## 1kwtea2026001-source-pdf

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### Developments, outlook, and risks
- Recent performance:
  - Real GDP: -1.7 percent in 2023; -2.6 percent in 2024; expanded by 1.7 percent (y-o-y) in 2025Q2.
  - Non-oil growth: 3.1 percent (y-o-y) in 2025Q2.
  - Headline CPI inflation: 2.9 percent in 2024; 2.4 percent (y-o-y) in November.
  - Employment growth: 3.4 percent in 2024, down from 7.5 percent in 2023.
- Outlook (baseline/current policies):
  - Real GDP projected: 2.6 percent in 2025; 3.8 percent in 2026; stabilize just above 2.0 percent over the medium term.
  - Oil sector growth: 2.4 percent in 2025, 4.7 percent in 2026, 2.0 percent in 2027.
  - Non-oil growth: 2.7 percent in 2025, 3.0 percent in 2026, 3.0 percent in 2027; medium-term non-oil potential 2.7 percent.
  - Headline CPI inflation projected: 2.3 percent in 2025; 2.1 percent in 2026; stabilizing just below 2.0 percent over the medium term.
  - Current account surplus: 23.6 percent of GDP in 2025; 19.6 percent of GDP in 2026; gradual decline thereafter.
- Risks:
  - External: commodity price volatility, global growth slowdown or acceleration, shifts in global financial conditions (transmitted mainly via oil prices and OPEC+ production).
  - Domestic: pace of structural reforms and implementation of infrastructure projects to diversify the economy.
  - Overall risk assessment: "broadly balanced."

### Fiscal developments, projections, and policy recommendations
- Recent fiscal outcomes:
  - Budgetary central government fiscal deficit narrowed to 2.2 percent of GDP in FY2024/25 from 3.1 percent of GDP in FY2023/24.
  - General government fiscal surplus widened to 27.7 percent of GDP in FY2024/25.
- Fiscal projections (budgetary central government):
  - Fiscal deficit projected: 8.7 percent of GDP in FY2025/26; 9.4 percent of GDP in FY2026/27; widen over the medium term; reach 11.5 percent of GDP by FY2031/32.
  - Gross government debt projections: 14.7 percent of GDP (2025), 24.2 percent of GDP (2026), 28.9 percent of GDP (2027); projected to rise to 36.3 percent of GDP by FY2031/32.
  - Financing needs: additional net financing of 32.0 percent of GDP required to fund budgetary central government fiscal deficits from FY2025/26 through FY2031/32.
- Government finance table (Percent of GDP):
  - Revenue: 76.6 (2023), 74.4 (2024), 77.6 (2025), 76.1 (2026), 75.4 (2027)
  - Oil revenue: 71.7 (2023), 68.4 (2024), 70.9 (2025), 68.9 (2026), 68.1 (2027)
  - Non-oil revenue: 4.8 (2023), 5.9 (2024), 6.7 (2025), 7.2 (2026), 7.4 (2027)
  - Expenditure: 48.3 (2023), 48.2 (2024), 50.5 (2025), 51.1 (2026), 51.0 (2027)
  - Net lending (+) / borrowing (−): 28.2 (2023), 26.1 (2024), 27.1 (2025), 25.0 (2026), 24.4 (2027)
  - Budgetary central government balance: 0.9 (2023), -2.4 (2024), -7.1 (2025), -9.3 (2026), -9.8 (2027)
  - Gross government debt: 3.1 (2023), 2.9 (2024), 14.7 (2025), 24.2 (2026), 28.9 (2027)
- Policy recommendations (summary):
  - Gradual fiscal consolidation at about 1 percent of GDP per year over the next decade to achieve long-term fiscal sustainability.
  - Mobilize non-oil revenue:
    - Extend the 15 percent CIT to all domestic companies.
    - Introduce the GCC-wide excise tax and a 5 percent VAT.
  - Rationalize the public sector wage bill:
    - Introduce a performance-based public sector wage setting mechanism to gradually reduce the large premium over the private sector.
    - Institute a hiring cap to steadily lower the public sector employment share.
  - Reform energy subsidies:
    - Gradually raise retail fuel, electricity and water prices towards their GCC-average levels while providing targeted cash transfers to vulnerable groups.
  - Increase on-budget public investment:
    - Scale up on-budget public investment by around 2 percent of GDP over the medium term (also recommended: scale up on-budget public investment at about 0.6 percent of non-oil GDP (0.4 percent of GDP) per year in reform scenario).
  - Public financial management reforms:
    - Develop a medium-term fiscal framework including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance.
    - Undertake periodic public investment management assessments; publish a medium-term debt management strategy including a bond issuance calendar; develop a sovereign asset-liability management framework.

