• Global : Kuwait BOP surplus reported a huge surplus reaching a new landmark of KD1.04bn by the end of 2006

Published May 28th, 2008 - 03:56 GMT

• Global : Kuwait BOP surplus reported a huge surplus reaching a new landmark of KD1.04bn by the end of 2006

Global Investment House – Kuwait Economic & Strategic Outlook- Current Account -  Kuwait current account continued to grow considerably at double digit rates over the period 2003-06. By the end of 2006, current account surplus reported another year of growth to increase by 47.7% to reach an all times high of KD14.8bn. It is important to note that such impressive growth came on top of 87.2% of growth reported for 2005. On CAGR basis, current account surplus recorded a high CAGR of 42.1% over the period 2001-06. Such growth pattern in current account surplus has helped to more than double its share in GDP from merely 11.2% in 2002 to account for 51.7% of GDP by the end of 2006. During the four year period 2001-05, current account surplus has registered a CAGR of 39.1%.

Current Account
KD mn 2001 2002 2003 2004 2005 2006 CAGR 01-06
 1. Balance on Goods 2,819  2,203  3,551  5,430  9,558  12,851  35.5%
 Export Proceeds, of which 4,980  4,670  6,495  8,867  13,715  17,015  27.9%
 Petroleum 4,591  4,272  5,832  8,181  12,879  16,152  28.6%
 Import Payments (2,161) (2,467) (2,944) (3,437) (4,157) (4,164) 14.0%
 2. Services (net), of which (1,132) (1,274) (1,035) (1,132) (1,133) (936) -3.7%
 Transportation, net (114) (188) (153) (180) (170) (152) 5.9%
 Travel, net (840) (883) (963) (1,039) (1,201) (1,465) 11.8%
 A. Goods & Services (net) (1+2) 1,687  929  2,516  4,298  8,425  11,915  47.8%
 B. Income (net), of which 1,503  1,017  1,001  1,806  2,586  3,884  20.9%
 Investment Income 1,503  1,017  1,001  1,806  2,586  3,884  20.9%
 C. Current Transfers (net) (638) (651) (709) (752) (993) (1,003) 9.5%
 Current Account (A+B+C) 2,552  1,295  2,808  5,352  10,018  14,796  42.1%
Source: Central Bank of Kuwait

Analyzing current accounts major components revealed that two main components contributed to the reported growth during 2006. Namely, the ‘goods and services’ and ‘income’ balances contributed significantly to the current account reported surplus. By the end of 2006, both balances grew rapidly by 41.4% and 50.2% respectively, which was more than enough to offset the negative impact of transfer balance deficit that grew by 1.0%.

Generally, the stellar performance of current account surplus over years was directly related to goods and services surplus that continued to account for more than 80.0 % of the current account surplus. By the end of 2006, ‘good and services’ balance stood at a new landmark of KD11.9bn up from KD8.4bn recorded in 2005. Within goods and services balance, trade surplus has been on the upward trend over the period 2003-06 reporting a CAGR of 35.5%. By the end of 2006, trade balance stood at a new landmark of KD12.9bn reporting 34.5% annual growth on top of the marvelous 76.0% growth recorded for 2005. Services balance on the other hand continued to contribute negatively suffering an ongoing deficit over years. However, the deficit has not widened significantly in recent years. By the end of 2006, services balance deficit declined by 17.4% to reach KD936mn down from KD1.1bn reported for 2005. Generally, the services deficit is mainly due to foreign travel and transportation.

Similar to the goods and services balance stellar performance, Income account surplus has improved significantly in 2006, growing by 50.2%. By the end of 2006, income account surplus surpassed the KD3bn landmark for the first time standing at KD3.9bn up from KD2.6bn reported for 2005. Similar to previous years, almost all contribution to income account came from investment income. The investment income consists of the general government income from external investments. That includes investments made by institutions like Kuwait Investment Authority, Kuwait Petroleum Corporation, Public Institution for Social Security, Kuwait Fund for Arab Economic Development, Kuwait Airways Corporation and the Bank of Credit and Savings. On CAGR basis, income account surplus grew by 20.9% over the period 2001-06 increasing from KD1.5bn to KD3.9bn.

Finally, transfers account continued to suffer an increasing deficit over the period 2001-06. The deficit has widened significantly from KD638mn in 2001 to reach an all times high of KD1.0bn by the end of 2006, which translates in a CAGR of 9.5%. On annual basis, transfers deficit grew marginally by 1.1% to KD1.0bn by the end of 2006, on top of 32.1% of growth reported by the end of 2005. Generally, transfers account is dominated by flows of workers’ remittances that accounted for 87.4% of transfers’ deficit in 2006. The net amount remitted during 2006 grew by 13.5% to a new record of KD877mn. Finally, it is important to note that within transfers, remittances have continued to rise sharply since 2002 to mirror the increase in recruitment of foreign workers. The same trend is expected to prevail in coming years as the country’s population of expatriate workers continues to rise.

Rebound in balance of payment….
By the end of 2006, Kuwait BOP surplus rebounded from last year trough to report a huge surplus reaching a new landmark of KD1.04bn. This level indicated more than five fold increase over KD164mn of surplus reported during 2005. The reason for the mammoth BOP surplus could be traced to the substantial increase in the current account surplus reaching KD14.8bn up from KD10bn in 2005. It is important to note that such increase in current account surplus was supported by 10.3% increase in capital account surplus. Both accounts surpluses were more than enough to offset the widening financial account deficit.

Balance of Payment
KD mn 2001 2002 2003 2004 2005 2006 CAGR 01-06
A. Current Account  2,552 1,295 2,808 5,352 10,018 14,796 42.1%
 1. Capital Account  899 508 426 127 232 256 -22.2%
 2. Financial Account  (1,680) (1,531) (3,606) (4,960) (9,094) (13,929) 52.7%
 Direct Investment  552 24 1,458 (737) (1,428) (2,258) -232.5%
 Portfolio Investment  (2,674) (981) (3,986) (4,105) (3,080) (7,380) 22.5%
 Other Investments  441 (575) (1,079) (118) (4,586) (4,291) -257.6%
 B. Capital and Financial Account (1+2)  (781) (1,023) (3,180) (4,833) (8,862) (13,673) 77.3%
 C. Others, net  (889) (563) (153) (323) (991) (84) -37.6%
 Overall Balance (A+B+C)  882 (291) (525) 196 164 1,038 3.3%
Source: Central Bank of Kuwait

On the capital account front, it reported KD256mn of surplus as compared with KD232mn surplus reported for 2005. This was mainly due to contributions from general government sector and others. Financial account on the other hand, continued to report a widening deficit to report 52.7% of CAGR over the period 2001-06. On annual basis, financial account reported KD13.7bn of deficit up from KD8.9bn of deficit reported by the end of 2005, or 53.2% of growth. There was a net deficit of KD2.3bn in the direct investment account in 2006, which was up from KD1.4bn in 2005. Direct investment abroad accounted for almost all the deficit in direct investment account. On another front, the deficit in portfolio investments bulged to KD7.4bn up from KD3bn in 2005. This was on account of increase in the portfolio investments made by the government to KD6bn up from merely KD1.6bn during 2005.


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