Kuwait’s political instability leading to an economic crisis

Kuwait Investment Authority or the KIA is among the five largest sovereign wealth funds in the world. KIA is also the world’s oldest sovereign wealth fund. Yet, despite such an impressive profile, political infighting in Kuwait threatens the KIA and may fuel an economic crisis.

Sabah al-Ahmad al-Jaber al-Sabah, the 15th Emir or the ruler of Kuwait, was an influential figure in the Middle East. He passed away in September 2020. Nawaf Al-Ahmad Al-Jaber Al-Sabah succeeded him. But ever since then, Kuwait is seeing a struggle for political influence between members of the parliament and the government led by Prime Minister Sabah Al-Khalid Al-Sabah, who the Emir appoints. It has also led to a kind of policy paralysis in this Middle Eastern nation. Consequently, this stalemate has gripped the KIA as well.

It has been two months since the expiry of the tenure of the KIA board. However, a new term is yet to be approved. KIA controls the vast oil sector and the wealth. Thus, the political crisis now threatens to hit the Kuwaiti oil sector.

The signs have already started to show. Recently, under political uncertainty and hit by fluctuating oil prices, the Kuwait Petroleum Corporation unveiled a plan to borrow $20 billion to cover the shortfall. Also, the Kuwaiti regime has projected a cumulative budget deficit of $183 billion by the year 2025. It is the eighth successive year of the budget deficit for Kuwait, which is considered among the world’s wealthiest countries. Thus, with oil accounting for 90% of its revenue, Kuwait may be forced to undertake economic diversification like Saudi Arabia or the UAE.

However, the political disagreement has birthed confusion in the choice between economic liberalisation and the welfare state. The situation is turning so complicated that it has left the government struggling for cash. Subsequently, it is also blocking Kuwait from borrowing and has left barely enough money to pay the salaries of government employees.

Overall, if Kuwait does not resolve its internal differences and take the route of diversification of the economy, it could be heading for financial insolvency, as warned by its previous Emir. Moreover, Kuwait also risks falling into a debt trap as it has already joined the infamous Belt & Road Initiative of China.

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