### Tax, expenditure, and quantitative reform scenario (GCC-DSGE model)
- Consolidation pace recommended:
  - About 1.6 percent of non-oil GDP (1.0 percent of GDP) per year until the PIH fiscal balance target is achieved.
- Revenue measures:
  - Extend the 15 percent CIT to all domestic companies.
  - Introduce the GCC-wide excise tax and a 5 percent VAT (implementation plans under development).
- Public sector wage bill measures:
  - Performance-based wage setting, constrain wage growth below inflation, apply a hiring cap (limiting recruitment to retirements), streamline allowances or integrate into base salaries.
- Energy subsidy reform:
  - Reduce energy subsidies at a pace of about 0.8 percent of non-oil GDP (0.5 percent of GDP) per year.
  - Provide targeted transfers via the existing social assistance system; enhance electricity generation and distribution efficiency.
- Public investment in reform scenario:
  - Scale up on-budget public investment about 0.6 percent of non-oil GDP (0.4 percent of GDP) per year and administer more public investment projects on-budget.
- Reform scenario assumptions (selected, phased linear changes):
  - Permanent 2.5 percent of GDP reduction in compensation of government employees over 5 years.
  - Permanent 2.5 percent of GDP reduction in hydrocarbon consumption subsidies over 5 years.
  - Permanent 2.0 percent of GDP increase in public investment over 5 years.
  - Permanent 5 percent excise tax on alcohol, pork, sugary drinks and tobacco phased over 2 years from 2026.
  - Permanent 5 percent VAT phased over 2 years from 2028.
  - Structural reform induced permanent 2.7 percent increase in labor productivity over 5 years.
  - Confidence-induced permanent increases: 2.0 percent in private consumption, 8.0 percent in residential investment, 8.0 percent in business investment over 5 years.
- Simulated fiscal balance deviations (deviations from baseline, Total deviations):
  - Millions of Kuwaiti dinars (years 2025–2030): 0, 320, 869, 1,566, 2,368, 3,000
  - Percent of GDP (years 2025–2030): 0.00, 0.66, 1.70, 2.94, 4.24, 5.16
  - Percent of non-oil GDP (years 2025–2030): 0.00, 1.04, 2.67, 4.58, 6.60, 7.98

### Public financial management, sovereign ALM, and transparency
- Recommended PFM actions:
  - Develop a medium-term fiscal framework and fiscal rules; expand fiscal accounts coverage to general government level; improve timeliness of reporting.
  - Conduct periodic public investment management assessments; publish a medium-term debt management strategy including a bond issuance calendar.
- Sovereign asset-liability management:
  - Develop a sovereign asset-liability management framework; compile and report the public sector balance sheet.
- Observations:
  - KIA assets estimated at 640 percent of GDP at end-2025, up from 605 percent of GDP at end-2024.
  - KIA investment income contributed to 24.3 percent of GDP in FY2023/24.
  - Increasing share of off-budget public investment raises potential contingent liabilities; KIA balance sheet not published (requires constitutional amendment).

### Sovereign assets, debt issuance, and public balance sheet
- Sovereign assets and fiscal flows:
  - Official reserve assets: US$40.8 billion at end-2025; equivalent to 7.0 months of projected imports or 104.2 percent of the ARA metric.
  - Official reserve assets (months of imports): 9.3 (2023), 8.1 (2024), 7.0 (2025), 7.1 (2026), 7.2 (2027).
  - Gross external debt: 39.0 (2023), 41.3 (2024), 37.1 (2025), 43.4 (2026), 46.0 (2027) (Percent of GDP).
- Sovereign debt issuance in 2025:
  - Domestic bonds placed: 4.6 percent of GDP.
  - External bonds placed: 7.2 percent of GDP.
  - Purposes: finance budgetary central government fiscal deficits, replenish the General Reserve Fund (GRF) managed by the KIA, develop the domestic debt market, and establish a benchmark sovereign yield curve.

