Kuwait is set to lead the Gulf with the highest current account surplus in the coming years, despite a decline in oil prices. Although the surplus is expected to shrink due to lower oil prices, it is still projected to remain strong, at approximately 18 percent of GDP by 2025. In 2024, Kuwait’s current account surplus is expected to reach 23.3 percent of GDP before decreasing to 18.1 percent in 2025, compared to 28.4 percent in 2023, according to the Institute of International Finance (IIF).

Impact of Oil Production Cuts on Kuwait’s Economic Growth

As part of the OPEC+ deal, Kuwait's oil production will decline, contributing to a forecasted economic contraction of 2.2 percent in 2024. This decline is primarily due to Kuwait’s commitment to reducing oil output as part of the OPEC+ agreement. Kuwait will be the only Gulf economy to shrink in 2024, with growth anticipated to return in 2025, potentially reaching 2.9 percent.

Political Stalemate Impedes Economic Reforms

Despite strong fiscal performance, Kuwait’s ongoing political stalemate continues to hinder vital economic reforms. Political differences and years of gridlock have slowed the implementation of key reforms, making it challenging for the country to diversify its economy. As a result, Kuwait lags behind its regional peers in global competitiveness rankings and ease of doing business.

Kuwait's Foreign Investments and Net Credit Status

Kuwait remains one of the world’s largest net creditors, meaning it has substantial positive net investments. However, foreign direct investment (FDI) flows have faced challenges due to the difficult business environment and limited investment opportunities. According to estimates, Kuwait's public foreign assets, including official reserves and sovereign wealth fund assets, total around $780 billion, or 440 percent of GDP. These assets, accumulated from ongoing current account surpluses over the past three decades, provide Kuwait with the flexibility to pursue financial reforms at a more gradual pace.

Regional Economic Trends and Oil Price Predictions

The GDP of the six Gulf countries is expected to grow by 4.4 percent by 2025, compared to only 1 percent expected for 2024. This growth will be led by the UAE and Saudi Arabia, with an increase in oil production offsetting a decline in crude prices. The non-oil sector is forecast to expand by 4 percent, driven by private consumption and public investments. However, oil prices are expected to decrease from $80 per barrel in 2024 to $70 per barrel in 2025, which may lead to a decrease in the current account surplus across the Gulf countries.

Forecast for Kuwait’s GDP and Economic Recovery in 2025

After a contraction in 2024, Kuwait’s GDP is expected to recover in 2025, largely due to improved non-oil sector performance and capital flows. The Institute of International Finance forecasts that Kuwait's fiscal balance will reach 4.4 percent of GDP in 2024 and 3.7 percent in 2025, a decline from 7.9 percent in 2023.

Despite these challenges, Kuwait’s vast financial reserves give the country flexibility to manage these fluctuations and pursue gradual economic reforms.