KUWAIT - The Economic Base.

Kuwait's economy has been booming thanks to high oil prices since April 1999. In 1998 it was in recession, as in the case of the other five GCC states, due to a big fall in oil prices. In late 2004 the government announced a windfall for all Kuwaitis with a KD 100 handout to every citizen regardless of age as a "profit share" from the high oil revenue. Employees in KPC and its subsidiaries were told they were to receive an extra month's basic salary as a bonus from high oil prices.

In early 2005 the cabinet approved the state budget for fiscal 2005/06. This projects a deficit of KD 2,330m ($8,034m), up 18% from the 2004/05 budget. Total expenditure is projected to rise almost 11% to KD 6,930m ($23,896m), while total revenues are estimated at KD 4,600m ($15,862m), up 39%, based on an average Kuwaiti crude oil price of $21/barrel. In previous budgets the crude oil price was $15/barrel. Oil income projections of $13,300m mean that about 85% of the state revenues will come from the petroleum sector.

Usually the Kuwaiti government projects budget deficits. But end-of-year balance sheets show a different picture, with the state instead posting large surpluses. With the Kuwaiti crude oil price averaging above $30/barrel, having risen to more than $45/barrel in March and April, the state's revenues in fiscal 2005/06 are likely to reach about $30 billion or more.

The Kuwaiti government is determined to reform the economy and privatise key sectors. Under a five-year plan adopted in 2002, a Secretariat-General for Economic Reforms was established under the chairmanship of then First Deputy Premier and Foreign Minister Shaikh Sabah Al Ahmad Al Sabah - who now is the prime minister. Over 70 companies have been listed for privatisation. They are in the sectors of utilities, telecommunications, goods and services.

The Kuwait Stock Exchange (KSE), one of the largest in the Middle East, is soaring and the main index has shot up since the start of a US-led war in Iraq on March 20, 2003. It has more than tripled since October 2002, with Kuwaitis and foreign investors alike pouring money into stocks, out of relief at the toppling of Saddam's Baathist regime and because of the limited number of other investment opportunities in the country.

Al-Qurain Petrochemicals Co. was established as a public investment vehicle to take minority stakes in Equate Petrochemical Co. and the state's newly formed petrochemical project companies, The Kuwait Olefins Co. (Olefins II) and The Kuwait Aromatics Co (TKAC). The initial public offering (IPO) of shares in Al-Qurain in January 2005 closed 1.4 times oversubscribed. A total of 990m shares were offered to local individuals and institutions in Kuwait's largest IPO to date.

Shares were offered in multiples of 1,000, priced at KD 0.1 ($0.34) per share, plus a KD 0.003 ($0.010) offering charge. A minimum allocation of 1,000 shares was guaranteed to each subscriber, with totals above this amount allocated on a pro-rata basis.

In accordance with local financial regulations, Al-Qurain will have to provide financial statements for one full fiscal year before it can be listed on the KSE. The lead manager on the IPO was National Bank of Kuwait (NBK), which in calendar 2004 had record profits of $515m, up by 24% from 2003.

Waleed Houtti, an executive at the KSE, in May 2003 said: "Before the liberation of Iraq, we were always worried about when Iraq's large army might invade [Kuwait] again. Now everyone feels more secure". Since March 20, 2003, Kuwaitis have poured as much as KD 30 bn (about $100 bn) into the KSE, which is the second biggest in the Arab world after Egypt's.

The KSE has been a barometer of public confidence in the Gulf region since Iraq invaded Kuwait in 1990. Its index weakened when the Bush administration began turning up the pressure on Iraq late in the summer of 2002, but it began a sustained rally in early October, when military action against Saddam's Iraq started to look likely (see Vol. 60, No. 21).