Kuwait: Suspension of Parliament raises near-term political tensions but could catalyze reform
In early May, the Kuwaiti Emir dissolved Parliament and suspended some constitutional articles. The Emir said that the Parliament would remain suspended for up to four years. A new cabinet was then swiftly appointed. This came soon after the fourth parliamentary elections in as many years in April, which returned an opposition-controlled legislature. Parliament and the executive—which is appointed by the Emir-designated Prime Minister—have clashed frequently in recent years.
The lack of a parliament should expedite legislation. The new government’s immediate focus will likely be to approve the budget for FY 2024 (April 2024 to March 2025). The draft budget published in January saw expenditure falling by 6.6% compared to the previous fiscal year and revenues down by 4.1%, leading to a narrower fiscal deficit. Also high on the list of priorities will be approving a law to allow the country to issue more public debt, something it has been unable to do since 2017. Approval of the law would remove the need to draw down from the country’s sovereign wealth fund, and allow the government to borrow for investment and to cushion economic activity in periods of low oil prices.
In addition, the government will be looking to diversify the economy. Gulf neighbors such as the UAE and Saudi Arabia have made much more progress on improving their business environments and advancing structural reforms in recent years, which is translating into persistently faster non-oil growth in those countries. For instance, in 2024, Kuwait’s non-oil sector is expected to grow 2.3%, compared to 4.8% in Saudi Arabia and 5.1% in the UAE.
On future legislation, EIU analysts said:
“We now expect [a new debt law] to pass in 2024, having previously expected it to pass in 2026. […] In tandem, borrowing to fund development projects associated with Kuwait’s Vision 2035 diversification plan will rise, catalysing the implantation of flagship projects such as the Northern Economic Zone and the revival of previously cancelled or delayed initiatives, including the Kuwait City Metro. We expect this to galvanise otherwise sluggish non-oil economic growth in 2024-28.”
Goldman Sachs’ Farouk Soussa commented:
“In our view, near-constant tensions between parliament and the government have constricted the economic policy environment in Kuwait for most of the past two decades, impeding progress on investment and economic reform. As a result, Kuwait’s economic growth has stagnated relative to its neighbours and GDP per capita in real terms has shrunk by 15% over the past decade.”