Blog Post

Kuwait is still adapting to the twin shocks of COVID-19 and the slump in oil prices that hard-hit its economy and fiscal and external positions. As fiscal deficits persist in the medium term, and in the absence of new debt legislation, drawdowns from sovereign assets will be inevitable, potentially without concomitant reforms. Friction between the executive and legislative branches, delays in vaccination rollout to the entire population, and renewed downward pressure on oil prices are all key downside risks to the outlook.

Recent Developments
As in other countries, a new wave of the pandemic is an emerging possibility. The 7-day moving average for daily new cases registered a new high in early February (980 cases), after being on a downward trajectory since October 2020. A spike in new cases prompted authorities to renew restrictions in early February. Meanwhile, the national vaccination program rollout started in late December 2020 with the target of inoculating 80% of the population by September 2021—by end-March, only 8.7% of the population received at least a single dose of the vaccine. A boost in prospects has come from oil prices, which recouped some of their lost ground since Spring 2020 owing to effective OPEC+ supply restraint and a pick-up in global economic activity as countries relax containment measures.

Outlook
The economy is expected to recover with 2.4% growth in 2021, driven by a more accelerated pick-up in global energy demand and prices while oil production levels continue to lag, growing only at 0.2%, in agreement with OPEC+ commitment. As the vaccination program gains more momentum and COVID-related restrictions are further eased, non-oil sectors will continue their growth trajectory, estimated to reach 4.4% in 2021 to reflect stronger domestic demand. Over the medium term, growth will recover even further with continued public spending and credit growth, averaging around 3.2%. Inflation is anticipated to pick up as economic activity recovers.