DUBAI: Kuwaiti financial markets were steady on Sunday after the Islamist-led opposition won control of parliament in an election, a victory which could worsen political tensions but conceivably also lead to fresh government spending measures.
The main stock market index, which has been edging up from multi-year lows over the past three weeks, was up 0.03 percent during the early afternoon in fairly active turnover. Trade in the Kuwaiti dinar, which is pegged to a dollar-dominated currency basket, was quiet.
Candidates from the loose, Islamist-led opposition bloc took about two-thirds of the assembly’s 50 seats in Thursday’s election, eroding the position of Shia parliamentarians who had generally sided with the cabinet. The opposition bloc, which had just over 20 seats before the vote, will control the state’s fourth parliament in six years.
Analysts said the election results might deepen political tensions in the country if they emboldened the opposition to push for constitutional changes and challenge the cabinet, which is appointed by a prime minister hand-picked by the ruling family. These tensions led in November to the storming of parliament by opposition lawmakers and protesters, though protests have generally been peaceful.
"The opposition will now feel it has a democratic and moral mandate to push further against the government and what they see as official corruption," said Farouk Soussa, Middle East chief economist at Citi.
He said Kuwait might enter "a period of more messy politics," during which policymaking gridlock and tensions between parliament and the cabinet could continue to deter investment and block big economic development projects, as has been the case for several years.
However, it is possible that the opposition and the cabinet might push for further increases in government spending on welfare projects and infrastructure to ease social discontent, similar to measures introduced by Kuwait and other Gulf governments in the wake of last year’s uprisings in the Arab world. This could stimulate the economy.
If Kuwait did decide on this course, it could probably do so without any serious damage to its finances; the International Monetary Fund estimates that thanks to low costs for exploiting its oil reserves, the Kuwaiti government ran a budget surplus of about 24 percent of gross domestic product last year, by far the highest in the Gulf.
"The main question after the elections is whether anybody who has been newly elected will actually bring about any change," said a Kuwait-based equities trader. "There is an indirect impact on market sentiment, but so far there is no direct impact."
The trader said there was talk in the market of the possibility of the government spending money to help pay the debts of local citizens, as the government of the United Arab Emirates announced last November it would do. But he said it was too early to predict the direction of economic policy.
"It also depends on the type of social spending…If there is more spending on infrastructure and other social projects, then of course this would benefit the economy long-term." –Additional reporting by Andrew Torchia
