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Kuwait

Kuwait
Score Rank
Financial Standards Index 22.50 out of 100 74
Business Indicator Index 8.40 out of 12 55

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Overall Standards Summary

Kuwait achieves low overall compliance with international standards and codes, with a score of 22.5 out of 100 in our Standards Compliance Index. The highest level of compliance received is Compliance in Progress for the banking supervision standard. The International Monetary Fund (IMF) in a 2004 Financial System Stability Assessment report noted that banking sector regulation and supervision in Kuwait was strong and effective and broadly in accordance with the Basel Core Principles for Effective Banking Supervision. Kuwait has also enacted the international standards on accounting and auditing. All corporate entities in Kuwait are required to apply International Financial Reporting Standards for the purposes of financial reporting. However, accounting and auditing standards are not fully complied with, and the IMF has recommended that the regulator build capacity to ensure compliance. The Financial Action Task Force has reported that Kuwait is one of the jurisdictions which have undertaken measures to implement the FATF’s forty recommendations and nine special recommendations, but at present major deficiencies persist in Kuwait’s anti-money laundering and combating the financing of terrorism framework. For the eight remaining standards Kuwait is either not compliant or there is insufficient information available to judge the compliance level.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
NC
Code of Good Practices on Transparency in Monetary Policy
II
Code of Good Practices on Transparency in Fiscal Policy
II
Effective Insolvency and Creditor Rights Systems
NC
International Financial Reporting Standards
EN
Principles of Corporate Governance
II
International Standards on Auditing
EN
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
II
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
NC
Insurance Core Principles
NC
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

NCSpecial Data Dissemination Standard

Kuwait's principle statistics agency is the Central Statistics Office (CSO), which was created by the passage of Law No. 27 of 1963. The other two principle agencies involved in the compilation and dissemination of statistics are the Ministry of Finance (MoF) and the Central Bank of Kuwait (CBK). The country is not a member of the International Monetary Fund's (IMF) Special Data Dissemination Standard, but participates in the less rigorous General Data Dissemination System. While the IMF's 2009 Article IV Consultation report found Kuwait's statistics to be adequate for purposes of surveillance, it noted that improvements are required to address issues of timeliness and coverage. Monetary and financial data appear to have shown relatively greater improvements than other datasets. A key deficiency in the statistical regime is inadequacies in the coordination of the major statistics agencies. All three principle agencies maintain websites on which the public may access official data. Both the CSO and CBK have legislation guaranteeing confidentiality of individual data. The MoF does not, but in practice it has a policy of punishing violations of confidentiality by its staff. None of the agencies produces advance-release calendars. In most cases there is simultaneous release of data to all interested parties. The CSO has posted plans on the GDDS website to upgrade its staff training and equipment for data processing and to improve the statistical frames it uses in order to improve the quality of its data. The CBK continues to monitor its data requirements in order to make changes as required. The MoF plans website improvements to further enhance its dissemination of fiscal data and to provide information on the accounting and methodological practices it employs.

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IICode of Good Practices on Transparency in Monetary Policy

The Central Bank of Kuwait (CBK) was established as the country's monetary authority with the passage of Law No. 32 of 1968. Provisions of that Law, as well as a few provisions contained in the 1962 Kuwaiti Constitution, set forth the roles and responsibilities of the CBK with regard to monetary policy. However, there is no authoritative source that speaks directly to Kuwait's overall compliance with the International Monetary Fund's (IMF) Code of Good Practices on Transparency in Monetary Policy. The CBK website provides public access to the text of its enabling legislation, and to a wide range of daily, monthly, quarterly, and annual reports that touch upon monetary policy. However, there is no access to the minutes of CBK board meetings or to the details of the decision-making process vis-à-vis monetary policy. Kuwait is not a subscriber to the IMF's Special Data Dissemination Standard, but participates in the less rigorous General Data Dissemination System.

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IICode of Good Practices on Transparency in Fiscal Policy

There is little publicly available information directly addressing Kuwait's compliance with this standard or with its constituent principles. Since 2002, Kuwait has participated in Article IV Consultations with the International Monetary Fund (IMF), and in each year's consultation report the IMF has encouraged Kuwait to adopt the practices recommended in its Code of Good Practices on Transparency in Fiscal Policy. However, none of the reports specifically address the question of whether Kuwait has in fact adopted such practices. The primary legislation governing Kuwait's budget practices consists of the country's 1962 Constitution and Decree Law No. 31 of 1978. Legislative reforms that might address issues of fiscal transparency have been slowed by political considerations. The IMF noted that contentiousness between the cabinet and parliament has led to cabinet resignations over the past two years, slowing the legislative process. Nonetheless, some progress has been achieved. A Memorandum of Understanding was signed in December 2006 which dealt with enhancing transparency, accountability, and service delivery. In 2008 the Council of Ministers followed-up by passing a resolution to create a cross-agency team that would work with World Bank consultants to draft anti-corruption regulations, whistle-blower protections, and an enforcement agency.