### Monetary policy, financial sector, and market development
- Exchange rate and external position:
  - The exchange rate peg remains an appropriate nominal anchor for monetary policy.
  - External position in 2025 was "substantially weaker than the level implied by medium-term fundamentals and desirable policies," reflecting excessive reliance on oil exports and inadequate public and private saving of oil revenue.
- Financial stability and supervision:
  - Systemic risk remains contained and prudently managed.
  - With a credit cycle upturn, CBK should consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer.
  - Real Estate Financing Law will permit banks to offer mortgage loans for the first time; CBK should review regulatory perimeter and macroprudential toolkit.
  - Continue risk-based supervisory approach.
- Banking and monetary aggregates (percent change / levels preserved):
  - Credit to nonfinancial private sector: 1.8 (2023), 5.2 (2024), 6.8 (2025), 6.1 (2026), 5.8 (2027)
  - Broad money: M2: 1.0 (2023), 4.3 (2024), 3.6 (2025), 4.8 (2026), 5.3 (2027)
  - Policy rate (period average): 2023 = 4.1; 2024 = 4.2; 2025 = 3.9
  - Banking sector metrics (2024): Common equity Tier 1 capital to risk-weighted assets = 15.0; Regulatory capital to risk-weighted assets = 19.4; Tier 1 capital to assets = 11.7; Liquidity coverage ratio = 163.9; Liquid assets to short term liabilities = 22.8; Return on assets = 1.9; Return on equity = 14.2; Non-performing loans to total gross loans = 1.5; Provisions to non-performing loans = 47.2.

### Structural reforms, labor market, and diversification
- Reform priorities:
  - Implement a comprehensive and well-sequenced structural reform package to unify the labor market and improve the business environment.
  - Reduce the public sector wage premium; scale up housing supply; deepen financial markets.
- Institutional notes:
  - State owns most productive assets, employs nearly all Kuwaitis, and leads megaprojects; reforms should address these features to boost private sector dynamism.
  - Vision 2035 aims to diversify via public investment scale-up and wide-ranging fiscal and structural reforms.
- Authorities’ views:
  - Broad agreement with staff on need to diversify and on composition of medium-term fiscal consolidation (mobilize non-oil revenue, rationalize wage bill, reform energy subsidies).
  - Authorities said non-oil growth underpinned by large-scale public investment: Northern Economic Zone, Mubarak Al-Kabeer Port, the T2 Airport, and the GCC railway.

### Box 1 — Managing the public sector wage bill (findings, recent step, recommendations)
- Key findings and fiscal risks:
  - Public sector wage bill including allowances: over 31 percent of GDP in FY2024/25 (highest in the GCC and among the highest globally).
  - Wage bill grew by about 15 percent in nominal terms over the past 5 years.
  - About 80 percent of employed Kuwaitis work for the government.
  - Public sector offers a 40 to 60 percent wage premium over comparable private sector jobs.
  - If hiring continued at current pace, wage bill could reach 45 percent of GDP by 2050.
- Recent reform step:
  - January 2026: Civil Service Council approved amendments to the Civil Service Law linking allowances and other benefits to actual performance.
- Policy recommendations:
  - Adopt a medium-term wage bill management strategy with clear targets for wage bill growth.
  - Simplify and unify the wage structure by integrating allowances into a revised base salary scale and establishing a structured wage-setting mechanism.
  - Parallel measures to incentivize private sector employment: reduce reservation wage, introduce time-bound wage subsidies, align non-wage benefits, strengthen targeted skills development and vocational training.

### External sector, reserves, and memorandum items
- Current account balance (Percent of GDP): 31.1 (2023), 29.1 (2024), 23.6 (2025), 19.6 (2026), 18.1 (2027)
- Official reserve assets (months of imports): 9.3 (2023), 8.1 (2024), 7.0 (2025), 7.1 (2026), 7.2 (2027)
- Official reserve assets stood at US$40.8 billion at end-2025 (7.0 months of projected imports; 104.2 percent of the ARA metric).
- Nominal GDP (US$ billions): 165.4 (2023), 160.2 (2024), 156.6 (2025), 159.5 (2026), 166.3 (2027)
- Population (millions): 4.9 (2023), 5.0 (2024), 5.1 (2025), 5.2 (2026), 5.3 (2027)
- GDP per capita (US$): 33,663 (2023), 31,971 (2024), 30,634 (2025), 30,593 (2026), 31,273 (2027)

