Conduct of Monetary Policy in Kuwait Essay

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Kuwait, the third largest country of the Gulf Cooperation Council (GCC) six-member economies, is in buoyant shape. The removal of a major geopolitical risk from neighbouring Iraq, coupled with recent liberalisation measures have improved business optimism-evident by a surge in private sector investment over the past two years…

Introduction


The International Monetary Fund (IMF) noted: "The fastest pace of economic expansion since the 1990 Gulf war, combined with the oil-related terms of trade gains, has boosted per capita income by 34.5% during 2003-04 and helped build up assets for future generations at a record pace." It added: "With oil prices likely to remain firm over the medium-term, Kuwait's medium-term outlook has improved and is likely to remain favourable, supported by large fiscal and current-account surpluses, and low inflation.
The Kuwait economy is characterized by sound creditworthiness which in turn reflects sustained macroeconomic stability, good governance, twin surpluses (the government budget and current-account), manageable domestic debt (17% of GDP in 2005), the sophisticated banking sector and huge net (official) external assets.
Overall GDP growth has been increasing at a steady rate from 2001 to 2005 due to the stability of the money supply. Through a judicious application of effective open market operations, the central bank was able to mop up excess liquidity in the system resulting in a stable economic growth. The Central Bank of Kuwait (CBK) has imposed a ceiling on the credit to deposit ratio. ...
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