Articles 85 and 140-146 of the National Constitution outline budget procedures in the Kuwait. The government proposes a budget to the National Assembly at least two months before the close of each fiscal year. The National Assembly then must approve the annual budget before the close of its eight-month session. In the event that the budget is not approved, the preceding budget is applicable until the new one is issued. Efforts are underway to diversify the revenue base from dependence on international oil prices by introducing a broad-based consumption taxes, removing loopholes on import duties and levying excises on luxury goods. Despite the enormous surpluses of the past five years, the government intends to rein in spending in order to reduce exposure to the volatility of oil prices.
Law 30 of 1964 founded the State Audit Bureau as an independent body attached to the National Assembly. It is required by Article 151 of the Constitution to present an annual audit of state finances to the government and to parliament.
The Central Tenders Committee, which is attached to the Council of Ministers, administers all public tenders. The Commercial Law 36/1964, amended by Law 68/1980, requires that foreign companies may only sell to ministries through a Kuwaiti company or an agent who is a Kuwait citizen.
The Central Bank of Kuwait, established in 1968, is the backbone of financial management in the country. The International Monetary Fund has advised that its regulatory authority over commercial banks have independent legal status. Among its many objectives the Central Bank directs credit policy. Monetary policy is prudent, and inflation averaged below an annual 2 percent from 2000 to 2003. The Central Bank imposed a ceiling on the commercial banks’ credit to deposits ratio in 2004 as a precaution against a potential stock market bubble.
Seven major commercial banks provide a wide array of financial services. Non-performing loans constitute less than 6 per cent of their total loans, and they are almost fully provisioned, the rest being amply covered by the banks’ capital. No single individual is permitted to own more than 5% of the capital of any Kuwaiti bank without the prior approval of the Central Bank of Kuwait. In addition to these banks, the Kuwait Finance House, a public shareholding company 49% of which is owned by the government, is the country’s first Islamic Bank. It works to provide an environment where “financial acumen goes hand-in-hand with Islamic principles.” Its services include accounts and deposits, foreign remittances, safe deposit boxes, and letters of guarantee. An Islamic banking law passed in April 2003 brought the Kuwait Finance House under the supervision of the Central Bank and opened the way for an additional Islamic bank to be approved a year later and for other Kuwaiti banks to open Islamic branches. The Banking Law was amended in January 2004 to allow foreign banks to operate in Kuwait. A legal amendment to Law 32/1968, also passed by parliament in January 2004, enables foreign banks to establish local branches.
Law 35 of 2002 strengthened Kuwait’s Anti-Money Laundering system, and measures have been taken against the abuse of charitable organizations. The National Committee on AML was reorganized in April 2004.
The Foreign Investment Law 8/2001, which permits foreigners up to one hundred percent ownership of Kuwaiti companies, came into effect in 2003, but the public sector still dominates the Kuwait economy. Its share of GDP is triple that of the private sector and has not diminished in recent years.
The Kuwait Stock Exchange (KSE) was initially established in 1977 and reopened in 1992 in the aftermath of the Iraqi invasion, during which time there was a great deal of rethinking, restructuring, and rebuilding of the business sector through mergers, acquisitions, and liquidations. The KSE recovered strongly after it adopted an automated trading system in 1995. In 1999, Jordan and Kuwait signed a memorandum of understanding that permitted cross-listing on their respective stock exchanges, and foreigners have been permitted to trade in Kuwaiti stocks since 2000.
Market capitalization at the end of 2004 was KD 21.7 billion ($78.3 billion), 142% of GDP, and 125 companies were listed on the exchange. The turnover ratio of traded stock was 89.8% in 2003. Trading volumes soared until the Central Bank introduced limits on consumer credit to slow the market's growth. The KSE index has increased almost ten-fold since 2000, corresponding to the persistence of high oil revenues and government surpluses, to reach record highs above 11,000 in late 2005 and early 2006. The index grew more rapidly than the market value of the listed companies, however, because it is not value-weighted.
A draft Capital Markets Law, under discussion since 2004, would establish an independent regulatory authority to improve corporate disclosure, control insider trading, and to meet international standards for emerging markets.
The Kuwait Institute of Scientific Research (KISR) is a non-profit government research and policy institute focusing on technological and economic issues. It was created in 1972 as an offset program with the Japanese Arab Oil Company and given the status of national research center by an Emiri Decree in 1981. KISR conducts and disseminates applied research to support national economic, industrial and technological development.
The Kuwait Economic Society, founded as a public welfare society in 1970, sponsors conferences on the Kuwaiti economy and presents thoughtful commentaries on issues of financial transparency and corruption.
The Institute of Banking Studies works for education, institutional training, research and special programs and offers analyses of the commercial banks in all of the GCC.
International Transparency Standards
Kuwait has participated in the IMF’s General Data Dissemination System since 2000 and permits publication online of the IMF's annual Staff Report on Article IV Consultations. Kuwait has also engaged with the IMF and World Bank in publishing Reports on the Observance of Standards and Codes (ROSC) for banking supervision, securities regulation, and combating money laundering and terrorist financing.
Both Moody’s and Standard and Poor’s have rated the country.