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Institutional and Market Infrastructure

NCEffective Insolvency and Creditor Rights Systems

As a member state within the Middle East and North Africa (MENA) region, Kuwait exhibits some of the same shortcomings in its insolvency regime as its neighbor states. According to the Working Group on Corporate Governance (WGCG), in a 2007 report published following meetings organized by the MENA-Organization for Economic Cooperation and Development (OECD) Investment Program and the Hawkamah Institute of Corporate Governance, these shortcomings include inadequacies in both the legislative and institutional frameworks of MENA states, a need to better balance creditor and debtor interests, the lack of a formal, professional class of insolvency practitioners to serve as trustees or advisors in insolvency procedures, and the need to create out-of-court alternatives to resolution of insolvency issues, including rescue and restructuring. The WGCG report does not specifically single Kuwait out for particular analysis with regard to its insolvency and creditor rights regime. However, subsequent information released in 2009 points out that in a survey, which was based on the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank and conducted by Hawkamah (with the participation of the World Bank and the OECD), Kuwait achieved a score of 104 out of 155, which is below the OECD average of 124, but above the MENA average of 88. The survey also concluded that the primary shortcomings of the insolvency and creditor rights systems in the MENA region can be summarized as an overall failure to comply with international best practice, insufficiencies in the areas of enforcement and legislation, inadequate regulation of insolvency practitioners, antiquated legislation, and the persistence of stigma attached to insolvency. Kuwait is not a signatory of signed the Hawkamah Declaration on Insolvency and Creditor-Rights Systems for the Middle East and North Africa, which calls upon signatories to acknowledge that sound insolvency and creditor rights systems are important to regional capital market and private sector development and to modernize such systems in the MENA region so that they comport with international best practices and standards.

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ENInternational Financial Reporting Standards

A 2004 International Monetary Fund (IMF) assessment notes that, pursuant to Ministry of Commerce and Industry regulations, all corporate entities in Kuwait are required to apply International Accounting Standards (now known as International Financial Reporting Standards, or IFRSs) for the purposes of financial reporting. A 2007 Kuwait Association of Accountants and Auditors (KWAAA) self-assessment explains that Kuwait adopts IFRSs with the same effective dates as those prescribed by the International Accounting Standards Board. As far as enforcement is concerned, the 2004 IMF report points out that accounting and auditing standards are not fully complied with, and recommends that the regulator build capacity to ensure compliance. Nevertheless, enforcement of IFRSs in Kuwait is more efficient than in other Gulf Cooperation Council member states, concludes a 2007 study by Al-Shammari, Brown and Tarca.

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IIPrinciples of Corporate Governance

While listed entities and financial companies subject to supervision by the Central Bank of Kuwait (CBK) have adequate basic governance arrangements, according to a 2004 International Monetary Fund report on the Kuwaiti financial system, the report also points out that corporate governance principles have not yet been fully addressed in Kuwait and serious gaps remain. The report recommended strengthening minority shareholders’ protection and raising awareness and understanding of standards of disclosure, governance, the liability of the Board of Directors, and the role of auditors. The assessment also raised the possibility of amending the Commercial Companies Law. Overall, however, the publicly available information does not directly address Kuwait’s compliance with the Organization for Economic Cooperation and Development principles of corporate governance.

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ENInternational Standards on Auditing

According to a 2004 International Monetary Fund (IMF) detailed assessment for securities supervision in Kuwait, Ministry of Commerce and Industry (MOCI) regulations require that financial statements be prepared and audited in line with international standards on accounting and auditing. A 2007 Kuwait Association of Accountants and Auditors (KWAAA) self-assessment confirms these findings and explains that International Standards on Auditing (ISAs) and other pronouncements as issued by the International Auditing and Assurance Standards Board (IAASB) are mandatory for listed as well as unlisted companies. However, the 2004 IMF report points out that accounting and auditing standards are not fully complied with and recommends that the regulator build capacity to ensure compliance.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