### Debt sustainability, baseline DSA highlights, and risk assessment
- Public debt (Percent of GDP series, actual 2024 then 2025–2034 as in source): 2.9, 13.0, 22.5, 27.5, 31.7, 34.3, 36.0, 37.1, 37.6, 37.8, 37.4
- Change in public debt series: -0.2, 10.1, 9.5, 5.0, 4.2, 2.7, 1.7, 1.0, 0.5, 0.2, -0.4
- Primary deficit series (Percent of GDP): -1.2, 3.7, 6.0, 6.6, 7.1, 7.5, 7.9, 8.3, 8.6, 9.0, 9.4
- Noninterest revenues: 49.3, 46.7, 44.7, 43.8, 43.4, 43.1, 42.8, 42.5, 42.1, 41.7, 41.4
- Noninterest expenditures: 48.1, 50.4, 50.7, 50.3, 50.4, 50.7, 50.7, 50.7, 50.7, 50.7, 50.7
- Gross financing needs and debt service (selected rows formatted as in source):
  - Gross financing needs: -25.7, -26.7, -19.4, -17.9, -16.5, -15.4, -14.7, -14.2, -13.8, -12.9, -11.8
  - Debt service (Percent of GDP): 0.5, 0.5, 6.0, 7.3, 8.3, 9.0, 9.5, 9.6, 9.7, 10.1, 10.8
    - Local currency: 0.4, 0.4, 0.8, 1.4, 1.7, 1.8, 2.2, 2.6, 2.9, 3.1, 3.4
    - Foreign currency: 0.1, 0.1, 5.2, 5.9, 6.6, 7.2, 7.3, 7.1, 6.9, 7.0, 7.4
- Medium-term risk indices and assessments:
  - Debt fanchart index (DFI): 4.0; Risk signal: 3/High (mechanical signal high; assessed as low due to large financial asset buffers exceeding 75 percent of GDP and 100 percent of public debt)
  - Probability of debt non-stabilization: 65.7 0.6 (format as in source)
  - GFN financeability index (GFI): -0.6; Risk signal: 4/Low
  - Final assessment probabilities: Prob. of missed crisis, 2025-2030, if stress not predicted: 45.5 pct.; Prob. of false alarms, 2025-2030, if stress predicted: 10.2 pct.
- Commentary: Government has large buffers (KIA assets and reserves) that can support fiscal financing; projected public debt increase finances budgetary central government deficits while developing domestic debt market.

### Triggered stress tests, long-term risks, and sectoral projections
- Triggered modules include Pensions, Health, Large amortizations, Climate change (Adaptation and Mitigation), Natural Resources.
- Pension financing permanent adjustment needs (% of GDP to keep pension assets positive):
  - 30 years: 0.08%
  - 50 years: 0.93%
  - Until 2100: 1.12%
- Long-run projections include scenarios for health and pension financing metrics (charts and trajectories presented in source).

### Data, statistics, AML/CFT, and surveillance capacity
- Statistical capacity:
  - Weakened further from a low base; major gaps in national accounts, government finance and external sector statistics.
  - CSB has not conducted its annual establishment survey since 2019; expenditure-side GDP statistics unavailable for 2024.
  - Fiscal accounts exclude KIA investment income and SOE profit transfers.
  - CSB paused reporting CPI statistics in July 2025 due to suspension of field survey but resumed with lag in December 2025.
- Data adequacy and corrective actions recommended:
  - Resume timely publication of monthly CPI statistics informed by a field survey.
  - Regularly publish complete national accounts including an expenditure-side GDP decomposition.
  - Expand government finance statistics to include government debt service costs, KIA investment income, and SOE profit transfers.
  - Expand IIP coverage to include foreign assets held by the KIA.
- AML/CFT:
  - 2024 FATF Mutual Evaluation Report identified significant deficiencies, particularly in measures to combat terrorist financing.
  - Authorities working to address deficiencies; focused on risk understanding, investigation and prosecution, targeted financial sanctions, beneficial ownership.
- Surveillance context:
  - 2025 Article IV Consultation focused on fiscal and structural reforms to achieve Vision 2035, monetary and financial sector policies to maintain macrofinancial stability, and strengthening economic statistics.
- Annex I implementation status (selected):
  - Financing and Liquidity Law authorizing sovereign debt issuance: Implemented.
  - Medium-Term Fiscal Framework including Fiscal Rules Framework: Not implemented.
  - Unlimited deposit guarantee replacement and phase out of lending rate caps: Not implemented.
  - Deepening interbank and domestic sovereign debt markets: Partially implemented (sovereign debt issuance resumed).

