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Sun 6 Jul 2008 08:16 PM

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Kuwait maintains 2006 GDP growth

Finance minister says economy achieved growth no less than 2006 level of 6.3% on record oil prices.

Kuwait's economy is continuing to grow at levels achieved in 2006, buoyed by high oil prices and gains on foreign investments, the Gulf state's finance minister said in comments to parliament.

The economy of the world's seventh-largest oil exporter expanded at 6.3 percent in real terms in 2006, the latest-available GDP growth figure released by the central bank.

"Despite fluctuations in local and regional financial markets during the past fiscal year, the Kuwaiti economy achieved economic growth rates not less than what was achieved in 2006," Mustapha Al-Shamali said in a report presented to parliament last month.

"Rising oil prices and higher returns from foreign investments" were driving growth, Al-Shamali said in the report, a copy of which was obtained by newswire Reuters.

As oil prices surged seven-fold since 2002, and a more than doubled in the last year, economies across the world's biggest oil-exporting region have soared.

The rapid economic growth and the US dollar's decline on global markets have contributed to inflation hitting record and near-record peaks across the region.

In the documents presented to parliament, the finance minister said the weak dollar was contributing to inflation in Kuwait, which hit a record 10.1 percent in February, the latest published figure.

The OPEC oil producer severed its link to the US currency in May 2007 and started tracking its dinar against a basket of currencies partly to slow down imported inflation as the greenback tumbled on global markets.

But it continues to track its dinar against a basket comprised mainly of dollars.

"We should not neglect that the decline in the dollar's exchange rate versus the dinar could lead to an increase in the level of prices locally. This is a factor that might negatively affect the purchasing power," Al-Shamali said in the report.

Al-Shamali said Kuwait's economy should reduce its dependence on oil exports, which make up more than 90 percent of revenues, as well as income from foreign investments.

"The two sources are not stable," Al-Shamali said.

The minister warned that subsidies designed to offset the impact of inflation on Kuwaitis were a "great burden" on the budget, and said it is necessary to undertake reforms and diversify the economy.

Last month, parliament passed a bill to increase salaries for the national workforce by 50 dinars ($188.8).

The government also approved a plan to raise to 500 million dinars, from 300 million dinars previously, the size of a fund to help Kuwaitis repay personal debts. (Reuters)