There is no comprehensive assessment of Kuwait's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the Financial Action Task Force's (FATF) recommendations. According to a 2004 IMF assessment, despite improvements, major deficiencies persist in Kuwait’s AML and CFT framework. Kuwait enacted Law No. 35 in 2002 which criminalizes money laundering. However, the law does not include terrorist financing as a crime. In its 2004 assessment, the IMF noted that the Kuwaiti financial intelligence unit, the Kuwait Financial Inquiries Unit within the Central Bank of Kuwait, needs to be restructured so as to give it greater independence, including the capacity to cooperate with foreign counterparts. A 2009 U.S. Department of State (DoS) report points out that the government of Kuwait is aware of these weaknesses and, therefore, a revision of Law No. 35 has been drafted. The draft law was referred to the Council of Ministers on August 18, 2008 and is pending cabinet approval and ratification by Kuwait’s National Assembly. Furthermore, a 2008 Financial Action Task Force (FATF) report lists Kuwait as one of the jurisdictions which have undertaken measures to implement the FATF’s 40 recommendations and 9 special recommendations. Kuwait is a party to the 1988 United Nations (UN) Drug Convention, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. However, it is not a party to the UN Convention for the Suppression of the Financing of Terrorism.

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IICore Principles for Systemically Important Payment Systems

Launched on August 5, 2004, Kuwait’s Automated Settlement System for Inter-participant Payments (KASSIP), is a real-time gross settlement system used mainly for inter-bank large value settlement. The Central Bank of Kuwait (CBK) operates and supervises the KASSIP and considers the system “in compliance with the core principles of the Bank for International Settlements' Committee on Payment and Settlement Systems (CPSS).” However, a 2008 report by Cirasino and Garcia does not come to the same conclusion. In fact, the report does not give favorable marks to the legal and regulatory framework for payment systems in the country. Based on the results of the World Bank’s 2008 Global Payment Systems Survey, Cirasino and Garcia’s 2008 report evaluates a country's compliance with four distinct sub components which are broadly based on the CPSS' Core Principles for Systemically Important Payment Systems. The component, "large value payment systems" addresses aspects of Core Principles (CP) III through CP X and the 2008 report by Cirasino and Garcia concludes that Kuwait achieves a "medium-high level of development" for this component. Kuwait achieves "medium-low level of development" for the legal and regulatory framework component, which covers CP I and to some extent CP II. Finally the third component of interest in the Cirasino and Garcia report is the payment system oversight component for which Kuwait achieves a "low level of development." A 2008 World Bank publication on payment systems worldwide mentions that Kuwait is reforming its payment systems and relevant legal framework to reduce systemic risk, improve overall efficiency, and provide better services for users.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

According to a 2004 Financial System Stability Assessment (FSSA) report published by the International Monetary Fund (IMF), banking sector regulation and supervision in Kuwait was strong and effective and broadly in accordance with the Basel Core Principles (BCPs) for Effective Banking Supervision. Further, Kuwait was fully or largely compliant with almost all of the BCPs. The areas where Kuwait was found non-observant included the operational independence of the Central Bank of Kuwait, the country's banking sector supervisor, its licensing and remedial powers and powers of consolidated supervision, and supervisory cooperation and information exchange. The World Bank and the IMF also offered to provide technical assistance to Kuwait to implement the recommendations of the FSSA, if so requested. The IMF did acknowledge that an amendment to the key banking sector law, the Central Bank Law (Law No. 32 of 1968), which was under consideration by the Kuwaiti parliament, would implement the FSSA recommendations and further strengthen an already broadly sound supervisory regime. The amended law, Law No. 28 was enacted in January 2004, shortly after the IMF assessment; however, no further information on its effectiveness in addressing the FSSA's recommendations is publicly available.

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NCObjectives and Principles of Securities Regulation

A detailed assessment published in 2004 by the International Monetary Fund (IMF) on Kuwait's securities regulation concludes that Kuwait has partly implemented 25 International Organization of Securities Commissions Principles for effective securities regulation and not implemented the remaining five. Qualifying the above statement, the IMF observes that the securities regulatory environment generally does not meet the preconditions required by the IOSCO Objectives and Principles and leaves significant gaps in the overall framework. The main weakness identified by the assessment is the absence of a distinct, single, and independent regulatory agency for securities supervision, which has the mandate to oversee the entire capital market in the country. Of further concern is the fact that the plethora of laws, regulations, and circulars haphazardly issued by the various regulatory bodies does not form a cohesive legal and regulatory framework seamlessly governing the securities market. Since the key securities law, which was enacted in 1983, was a response to the market crash of 1982, it does not respond to the ever-evolving and developing market in Kuwait. The IMF therefore advises creating an integrated securities regulator as well as the passage of a Capital Markets Law to guarantee the independence and powers of the new supervisor, and stipulate provisions on insider trading, market manipulation, rights of minority shareholders, entry standards for market intermediaries, prudential regulations, and supervisory coordination and information exchange. The IMF also recommends enhancing surveillance, allowing product diversification in the market, providing the stock exchange with self-regulatory powers, and liberalizing foreign participation in the sector. In 2009, per an IMF report of the same year, Kuwait passed a Financial Stability Law to respond to the global financial crisis, although this law does not answer the concerns of the 2004 IMF assessment.

