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CONTENTS Kuwait  Economic AnalysisLegal Information Info-Prod Country Guide

Principal Commercial and Political Characteristics


The Kuwaiti economy is driven by oil production and related industries. Due to a rapid rehabilitation of the country’s oil fields and refineries in the wake of the Gulf War, the oil sector essentially has returned to pre-war levels of production.

Despite the sluggishness of the non-oil economy, it is believed that business is poised for improvement over the short and medium term for several reasons. Kuwait is implementing plans to alleviate problems by allowing more expatriate workers to bring their families to Kuwait.

Commercial Outlook

In 1993, the government adopted the Difficult Debts Law, which should provide sufficient debt relief and a mechanism by which large Kuwaiti investors can recover losses incurred during the Iraqi invasion of Kuwait in 1991 and some losses dating to the 1982 Souk Al-Manakh Stock Exchange crisis. That crash occurred when cumulative trading losses reached US$ 100 billion, US$ 20 billion of which was attributed to approximately 3,000 well-connected Kuwait merchants. In the last decade, the Kuwaiti National Assembly passed bills aimed at forcing debtors to repay, but this legislation has proven ineffective.

Some elements of the new law are controversial and there is pressure from some groups to amend its provisions. It remains to be seen how many of the bad debts actually will be cleared up by the new legislation. Nevertheless, the new law should stimulate investment simply by removing uncertainty over the legal status of the debts. This, in turn, should promote the repatriation of capital held outside of Kuwait.

Oil prices helped Kuwait lift 1995 nominal GDP by 8.2 percent. Having recently paid off the last portion of a US$ 5.5 billion loan, it entered 1997 without the burden of foreign debt. Kuwait planned its 1996 budget based on an oil price of US$ 14 to US$ 15 per barrel and received a windfall as oil prices rose over US$ 20 per barrel, peaking at US$ 25 per barrel in October of 1996. Additionally, the UN-approved Iraqi “oil for food” deal mandates that a percentage of revenues be paid as war reparations to Kuwait, which could boost the economy even further.

It should be noted that since the Gulf War, Kuwait's foreign investment portfolio has fallen to about US$ 35 billion, a drastic reduction from the US$ 100 billion pre-war period. Portfolio revenues do not contribute earnings to the budget.

Kuwait, which plans to eliminate its budget deficit by the year 2000, has forecast a 3.96 billion deficit for the fiscal year ending June 30, 1997 on a budget of US$ 13.7 billion. Total projected revenue for the 1996-97 budget totaled US$ 10 billion, including US$ 8.5 billion in oil earnings.

Political Outlook

In 1996, Kuwait, which boasts the Gulf’s only elected parliament, held its second election since the Gulf War. In accordance with Islamic law no political parties exist in Kuwait; thus, Kuwaitis vote directly for their candidates. The opposition lost its parliamentary majority to pro-government deputies in the election, but fundamentalist MPs from the Shiite, Sunni and pro-Islamists camps, nevertheless, made a strong showing. Gains made by Islamist and Shi’ite candidates have perpetuated the fear that Kuwait's Sunni majority and its Shi’ite minority, which comprises 30 percent of the citizenry, will renew their long running feud.

Already in 1997, the National Assembly has attempted to implement strict Islamic Law, Shar’ia, in Kuwait. The Emir, who must approve such legislation, postponed approval pending the issuance later this year of a report he commissioned to study the issue.

Kuwait's privatization program has faced major political, social and economic obstacles. Since 1994, the State has sold stakes in eighteen local firms for over US$ 2 billion, and it intends to sell off holdings in thirty-six other firms worth an additional US$ 3 billion. Later stages will involve the more controversial privatization of heavily subsidized public service companies that employ many Kuwaitis. Kuwaiti National Assembly members have expressed fear of layoffs and an expected increase in charges by privatized basic services.


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