5.65%, and in the third a decline of about 2.51% . The current account witnessed a contraction in 2020 equivalent to 32.28%, and its growth in 2021 and 2022 was estimated at 86.88%. In the medium term, it is noted in the first scenario a decline of 1.54%, and in the second it decreased by 35.52% and in the third it decreased by 4.77%.

The financial account, which measures the difference between net financial assets and financial liabilities, recorded a decline in the year 2020, equivalent to 24.92%, and its growth was estimated in 2021 and 2022 by about 46.16%. In the third, it fell by 5.45%.