2013 Index of Economic Freedom

Kuwait

overall score63.1
world rank66
Rule of Law

Property Rights50.0

Freedom From Corruption46.0

Limited Government

Government Spending61.5

Fiscal Freedom99.9

Regulatory Efficiency

Business Freedom57.7

Labor Freedom62.8

Monetary Freedom71.6

Open Markets

Trade Freedom76.8

Investment Freedom55.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 3.7 million
  • GDP (PPP):
    • $153.5 billion
    • 8.2% growth
    • 3.1% 5-year compound annual growth
    • $41,691 per capita
  • Unemployment:
  • Inflation (CPI):
    • 4.7%
  • FDI Inflow:
    • $398.6 million
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Kuwait’s economic freedom score is 63.1, making its economy the 66th freest in the 2013 Index. Its score is 0.6 point higher than last year, reflecting a notable improvement in control of government spending that offsets declines in business freedom and trade freedom. Kuwait is ranked 7th out of 15 countries in the Middle East/North Africa region.

Kuwait’s progress toward greater economic freedom has been uneven, and the transition to greater openness and diversification has been challenging. Despite efforts to modernize and diversify the economy, oil production remains dominant. The private sector is largely dependent on government spending and expatriate labor, with the labor market highly segmented. About 80 percent of the labor force is employed in the public sector, while expatriates are employed mostly in the small private sector. Little progress has been made in implementing the privatization law that was passed in 2010.

Although Kuwait performs relatively well in many aspects of economic freedom, institutional deficiencies stemming from state bureaucracy and lingering corruption continue to constrain overall freedom. The judicial system, which remains vulnerable to political influence, lacks transparency and is unable to defend property rights effectively.

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Background

Amir Sabah al-Ahmad al-Jabr Al Sabah remains committed to cautious economic reform but is opposed by Islamist and populist members of parliament. During the “Arab Spring” of 2011, young activists called for anti-corruption and political reforms, and stateless Arabs resident in the kingdom demanded citizenship and jobs. A new parliament that includes more Islamists was elected in February 2012. Kuwait controls roughly 9 percent of the world’s oil supply, and oil accounts for nearly 50 percent of GDP and 95 percent of export revenues. In 2010, the government initiated a five-year, $130 billion economic development plan designed to diversify the economy so as to reduce dependence on oil revenues, strengthen the private sector, and attract foreign investment. Rising oil prices in 2011 boosted the economy and increased government revenue by 20 percent.

Rule of LawView Methodology

Property Rights 50.0 Create a Graph using this measurement

Freedom From Corruption 46.0 Create a Graph using this measurement

The legal framework is not well developed, and the rule of law remains weak. The constitution provides for an independent judiciary, but the amir appoints all judges. The inefficient court system is susceptible to political pressures. Corruption continues to erode the foundations of economic freedom. In June 2012, the Constitutional Court nullified elections held after 13 members of the previous parliament were accused of corruption.

Limited GovernmentView Methodology

Kuwait does not tax individual income. In practice, foreign-owned firms and joint ventures are the only businesses subject to the flat 15 percent corporate income tax. Duties on international trade and transactions account for most other tax revenue. Government spending equals 35.8 percent of GDP, and public debt is less than 10 percent of GDP. Strong revenues from oil allow tax rates to be kept low while maintaining government revenue.

Regulatory EfficiencyView Methodology

Progress in regulatory reform has been gradual and uneven. Starting a business takes more than the world average of 30 days. Bureaucratic hurdles still add to the cost of completing licensing requirements. Labor regulations lack flexibility, and the labor market remains highly segmented. Inflation has been noticeable, and the government provides numerous subsidies and controls prices through state-owned utilities and enterprises.

Open MarketsView Methodology

The trade-weighted average tariff rate is 4.1 percent, and burdensome non-tariff barriers increase the cost of trade. Foreign investment is welcome, but bureaucracy hinders the dynamic growth of new investment. The financial sector continues to evolve. With non-performing loans declining, the banking sector remains well capitalized. The newly established Capital Markets Authority took on a supervisory role in September 2011.

Country's Score Over Time

Bar Graph of Kuwait Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Kuwait to other economic country groups

Regional Ranking

rank country overall change
1Bahrain75.50.3
2Qatar71.30.0
3United Arab Emirates71.11.8
4Jordan70.40.5
5Oman68.10.2
6Israel66.9-0.9
7Kuwait63.10.6
8Saudi Arabia60.6-1.9
9Morocco59.6-0.6
10Lebanon59.5-0.6
11Tunisia57-1.6
12Yemen55.90.6
13Egypt54.8-3.1
14Algeria49.6-1.4
15Iran43.20.9


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