Kuwait City, October 05: Political volatility means Kuwait lags behind most of its energy-rich Gulf peers, but the emirate is still on track to post the largest surplus in the region, Bank of America Merrill Lynch said on Monday.
“The lack of political determination for (economic) diversification has caused Kuwait to lag behind most of its GCC (Gulf Cooperation Council) neighbours,” the bank said in its quarterly report on the region.
“The volatile political cycle and populist policies have also been a drag,” it said.
But the report also said that limited investment and spending commitments mean Kuwait will continue to post the largest GCC surplus, estimating this at around 12 billion dollars.
Kuwait, the first state in the Arab Gulf to embrace democracy in 1962, has been marred by political turmoil over the past four years because of disputes between the elected parliament and the government.
Prime Minister Sheikh Nasser Mohammad al-Ahmad al-Sabah, a senior member of the ruling al-Sabah family, has been forced to form six cabinets since he was appointed to the post in February 2006.
Parliament has also been dissolved three times since May 2006 and three general elections have been held over the same period. However, relations between MPs and the government have failed to improve and remain tense.
Monday’s report cited the striking difference between the Kuwait Stock Exchange and other GCC bourses, saying Kuwait “remained miles behind the rest of the region despite the country’s strong macroeconomic balances.”
Barring the tiny Bahraini bourse, which dipped in the first nine months of the year, and Kuwait which made a small gain of just 4.4 percent, the remaining five Gulf bourses made a remarkable recovery after last year’s massive losses.
At the end of September, Dubai bourse had risen 33.9 percent, Saudi Arabia 31.6 percent, Abu Dhabi 30.7 percent, Muscat 20.8 percent and Doha 7.7 percent.
“We believe that the problem is a fundamental one. Kuwait has shaken the investor sentiment in this downturn and it usually takes time to regain confidence,” the Bank of America Merrill Lynch report said.
It predicted Kuwait’s Gross Domestic Product (GDP) would contract this year by 1.9 percent in real terms and nominal GDP will drop from 158 billion dollars last year to 134 billion dollars in 2009, a decline of 15.2 percent.
This is attributed to an estimated 10 percent contraction in the oil sector because of Organisation of Petroleum Exporting Countries output cuts, whereas the non-oil sector will grow by 2.3 percent, it said.
However, given its limited investment and spending commitments, the OPEC member will continue to post the largest surplus in the GCC region, said the report which estimated the surplus at around 12 billion dollars.
Inflation will also drop sharply to around 2.8 percent in 2009 compared to a record high 10.6 percent last year, it said.
—Agencies