Kuwait

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S 23 January, 2008

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Jenny Tolstoy. Tel : +46 8 763 96 05. E-mail : jenny.tolstoy@seb.se

High oil prices continue to support the build up of large fiscal and current account surpluses while
the inflation rate is on the rise. However, geopolitical tensions in the region pose a threat to stability.
Country Risk Analysis
High but mnderating grnwth. Tle economy las experienced severaI years of robusl
grovll supporled by increased lydrocarbon produclion combined vill ligl oiI
prices. Hovever, lle ligllening of OILC quolas in Oclober 2006 reslrained oiI seclor
grovll and reaI GDI grovll is expecled lo sIov lo around 3 ° in 2007. Non-oiI
aclivily las acceIeraled underpinned mainIy by pubIic spending bul aIso groving
domeslic privale credil. In lurn, lle infIalion rale slarled lo picI up in 2007 ÷ aIbeil
from a moderale IeveI - as a resuIl of slrong domeslic demand, exlernaI pressure
from ligler food prices and veaIness of lle US doIIar, even if price conlroIs on
uliIilies and pelroIeum leIp conlain infIalion. Credil lo lle privale seclor las jumped
lo finance reaI eslale and consumplion goods vliIe lle slocI marIel las boomed as
a resuIl of ligl Iiquidily, posilive inveslor senlimenl and a slrengllening financiaI
syslem. Yel lle currenl credil and slocI marIel boom is sliII Iess exuberanl llan in
oller counlries in lle region.

The Iive-year niI µrice bnnm has cnntributed tn Iarge IiscaI and externaI surµIuses.
In 2006, lle budgel recorded a surpIus of 30 ° lo GDI and pubIic debl remained Iov
al 12 ° lo GDI. Tle currenl accounl surpIus las sveIIed lo more llan 40 ° of GDI
vliIe lle officiaI IX reserves increased lo around 8 monlls imporl coverage. Tle
major parl of lle oiI revenues is leId in
a sovereign veaIll fund - Kuvail
Inveslmenl Aullorily, vlicl is mainIy
invesling abroad lo Iimil infIalionary
pressure and preserve assels lo fulure
generalions. Tlese assels can be
eslimaled al USD biIIions 160 lo 250
according lo lle IMI. Tle currency
composilion and oller delaiIs of lle
assels are nol discIosed.
0%
10%
20%
30%
40%
50%
2002 2003 2004 2005 2006
%

o
f

G
D
P
Budget balance Current account

New exchange rate µeg. In May Iasl year, lle CenlraI BanI abandoned lle peg lo lle
US doIIar in favor of pegging lo an undiscIosed currency basIel lo slem infIalionary
pressure from lle veaIening doIIar. Since llen Kuvaili dinar las apprecialed by 5-
6 ° againsl lle US doIIar. Tle exclange rale poIicy clange in combinalion vill
rising infIalionary pressure in oller GCC counlries las raised doubls over lle
limelabIe for lle GCC's goaI of a aclieving a monelary union by 2010.

SEB Merchant Banking Country Risk Analysis January, 2008

2
SInw ecnnnmic reInrms. Higl oiI prices as veII as differences belveen lle cabinel
and lle parIiamenl over lle benefils of slrucluraI reforms conlinue lo loId bacI
reforms. Tlal is nov prevenling lle deveIopmenl of lle privale seclor, sliII larnisled
by lle banIing seclor crisis 25 years ago. Tle Iong discussed pIans lo bring in foreign
oiI companies lo boosl oiI produclion (Irojecl Kuvail) are aIso sliII on loId.

Smnnth successinn. In Ianuary 2006, Kuvaili Ieaders accompIisled a smooll
lransilion of pover foIIoving lle deall of lle emir, SleiIl Iaber aI-Almad aI-Sabal.
His aiIing successor, Saad aI-AbdaIIal aI-Sabal, vas removed by lle IarIiamenl and
cabinel in favor of SleiIl Sabal aI-Almad aI-Sabal (aged 78). Tle reIalion belveen
lle cabinel (conlroIIed by lle royaI famiIy) and lle parIiamenl remain lense bul
broadIy slabIe. In Iune 2006, lle nevIy appoinled Lmir caIIed for earIy
parIiamenlary eIeclions, lle firsl in vlicl vomen lad lle rigll lo vole and run for
office, bul in Marcl 2007 lle cabinel resigned alead of a parIiamenlary vole of no
confidence in one of lle Minislers.

