(MENAFN- Arab Times) High oil prices drove the current account surplus to a record KD 20 billion in 2011, equivalent to 42% of GDP. A record goods trade surplus more than offset record deficits on services and remittance outflows.
A surge in capital outflows was spearheaded by KD 10 billion of government investments in foreign currencies and deposits. FDI into Kuwait, on the other hand, remained weak.
Central Bank of Kuwait reserves rose by KD 1.2 billion in 2011, well above the 2010 gain of KD 0.2 billion. CBK total reserves closed 2011 at KD 6.4 billion.
Latest data from the Central Bank of Kuwait (CBK) provide evidence of the immense strength of Kuwait's external position. Strong oil revenues in 2011 generated a huge surplus on the current account of the balance of payments. This allowed a further rise in Kuwait's already large stock of foreign assets.
Current account:
The current account surplus recorded a big jump in 2011, reaching an all-time high of KD 20 billion, up from KD 11 billion in 2010 and equivalent to 42% of GDP. This figure exceeded the previous record set in 2008, and stands above the KD 12 billion average of the past five years. (Chart 1.)
Almost all of the increase in the current account surplus came from the surge in the balance on goods, the largest component of the current account. The goods balance rose by some KD 9 bn in 2011 to a record high of KD 23 billion on the back of higher global oil prices. (Chart 1.)
This was mainly driven by a 50% rise in oil exports, which make up more than 90% of total exports. These exports reached a record KD 27 billion in 2011 as Kuwait export crude prices soared to an annual average of $105 per barrel. (Chart 2.) Non-oil exports also rose during the year, by some 25%, but their contribution to total exports remains low at 7%. Imports have continued to pick-up since their fall in 2009, growing by 5% in 2011 to KD 6 billion. However, growth in imports still remains weak compared to its pre-crisis average of 15% (2001-2008).
The services account deficit increased by KD 0.5 billion to KD 2.1 billion in 2011, led by a KD 0.4 billion surge in travel services outflows; the travel deficit is a persistent trend in the services account. (Chart 1.)
Another major contributor to the rise in the current account surplus was investment income (categorized under primary income), which comprises receipts from income-generating assets primarily held by the government. Investment income was up by KD 0.3 billion to KD 3.1 billion. Income from portfolio investments, the largest source of investment income, were actually down by some 10% in 2011, but this decline was more than off-set by a big jump in net income from direct investments which more than trebled. (Chart 3.)
As for the current transfers account deficit (referred to as secondary income), this rose by KD 0.4 billion in 2011 to just above KD 4 billion. (Chart 1.) This account consists mainly of workers' remittances, which were up by around 5.5%, partly reflecting the 2.6% increase in the number of expatriates in the workforce during the year.
Capital and financial accounts:
The combined capital and financial accounts, the flipside of the massive current account surplus, saw their traditional outflow reach a record high of almost KD 17 billion in 2011, about KD 4 billion higher than last year. (Chart 4.) These accounts reflect the net change in ownership of foreign assets â€" the source of potential income in the future. The outflows have continued to increase since their dip following the financial crisis, indicating a recovery in Kuwait's investment overseas.
All of the components of the financial account remain in deficit i.e. Kuwait continues to invest more abroad than it is receiving from overseas.
The deficit in direct investments, which represent major long-term equity stakes, has remained more or less stable at around KD 2 billion. (Chart 5.) Direct investments abroad were up by some 66% to KD 2.4 billion in 2011, which more than off-set a smaller increase of 21% in foreign direct investments in Kuwait to KD 0.1 billion. Although this signals strong investments by Kuwaiti institutions overseas, it also reflects Kuwait's weakness in attracting investments from abroad.
On the other hand, portfolio investments, which represent investments in financial instruments, saw their net outflows fall back to KD 2.6 billion in 2011 from KD 4.8 billion in 2010. (Chart 5.) Most of this decrease in outflows came from reduced investments by Kuwaitis in foreign debt securities, which saw a repatriation in investments of around KD 1.5 billion in 2011.
The other investments account, mostly made up of net overseas loans and investments in shorter-term deposit accounts, were the single biggest source of outflows in 2011. The account saw net outflows rise considerably to KD 12.6 billion from KD 7 billion in 2010. (Chart 5.) This category is especially volatile, but the 2011 outflow is the largest on record.
The increase in outflows came mostly from the government's investments in foreign currencies and deposits which were almost KD 5 billion higher in 2011 than the previous year. This could reflect a shift in the government's accumulation of foreign assets away from debt and equity to lower risk investments.
Other smaller sources of capital flows include the capital account, which saw inflows climb by KD 0.4 billion to almost KD 1 billion in 2011, largely driven by UN compensation payments. (Chart 4).
Reserve assets and balance of payments position:
The CBK accumulated reserves for the eighth consecutive year. This change in reserves, also equivalent to the surplus in the balance of payments, reached an all-time high of KD 1.2 billion in 2011 compared to KD 0.2 billion in 2010.
The broader balance (also known as the overall position of the balance of payments) takes into account changes in the value of foreign assets held not only by the CBK, but also by Kuwait Investment Authority, Kuwait Petroleum Corporation, and Kuwait Airways Corporation â€" representing the country's main foreign reserves. This overall surplus rose to a record KD 13.5 billion in 2011, up from KD 10.5 billion the previous year.
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