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Kuwait’s current account surplus fell for the first time in three quarters at the start of 2017, narrowing from KD600 million ($1.98 billion) in the fourth quarter of 2016 (4Q16) to KD300 million in 1Q17, a report said.
The fall was on the back of deterioration in the goods balance, a decline in investment income and a rebound in net service outflows, reported the National Bank of Kuwait (NBK) in its latest Economic Update.
Despite the fall, the current account balance, at an annualized 0.8 per cent of GDP, was still up significantly compared to the same period last year when it recorded its largest deficit in years of 2.7 per cent of GDP.
“We expect the current account to see a further rebound in 2017 as oil prices firm up. After recording its first deficit in over two decades in 2016, the current account is forecast to witness a rebound and log in a surplus of around 3-4 per cent of GDP in 2017.This improvement is largely due to the expectations that oil prices will continue to recover and prop up export receipts,” the NBK Update said.
The goods surplus retreated for the first time in a year in 1Q17.The surplus fell from KD2.0 billion in 4Q16to KD1.9 billion in 1Q17, mainly due to a strong rebound in import growth. Although both oil exports and non-oil exports witnessed healthy gains in 1Q17, growing by 60 per cent y/y and 17 per cent y/y, respectively, a strong jump in imports put some downward pressure on the goods balance.
Imports grew 14 per cent y/y to KD2.2 billion, thanks to higher demand for capital and industrial goods. Strong demand in these segments is indicative of the healthy progress being made on government development projects.
A decline in investment income, a jump in net service outflows and relatively solid growth in worker remittances, also weighed on the current account balance. Investment income fell to its lowest level in just over a year in 1Q17, while net services outflows climbed to a multi-quarter high of KD1.6 billion during the same period. Worker remittances continued to rise at a relatively solid pace of 7.4 per cent y/y.
Kuwait’s net financial outflows swelled as portfolio investment outflows held strong, though they were partly offset by inflows from other overseas investments. The financial account logged in an almost two-year high deficit of KD1.1 billion, mainly on strong growth in portfolio outflows, which rose to KD2.6 billion. These outflows reflect Kuwait’s policy to channel investments to the Future Generations Fund (FGF). At the same time, other overseas investments have been liquidated to help finance the fiscal deficit.
The broad balance of payments balance recorded a surplus, albeit a smaller one, for the second straight quarter in 1Q17. The surplus on the balance of payments fell from KD0.7 billion in 4Q16 to KD0.6 billion in 1Q17.
“As a result, foreign reserves increased only slightly from KD9.3 billion to KD9.5 billion during the same period. However, at an estimated 11.5 months of imports, foreign reserves remain substantial,” the report concluded.
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