GDP is distorted by resource rents, affecting the economic quality

KUWAIT CITY, Dec 9: A report issued by the National Center for Development Research of the General Secretariat of Planning shows Kuwait suffered a setback in the area of economic quality during the past decade by 21 places, while its best performance was in 2014, reports Al- Seyassah daily. The “National Center” report on the issue of prosperity in Kuwait pointed out that the gross domestic product is the accepted standard for measuring the economic prosperity of any country (prosperity is measured and determined in a way that can also be compared to national income), however, when seeking to understand the real added value of participants in the economy, it can be the GDP that provides a distorted picture, especially for countries with large resource rents.

The report explained that the contributions of resource rents to the GDP figures may cause some arithmetic imbalance, which can give a false impression of the quality of any economy. For example, Kuwait has resource rents that contribute more than 25% of the GDP, and it may appear Kuwait is wealthy, but its workforce is relatively unproductive economically, underperforming as GDP numbers would suggest, according to the 2019 Global Prosperity Index report. The report indicated that Kuwait witnessed a strong decline in the quality of the economy from after 2019 until now, as the oil-producing countries in general and Kuwait, in particular, faced a double crisis at the beginning of 2020, when the coronavirus pandemic coincided with a decline in oil prices on the international market, which was reflected in the economies of Gulf oil states. The Gulf countries were negatively affected by the crisis, and this was evident in the public budget deficit, the layoff of large numbers of expatriate workers, the reduction of public expenditures, the adoption of austerity measures, and the tendency to external debt through international bonds. The report explained that the economic crisis seemed more severe and clear in Kuwait compared to some other Gulf countries, such as the UAE and Qatar.

The most prominent crisis that Kuwait faced was the problem of providing liquidity for the salaries of workers in the public sector and other state facilities in the last months of 2020. The report stated that several indicators indicate the existence of a real crisis at the financial and economic levels in Kuwait, including what was published by Fitch in early February 2021, about reducing the credit rating of Kuwaiti debts from stable to negative, and the agency said that the reduction of Kuwait’s sovereign credit rating reflects the restrictions in the ongoing political decision-making, which impedes addressing the structural challenges related to oil dependence, the generous prosperity state and its large public sector.

In addition, the statements of the Minister of Finance increased the ambiguity of matters, as he stated that the liquidity in the country’s treasury was almost running out, and as for the budget, the deficit in Kuwait’s budget for the fiscal year 2020/2021 reached about 46 billion dollars, while in Qatar it reached the limits of 9.5 billion. Dollars, and in the UAE the deficit reached 1.3 billion dollars. The report showed Kuwait’s progress in the business environment pillar by 39 places over the past decade, and its best performance was in 2021 when it achieved a score of 57.4 out of 100. Kuwait’s progress came due to the state’s efforts to improve the business environment through radical changes in laws and legislation to enhance the business environment and the business environment within the framework of National Vision 2035 and its goals, which has made the investment climate in Kuwait more attractive, which increases the effectiveness of the economic cycle and real job opportunities for the national workforce. The report explained that when markets have adequate infrastructure and few barriers to doing business, trade can flourish and thus lead to more competitive and efficient markets, allowing new products and ideas to be tested, financed, and marketed, which ultimately benefits consumers through a greater range of goods at more competitive prices.

By Mahmoud Shendi
Al-Seyassah/Arab Times Staff