Kuwait – Power Struggle Grinds On
The prolonged power struggle between the royally appointed government and popularly elected lawmakers who are intent on making all state ministers, including members of the ruling Al Sabah clan, more accountable to the Parliament shows no sign of abating, despite both a change of rulers in late September 2020 and a general election that refreshed the National Assembly in December. Indeed, recent events have borne out predictions that the results of the legislative elections, which produced a net gain of eight seats for opposition candidates, would deepen the dysfunction at the center of national politics.
One troubling product of the turf war is a delay in selecting the nine-member board of the Kuwait Investment Authority (KIA), which is responsible for managing the country’s $600 billion sovereign wealth fund. Finance Minister Khalifa Hamada has limited authority to make decisions on his own as the ex officio chair of the KIA, and the potential for the standoff to produce a crisis has diminished along with the easing of fiscal strains as global oil prices have firmed. Nevertheless, the absence of a fully functioning board does not exactly inspire confidence.
The recently approved budget for 2021/2022 includes neither cuts to expensive subsidies nor any significant new tax measures. Despite the huge cushion provided by the Future Generations Fund, the amount the government can use for budget support is capped by law and can only be exceeded with the approval of the National Assembly. The legislative opposition has likewise impeded passage of a debt law that would pre-approve the government to borrow up to $65 billion in the international markets over the next 30 years.
With the more contagious delta variant of COVID-19 heightening the risk of a spiraling case count that could overwhelm the health-care system, officials were forced to tighten some restrictions. Evident signs of impatience among the business community are creating pressure to fully open the economy, which given the still-low vaccination rate will carry a high risk of generating another surge that could force a retightening of restrictions that dampen the growth potential of the non-oil economy, with negative implications for the overall growth rate in 2021.
The financial uncertainty created by the persistence of legislative gridlock will in any case dampen interest in non-oil investment opportunities that are available, limiting the strength of an economic rebound in the near term. Even assuming steady oil prices as a global recovery solidifies in the second half of the year, real GDP growth will be held to no more than 2.4% in 2021, with downside risks to the forecast predominating.
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