VZCZCXRO3602
PP RUEHDE RUEHDIR
DE RUEHKU #1177/01 3370700
ZNR UUUUU ZZH
P 020700Z DEC 08
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 2435
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 KUWAIT 001177 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP 
 
E.O. 12958: N/A 
TAGS: ECON KU
SUBJECT: KUWAIT THIRD/FOURTH QUARTER ECONOMIC SNAPSHOT 
 
REF: A. KUWAIT 1140 
     ¶B. KUWAIT 1123 
 
 
¶1.  (SBU) Despite the current angst about the stock market's 
fall (down over 40% YTD) and the very public bail out of Gulf 
Bank, Kuwait,s economy grew at just under six percent in 
2008 and is projected to weaken only slightly next year. 
Kuwait's government revenues for the first 7 months of the 
fiscal year (through October 31), were almost 30 percent 
higher than projected for the entire fiscal year.  Even with 
the sharp drop in oil revenues and projected increases in 
spending for the last half of the year, a 2008/2009 budget 
surplus is still likely.  In the near-term it would appear 
that Kuwait is well positioned financially to weather the 
current crisis.  In the long-term, economic reform will be 
the key to Kuwait,s economic stability. 
 
--------------------------------------------- - 
Economic Outlook: 5.8% Growth expected in 2009 
--------------------------------------------- - 
 
¶2.  (SBU) Economic growth for 2008 is projected to remain 
strong (at just under 6%), despite Kuwait's recent stock 
market crisis and sharply falling oil prices.  Annual 
inflation is predicted to be about 10% for the year, on the 
back of high food prices and housing shortages.  Current 
forecasts are that the economy will grow by about 5.8% in 
2008, at least partially on projected government 
infrastructure expenditures.  Continued oil price drops 
could, however, lead to cuts in oil production (about 40% of 
real GDP), and sharp cuts in government revenue.  These cuts, 
combined with the impact of the sharp fall in the equity 
markets and its possible impact on Kuwait's financial and 
real estate sectors could cause these projections to be 
revised downward. 
 
----------------------- 
Fiscal Surpluses Strong 
----------------------- 
 
¶3.  (SBU) Even with the sharp drop in oil prices in recent 
weeks and with increased spending to deal with the current 
financial crisis, Kuwait's 2008/09 budget is comfortably in 
the black.  In the first seven months of FY 2008/09, Kuwait 
earned revenues over USD 57 billion, which exceeded projected 
revenues for the entire year by 30 percent.  (Note: In 
calculating budget revenues, Kuwait adopted a conservative 
price of 50 dollars per barrel for its oil, but the actual 
average price for the first half of the year was above 100 
dollars per barrel. It recently dropped to less than 50 
dollars per barrel. End note).  Kuwait's expenditures in the 
first six months were $24.7 billion, less than a third of the 
71 billion USD forecasted for the entire year, leaving a 
preliminary budget surplus of 32.7 billion USD.  Budget 
revenues for the second half of the year will drop sharply 
and expenditures are likely to increase as the GoK funds 
various financial sector bail outs; but fiscally 2008/09 will 
continue to be strong.  The budget situation in 2009/10 will 
deteriorate with lower oil revenues and higher expenditures; 
but even if the budget slips into deficit, Kuwait's reserves 
will likely remain more than adequate to cover any shortfall. 
 
---------------- 
Record Inflation 
---------------- 
 
¶4.  (SBU) Kuwait continued to struggle with high inflation 
for the first half of the year (10.7 percent, or almost 
double the 2007 figure).  The driving factors were food and 
housing costs, which rose by 14.2 percent and 13.1 percent 
since April 2008.  Early in FY 2008, the Central Bank imposed 
restrictions on real estate, share lending and consumer loans 
to try and rein in growth in the money supply, but has 
recently eased its policy in order to deal with the stock 
market collapse. 
 
¶5. (SBU)  The GoK took several steps to try and deal with 
sharply rising food costs.  In August and September, Kuwait's 
Government approved a plan to subsidize more goods, support 
firms operating in livestock and flour mill sectors, allow 
cooperative supermarkets to import commodities directly, cut 
out wholesale importers, and create a consumer protection 
body to prevent fraud and exports of subsidized products. 
The GoK is looking at other means to cope with the crisis, 
such as wheat cultivation and leasing rice fields in 
Cambodia.  The GoK did, however, take several inflationary 
steps including  raising salaries for citizens twice during 
the second and third quarter. 
 
KUWAIT 00001177  002 OF 002 
 
 
 
¶6. (SBU)  Comment:  In the near term, falling oil prices and 
sharp drops in global equity markets are concerning Kuwaitis. 
 Parliamentary and public calls for the GoK to bail out the 
stock market and investors are increasing, as are the GoK's 
public commitments to act.  Given Kuwait's strong economic 
growth over the past few years and comfortable budget and 
current account surpluses, it has the reserves needed to 
address the current problems.  In the longer run, however, 
absent a solution to the dysfunctional relationship between 
government and parliament, political paralysis will continue 
to hinder Kuwait's economic reform efforts.  Several key 
legislative bills that would boost Kuwait's economy, have yet 
to be passed by Kuwait's parliament, to include a 
privatization law and delay of the fourth refinery project 
estimated at 10 billion dollars.  To quote one Kuwaiti banker 
frustrated by the parliament's failure to address widely 
recognized issues, "Kuwait's problem is that we don't have 
any problems."  End Comment. 
 
********************************************* * 
For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/?cable s 
 
Visit Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
********************************************* * 
JONES