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Kuwait’s economy holds up against challenges, says central bank

Despite challenges to the economy, Kuwait's bank sector remained resilient, the country's central bank says Alamy via Reuters
Despite challenges to the economy, Kuwait's bank sector remained resilient, the country's central bank says
  • 3.2% deficit in Kuwait predicted
  • Diversifying income ‘essential’
  • Banks can weather challenges

Robust spending and “long-due” structural reforms expected to accelerate following “recent political developments” will help Kuwait’s economy overcome some challenges, according to the Central Bank of Kuwait (CBK).

Kuwait faced multiple challenges in 2023 in the face of high inflation, rising global interest rates and bubbling geopolitical tensions in the region, according to CBK’s 12th annual Financial Stability Report.

The local banking sector proved resilient against “the combined shock of lower oil prices and production faced by the Kuwaiti economy, which brought back the deficit in the fiscal budget,” the report said.

Kuwait’s gross domestic product shrank by 3.6 percent as a result of the depressed energy market, CBK noted, citing Finance Ministry data.

Kuwait is the only GCC country that had a GDP contraction in 2023 and is expected to experience another smaller one this year, CBK said.

As a result the previous fiscal surplus of 12 percent of GDP turned into a forecasted 3.2 percent deficit for fiscal year 2023/2024. 

The “double-whammy” of lower oil prices and production therefore is putting increasing pressure on the liquidity of the General Reserve Fund, which holds the national energy revenues and other investments. 

“Against this backdrop, diversifying national sources of income, coupled with more prudent and targeted spending remain essential to instilling investor confidence and long-term financial stability,” CBK said. 

The depressed oil sector also led to a decline in trading. Listed stocks fell a combined average of 6.5 percent and Boursa Kuwait’s market capitalisation dropped nearly 14 percent year on year, according to the report. 

Rising interest rates beginning in early 2022 led to a 28 percent fall in the total value of real estate transactions in 2023, and a parallel 27 percent decline in their overall number.

Property price growth also slowed, from 16 percent in 2022 to a much more contained 3.5 percent last year.

CBK said the real estate market “reassuringly” returned to its baseline in 2023 and 2024 after two overheated years in 2021 and 2022, particularly in the residential segment.

Total banking assets grew a modest 3 percent in 2023, and total loans “mainly directed” to “large corporations” rose by 2.6 percent despite higher interest rates.

Private corporate deposits separately prompted a 4.4 percent year-on-year jump in deposits.

Overall Kuwaiti banks enjoyed a strong performance at the level of profits, liquidity and risk management, CBK said. The sector can rely on “large buffers” to “weather unforeseen shocks at the global and local level”.

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