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Thu 15 Jan 2009 07:09 AM

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Kuwait urged to spend to ride out economic turmoil

Fiscal stimulus package needed for infrastructure projects - NBK report.

Kuwait must implement a huge fiscal package of spending to help the economy through the current global crisis, a new report has said.

The report by the National Bank of Kuwait (NBK) claimed the Gulf state's economy had been affected by the worldwide economic turmoil to a "milder extent", adding that a further slowdown is expected in 2009.

The report said Kuwait leaders needed to put together a stimulus package of increased spending on development and housing projects, especially on infrastructure projects such as the airport, hospitals, roads, oil and gas projects and power plants.

It added that the implementation and execution of the package should be free of bureaucratic hassles, to prevent them coming too late to help with the economy's current problems, Kuwait News Agency reported.

So far, Kuwait, like others, had put out fires last year (supporting Gulf bank, helping investment companies), NBK said.

"In our view, fiscal stimulus is needed at a time when the oil sector and the private sectors are expected to retrench," the report added.

The report suggested that the Kuwait government could use the budget to raise spending, especially on projects and infrastructure, as well as shoring up confidence by pumping liquidity into the local market.

"On the subject of investor confidence, the size and style of the current Investment Fund have failed to do the job. It needs KD 5-6 billion, versus 1.5 billion, and it needs to buy and hold securities more aggressively," the report advised.

NBK looked at a number of scenarios to assess the impact of the current crisis on the Kuwaiti economy.

The analysis shows that if the price of Kuwait export crude was to average $30-60 a barrel, and with no change in government spending, real gross domestic product (GDP) would fall by 4-5 percent this year.

Nominal GDP would decline by 20-40 percent and the declines would not be confined to the oil sector, with the non-oil sector falling in real terms by 2-3 percent, NBK said.

The report noted that "budget deficits are nothing new or scary," as Kuwait ran deficits 13 out of 16 fiscal years between 1981-1998.

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