The country relies on oil for more than 50% of its GDP and 93.6% of fiscal revenues. It currently owns one of the largest foreign assets (including a Sovereign Wealth Fund, SWF) among GCC countries, estimated at $600 billion.
On the back of its large fiscal surpluses (Kuwait had the largest fiscal surplus in the GCC prior to 2014), substantial reserves and periods of high oil prices, government spending rose from 38.8% of GDP in 2013 to 50.1 and 60.8% of GDP in 2014 and 2015 respectively. Fiscal balances, however, swung from a surplus of over 35% of GDP in 2013 into a deficit of 3.6% of GDP in 2015.
The magnitude of the drop in oil revenues amounted to $15 billion each year in 2014-15. Kuwait’s first response to low oil prices was to draw down on its foreign assets. Spending cuts were not proposed until recently, and they are negligible; the draft 2016/17 budget indicates only a 1.5% pullback in government expenditures.
One of the areas of cuts in spending is subsidies where a smaller amount for petroleum and gas subsidies is allocated in its 2016/2017 budget than previous years, amounting to KD 238 million ($791.4 million) for petrol and gas products this year. Last year, diesel and kerosene prices were tripled (yielding fiscal savings of 0.3% of GDP), only to be partly reversed later.
On a longer term view, a medium-term (five-year) economic reform agenda was recently approved by the Government. The reform agenda focuses on public financial management, privatization, PPPs, SMEs, investment reform, civil service and labor market reforms – and if implemented as a package could help begin the process of rebalancing the Kuwaiti economy away from oil.