### Financial deepening, capital markets, and market-development recommendations
- Market structure and statistics:
  - Bank assets: 250 percent of GDP in 2024.
  - Equity market capitalization: about 90 percent of GDP in 2024.
  - Outstanding local currency bonds (private and sovereign): 5 percent of GDP in 2024 (about 20 percent of GDP below potential market size).
  - CCP launched: 2025.
- Reform and market-development recommendations:
  - Publish a 12-month ahead issuance calendar embedded in a medium-term debt management strategy.
  - Conduct regular auctions across standardized tenors to develop a benchmark sovereign yield curve.
  - Establish a joint Issuance and Market Development Committee among CBK, MoF, KIA and CMA.
  - Broaden investor base (insurers, pension funds, asset managers); leverage Real Estate Financing Law to expand long-term lending and securitization opportunities.
  - Strengthen secondary market activity; leverage CCP and repo/collateral tools.

### Staff appraisal and recommended next steps
- Macroeconomic outlook and policy priorities:
  - Recovery underway despite lower oil prices; growth rebound driven by unwinding OPEC+ production cuts and robust non-oil growth; inflation moderating.
  - Lower oil revenues weakened external and fiscal positions but buffers remain strong.
  - Fiscal consolidation of about 1 percent of GDP per year and comprehensive structural reforms needed to strengthen external position and ensure long-term fiscal sustainability.
- Key policy priorities summarized:
  - Mobilize non-oil revenue (extend 15 percent CIT; introduce GCC-wide excise tax and 5 percent VAT).
  - Rationalize public sector wage bill (performance-based wages; hiring cap).
  - Reform energy subsidies and provide targeted cash transfers.
  - Scale up on-budget public investment by around 2 percent of GDP over the medium term.
  - Implement PFM and sovereign ALM reforms; publish medium-term debt management strategy and bond issuance calendar.
  - CBK to consider countercyclical buffer reclassification; continue risk-based supervision; review macroprudential perimeter with mortgage lending reforms imminent.
- Policy timing:
  - Staff recommends next Article IV Consultation on the standard 12-month cycle.

*Source: IMF staff report for the 2025 Article IV consultation with Kuwait.*

### 2.4 percent (y-o-y) in November. Despite lower oil prices and production, the fiscal position

### KUWAIT STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION

### Developments, Outlook, and Risks
- Recent performance:
  - Real GDP contracted by -1.7 percent in 2023 and -2.6 percent in 2024.
  - Real GDP expanded by 1.7 percent (y-o-y) in 2025Q2, driven by non-oil growth of 3.1 percent (y-o-y).
  - Headline CPI inflation fell to 2.9 percent in 2024 and held at 2.4 percent (y-o-y) in November.
  - Employment growth moderated to 3.4 percent in 2024, from 7.5 percent in 2023.
- Outlook:
  - Real GDP is projected to expand by 3.8 percent in 2026.
  - Oil sector growth projections: 2.4 percent in 2025, 4.7 percent in 2026, 2.0 percent in 2027.
  - Non-oil growth projections: 2.7 percent in 2025, 3.0 percent in 2026, 3.0 percent in 2027.
  - Headline CPI inflation projected at 2.1 percent in 2026 and stabilizing just below 2.0 percent over the medium term.
  - Current account surplus estimated at 23.6 percent of GDP in 2025 and projected to moderate to 19.6 percent of GDP in 2026, then gradually decline over the medium term.
- Risks:
  - External risks: commodity price volatility, global growth slowdown or acceleration, shifts in global financial conditions — transmitted mainly via impacts on oil prices and OPEC+ production.
  - Domestic risks: changes in the speed of structural reforms and associated infrastructure project implementation to diversify the economy.
  - Overall risk assessment around projections described as "broadly balanced."