GenµnIiticaI risks. Tle main risI lo slabiIily in Kuvail is geopoIilicaI risIs in lle
region and especiaIIy a polenliaI escaIalion of lensions belveen Iran and lle
inlernalionaI communily over ils nucIear program. Any miIilary confIicl in lle
region risIs economic disruplion in lle GuIf counlries and especiaIIy in Kuvail a
cIose neiglbor lo Iran.
- ´ -

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Key ratios 2007
GDP/capita ($) 44785
GDP (change) 3%
Inflation 5%
Curr.acc. balance/GDP 43%
Reserves/imports (months) 7
Budget balance/GDP 28%
Government debt/GDP 10%
External Ratings
Moody's: Aa2, stable
S&P: AA-, stable
Fitch: AA-, stable
Peers
Saudi Arabia
UAE
Qatar
Graph: Kuwait scores very high on macrobalance and
liquidity in line with other oil rich countries. High income per
capita gives a higher score than average for resilience.
However, event risk related to geopolitical tensions in the
region pose a threat to stability.
0
2
4
6
8
10
12
14
16
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Average EM Kuwait
How to read the chart?
Moving out from center
reduces the risk.






SEB Merchant Banking Country Risk Analysis January, 2008

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Key data: 2002 2003 2004 2005 2006 2007 2008 2009
GDP/capita (US$) 18898 22713 31050 36737 40561 44785 44897 45123
GDP (change) 3.1% 16.5% 10.5% 9.9% 5.2% 2.8% 4.9% 4.3%
Investments/GDP 17% 21% 29% 31% 41% 48% 54% 56%
Budget balance/GDP 13% 18% 20% 29% 30% 28% 28% 24%
Govt debt/GDP 32% 25% 19% 14% 12% 10% 9% 9%
CPI inflation (%) 0.9% 1.0% 1.3% 4.1% 3.0% 5.4% 3.2% 0.2
Money demand (%) 4.5% 6.2% 11.2% 7.9% 18.3% 16.0% 18.2% 21.2%
Stock prices (%change) 39% 102% 34% 79% -7% 18%
Interest rates 2.5% 2.1% 2.8% 5.6% 5.8% 6.1% 6.3% 6.3
Exch. Rate ($) 0.30 0.29 0.29 0.29 0.29 0.28 0.28 0.2
Trade/GDP (%) 109% 111% 125% 108% 98% 100% 89% 88%
Oil price (Brent) $25 $29 $38 $54 $65 $73 $87 $77
Billions US $
Export of goods 24.9 33.8 51.7 65.6 70.3 79.3 76.4 75.0
Imports of goods 16.5 19.3 22.8 24.6 29.6 35.7 39.7 42.9
Other: 1.1 1.2 1.2 1.2 1.2 1.2 1.2 1
Current account 9.4 18.2 34.3 51.0 50.2 51.6 42.2 37
(% of GDP) 11.2% 19.7% 30.6% 40.9% 50.0% 43.4% 39.5% 31.5%
Net FDI 4.9 -2.5 -4.9 -7.8 -8.8 -8.5 -7.2 -6.9
Loan repayments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net other capital flows -16.0 -15.0 -28.4 -39.4 -31.8 -42.2 -33.9 -28.9
Balance of payments -1.7 0.7 1.0 3.8 9.5 0.9 1.1 1.2
Total debt 13.2 13.2 13.0 13.0 13.0 13.0 13.0 13.0
o/w short term debt 4.1 4.8 5.7 6.1 7.4 8.9 9.9 10.7
Source: OEF (Oxford Economic Forecasting) and SEB estimates
Rating histor
%
%
8
.2
.0
y
Fitch (eoy) AA- AA- AA- AA- AA- AA-
Moody's (eoy) A2 A2 A2 A2 Aa3 Aa2
S&P (eoy) A+ A+ A+ A+ A+ AA-
Type of government: Autocratic monarchy with active Parliament
Next elections 2010
Other:
Latest PC deal None
Recent IMF programs None
I n f l a t i o n
c . o .p 1 2 m o nt h s
S o u rc e : R e u t e r s E c o W i n
0 1 0 2 0 3 0 4 0 5 0 6 0 7
P
e
r
c
e
n
t
0
1
2
3
4
5
6
7
E x c h a n g e r a t e
S o u rc e : R e u te r s E c o W i n
0 2 0 3 0 4 0 5 0 6 0 7
U
S
D
/
K
W
D
0 . 2 7 0
0 . 2 7 5
0 . 2 8 0
0 . 2 8 5
0 . 2 9 0
0 . 2 9 5
0 . 3 0 0
0 . 3 0 5
0 . 3 1 0
S t o c k m a r k e t
S o u rc e : R e ute rs E c oW i n
0 2 0 3 0 4 0 5 0 6 0 7
I
n
d
e
x
1 0 0 0
3 0 0 0
5 0 0 0
7 0 0 0
9 0 0 0
1 1 0 0 0
1 3 0 0 0
M o n e y s u p p l y M 2
c . o . p 1 2 m o n t h s
S o u r c e : R e u te r s E c o W i n
0 2 0 3 0 4 0 5 0 6 0 7
P
e
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c
e
n
t
0 . 0
2 . 5
5 . 0
7 . 5
1 0 . 0
1 2 . 5
1 5 . 0
1 7 . 5
2 0 . 0
2 2 . 5
2 5 . 0







SEB Merchant Banking Country Risk Analysis January, 2008

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