NID: KUWAIT: AWASH WITH OIL MONEY

Created: 11/6/1979

OCR scan of the original document, errors are possible

of

! "j CfMIll

National Intelligence Daily

Tuesday9

KUWAIT: Awash with Oil Money

fit :

and prospective oil price increases irtlt loadrreni account surpluses inunices thethe unlikely step of chawing 'is restrictive ependingf:noncialwith the likelihood that oil intrill appreciate fatter than nest foreignpressure on the goverment again to reduce oik production. siiilar situation at the tine ofil price hikes,bruehed aside visions of industrial grandeur in favor ofeconomic grovth, pniii-nt foreign investments, and

Kuwait was already one of the most affluent andomically develooed members of OPEC at tlio time of tho il price hikes. Sinceargo part of its enormous financialas gone to extend one of the most advanced welfare states in the world. from post mistakes, Kuwait restrained government spending for industrialization and hence has suffered fewer economic and social dislocations than other Persian Gulf oil producers did in tbe. mWm

The fiscal0 budget approved this summer demonstrates continued government interest inspending, especially for industrial projects. Plannod outlays of slightly mare than S3 billion are onlyercent abco those in the previous budget. If inflation remains in last year's range, as seems likely, government spending will show little real growth. Lessercent is slated for development, and no plans for major industrial projects are on the books. mmW

The government projects revenues to increasea gross understatement. If tho current high level of oil production continues through the fiscal year, oil revenues alone should beillion because of the oil price increases last month and the large volumes o! oil being sold at spot

market prices. Thus Kuwait is likely toa record budget surplus, and the current account surplus could top SIS billion.

Kuwait does notlanned economy, and theprobably has no program for spending the huge revenues that will be coming in for the foreseeable Although the Ministry of Planning, with assistance from the World Bank, is beginning workrogram, the government is reluctant to commit itself to long-ternjpjj

In the absence of any official development plan, no dramatic increase in spending is likely. NowI billion liquefied petroleum gas complex has beenan upgrading of gasoline production capacity ii the only large hydrocarbon-based pro3ect still on the ooks. Other ambitious projects such as steel millspparently been shelved permanently, ij^pj

Restraint in industrial growth appears to havesupport* Kuwaitis do not want inwould require more foreign labor, expatriatescompriseercent of the populationhe labor force. Kuwaitis also are reluctant to ap-projects that could damage the environment. Mostthe sophisticated and well-traveled Kuwaitis,come to appreciateat hometheir economic viability rather than their '

Given social, manpower, and environmentalKuwait probably will not push nonoll growth above the moderate pace maintained sincerice hikes. Real economic growthercent a X' year, along with upward pressure on oil demand and prices, would leave Kuwait awash in cash. i* government now rtSfej quires thatercent of revenues be pututure Generations Reserve Fund, which is invested abroad. from these investments is retained by the Fund and cannot be drawn for budgetary use for at leastears.

ment income.

Despite some economic diversification and careful foreign investment, Kuwait will stillne-commodity economy for the immediate future. Oilf GDP, more thanercent of government revenues, and almost all export earnings. In an attempt to stretch out oil reserves for future generations Kuwait5eiling on outputillion barrels per day (notarrels per day from the Neutral Zone). Oil production from Kuwait proper had beenillion barrels per day Because ofrises in oil prices, Kuwait could probablyillion barrels per day or less and still have ample funds to cover imports without dipping into invest-

The inability of Kuwait's domestic economy toexpected oil earnings and the increasing real value of oil in tho ground will put pressure on the government to reduce oil production further. The need to save oil reserves for future generations,ensitive issue among conservatives, had been politicized by Arabin Kuwait's National Assembly before it Given the current religious and social unrest caused by dissatisfied Shias, the government is in no moodational debate with conservationists, j

The government is likely to bring output from its current level ofillion barrels per day down to the ceilingillion barrels per day this year, and it has stated its intention-of lowering the ceilinqillion barrels per day some timeemains, nonetheless, sensitive to the ramificationsajor oil cutback on the west.

Original document.

---

---