Question

In late February 2020, Kuwait government took some early initiatives to control the Coronavirus pandemic. For Kuwait, the pandemic is considered to be a Double-Edged Sword, as the lower demand for oil has reduce the nation’s income and has paralyzed the domestic economic activities. Despite government support, many companies continue to lay off workers, which may lead to further reduction of national income.

1.         How the virus pandemic has impacted Kuwait’s flows of goods and services and capital assets (capital flows)

2.         Kuwait government took a major economic policy to restrict the expatriate labor to be 30% of the local population. Will this policy be beneficial or detrimental (hurtful) to Kuwait economy in the long and short run? (explain your answer).

Answer 1

1. The virus pandemic has affected almost all parts of the world severly. Many developed and developing countries have announced a country wide lockdown due to which the economic activities of the respective countries have come to a halt. Because of the same, the need for oil and fuel resources have decreased leading to a fall in their demand. Kuwait, whose economy is majorly supported by the export of oil, is not able to supply the same due to which the country's income is facing a major setback. Because of low revenue generation, it is not able to fund its imports ( not able to avail foreign goods and services or the goods and services they necessarily need for the smooth functioning of their economy) and thus, the deficit of the country is increasing.

2. This policy might be beneficial in the short run as due to low revenue of the country, people are facing shortage of money. Expatriating labor will in the short run prevent the businessmen and the employer's expenditure as during these times work is less because of low overseas demand. But in the long run, this will however have detrimental consequences as majority of the working population in Kuwait is foreign/ migrant population. If they are laid off, then it will become very difficult for the local population to meet the labour requirements of the country. Also, the migrant labor is considered to be more skilled and better performers at work than the domestic labour. Switching to domestic labor will lead to a fall in efficiency and decline the quality of output. Aldo, the revenue of the country would be affected in the long run.

The countries from which the laborers migrate to Kuwait might also be offended by this decision. This might also negatively affect their socio-political-economic relationships.