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NCInsurance Core Principles

Kuwait has a small insurance sector with an underdeveloped legal, regulatory, and supervisory framework. It is governed by the Insurance Law of 1961 that lacks the key elements of a modern supervisory regime. These conclusions were reached by an informal International Monetary Fund (IMF) review of the country's insurance sector with regard to its observance of the Insurance Core Principles (ICPs) conducted during a Financial Sector Assessment Program (FSAP) team visit to Kuwait in 2003. The insurance sector supervisor, the Department of Insurance (DI), housed within the Ministry of Commerce and Industry (MOCI), does not have sufficient powers, mandate, or capacity to conduct effective surveillance and risk-based supervision of the entities it regulates. Further, although regulations regarding financial reporting, on-site inspections, and capital adequacy are adequate, the law focuses on compliance rather than risk based supervision. The IMF calls for the establishment of an independent supervisory agency to strengthen supervision and enhance supervisory independence. In the near term, the IMF recommends enhancing the capacity of the DI. A World Bank and International Bank for Reconstruction and Development report from 2004, summarizing the conclusions of the same FSAP, also recommends the enactment of a new law that is designed in accordance with the ICPs and establishes the independence of the supervisor. A 2009 report on Kuwait by the Oxford Business Group, while reiterating the need for a new law and an enhanced regulatory and supervisory framework, mentions the expected implementation of a pan-Gulf Cooperation Council insurance law that will be compliant with international standards.

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Business Indicators

With an overall score of 8.4/12, Kuwait is progressing toward standard on the economic, legal, and political indicators that make up our Business Index. Kuwait has a market-based economy, which is small and relatively open. Kuwaiti GDP is heavily dominated by the oil sector, which contributes nearly 45 percent. Oil accounts for 95 percent of export revenues and between 90 and 95 percent of government revenues. Kuwait imposes significant restrictions on foreign investments. Although open to some types of foreign investment, certain sectors are restricted or even closed, particularly in the area of the oil and gas industries. There is no individual or domestic business income tax. Corporate taxes levied against foreign-owned businesses can top out at 55 percent. Foreign ownership of natural resources is forbidden by the constitution. Foreigners can own stocks but are generally not permitted to own real estate. The 2009 Background Note by the U.S. Department of State describes Kuwait as "a constitutional, hereditary emirate." Corruption is manageable as reflected in Kuwait's ranking in the top half of Transparency International's Corruption Perception Index.

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Global Indices & Quick Facts

Kuwait is ranked from the 1st to 4th quintile in global indices measuring economic, political, business, and human development, as shown below. In general, Kuwait earns higher scores in the economic and business realms than it does in the area of political freedom. Despite having a very high per-capita income, Kuwait finds its rates of education and life expectancy comparatively lower, leading to a 2nd-quintile placing in the UN's Human Development Index. Political rights are low by international standards, but relatively high compared to other countries in the Middle East. Women gained the right to vote in 2006 and several have taken positions in local government. While the ruling family has shown increasing tolerance for the formation of new political parties, some of the most successful have been Islamist groups seeking to reverse gains made by women. Kuwait performs relatively well in the areas of economic freedom and doing business. Low taxes and openness to immigration have led to a high number of migrant workers, but this has led to some social tensions and cultural clashes with Kuwaitis.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010 56/128 5.91/10 3
Heritage Foundation Economic Freedom Index 2010 42/179 67.7% 2
Economic Freedom of the World Index 2009 30/141 7.46/10 2
World Economic Forum Global Competitiveness Index 2009 39/133 4.53/7 2
Milken Institute Capital Access Index 2009 31/122 6.1/10 2
World Bank Ease of Doing Business Index 2009 61/183 N/A 2
UNDP Human Development Index 2009 31/177 0.92/1 1
Transparency International Corruption Perceptions Index 2009 66/180 4.1/12 2
Freedom House Index 2009 Partly Free 4/7

Credit Ratings

AA/Stable Fitch

Aa2/Negative Moody's

AA-/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 114.9 billion USD (IMF)

2009 GDP (Per Capita): 32,491 USD (IMF)

2010 GDP (Growth Forecast): 3.3% (IMF)


2009 Inflation (CPI): 4.6% (IMF)

2008 Unemployment: 2.2% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 0.1 billion USD (UNCTAD)

FDI (Outward): 8.50 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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