### Fiscal Developments and Policy Recommendations
- Recent fiscal outcomes:
  - Fiscal deficit of the budgetary central government narrowed to 2.2 percent of GDP in FY2024/25, from 3.1 percent of GDP in FY2023/24.
  - General government fiscal surplus widened to 27.7 percent of GDP in FY2024/25.
- Projections:
  - Budgetary central government fiscal deficit projected to increase to 8.7 percent of GDP in FY2025/26 and 9.4 percent of GDP in FY2026/27, then widen over the medium term.
  - Government finance table (selected):
    - Revenue: 76.6 (2023), 74.4 (2024), 77.6 (2025), 76.1 (2026), 75.4 (2027) (Percent of GDP)
    - Oil revenue: 71.7 (2023), 68.4 (2024), 70.9 (2025), 68.9 (2026), 68.1 (2027) (Percent of GDP)
    - Non-oil revenue: 4.8 (2023), 5.9 (2024), 6.7 (2025), 7.2 (2026), 7.4 (2027) (Percent of GDP)
    - Expenditure: 48.3 (2023), 48.2 (2024), 50.5 (2025), 51.1 (2026), 51.0 (2027) (Percent of GDP)
    - Net lending (+) / borrowing (-): 28.2 (2023), 26.1 (2024), 27.1 (2025), 25.0 (2026), 24.4 (2027) (Percent of GDP)
    - Budgetary central government balance: 0.9 (2023), -2.4 (2024), -7.1 (2025), -9.3 (2026), -9.8 (2027) (Percent of GDP)
    - Gross government debt: 3.1 (2023), 2.9 (2024), 14.7 (2025), 24.2 (2026), 28.9 (2027) (Percent of GDP)
- Policy recommendations:
  - Gradual fiscal consolidation at a pace of about 1 percent of GDP per year over the next decade to achieve long-term fiscal sustainability.
  - Mobilize non-oil revenue:
    - Extend the 15 percent CIT to all domestic companies.
    - Introduce the GCC-wide excise tax and a 5 percent VAT.
  - Rationalize the public sector wage bill:
    - Introduce a performance-based public sector wage setting mechanism to gradually reduce the large premium over the private sector.
    - Institute a hiring cap to steadily lower the public sector employment share.
  - Reform energy subsidies:
    - Gradually raise retail fuel, electricity and water prices towards their GCC-average levels while providing targeted cash transfers to vulnerable groups.
  - Increase on-budget public investment:
    - Scale up on-budget public investment by around 2 percent of GDP over the medium term.
  - Public financial management (PFM) reforms:
    - Develop a medium-term fiscal framework, including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance.
    - Undertake periodic public investment management assessments to ensure best practice in infrastructure governance and track contingent liabilities.
    - Publish a medium-term debt management strategy including a bond issuance calendar.
    - Develop a sovereign asset-liability management framework.

### Monetary Policy and Financial Sector
- Exchange rate and external position:
  - The exchange rate peg remains an appropriate nominal anchor for monetary policy and has helped support macroeconomic and financial stability.
  - The external position in 2025 was "substantially weaker than the level implied by medium-term fundamentals and desirable policies," reflecting excessive reliance on oil exports and inadequate public and private saving of oil revenue.
- Financial stability and supervision:
  - Systemic risk remains contained and prudently managed.
  - With a credit cycle upturn underway, the Central Bank of Kuwait (CBK) should consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer.
  - The forthcoming Real Estate Financing Law will permit banks to offer mortgage loans for the first time; CBK should continue to review the adequacy of its financial regulatory perimeter and macroprudential toolkit.
  - CBK should continue its risk-based supervisory approach to assess banks and address vulnerabilities.
- Banking and monetary aggregates (selected):
  - Credit to nonfinancial private sector: 1.8 (2023), 5.2 (2024), 6.8 (2025), 6.1 (2026), 5.8 (2027) (Percent change)
  - Broad money: M2: 1.0 (2023), 4.3 (2024), 3.6 (2025), 4.8 (2026), 5.3 (2027) (Percent change)

### Structural Reforms and Diversification
- Reform priorities:
  - Implement a comprehensive and well-sequenced structural reform package to unify the labor market and improve the business environment.
  - Reduce the public sector wage premium.
  - Scale up the supply of housing.
  - Deepen financial markets.
- Institutional and implementation notes:
  - The state owns most productive assets, employs nearly all Kuwaitis, and leads all megaprojects; reforms should address these features to boost private sector dynamism.
  - To sustainably boost non-oil growth, a comprehensive package of fiscal and structural reforms is needed, sequenced to reinforce long-term fiscal sustainability and intergenerational equity while incentivizing Kuwaitis to pursue jobs in the private sector.

### External Sector and Reserves
- Current account and reserves:
  - Current account balance: 31.1 (2023), 29.1 (2024), 23.6 (2025), 19.6 (2026), 18.1 (2027) (Percent of GDP)
  - Official reserve assets (months of imports): 9.3 (2023), 8.1 (2024), 7.0 (2025), 7.1 (2026), 7.2 (2027)
  - Gross external debt: 39.0 (2023), 41.3 (2024), 37.1 (2025), 43.4 (2026), 46.0 (2027) (Percent of GDP)
  - Official reserve assets stood at US$40.8 billion at end-2025, equivalent to 7.0 months of projected imports or 104.2 percent of the ARA metric.
- Memorandum items:
  - Nominal GDP (US$ billions): 165.4 (2023), 160.2 (2024), 156.6 (2025), 159.5 (2026), 166.3 (2027)
  - Population (millions): 4.9 (2023), 5.0 (2024), 5.1 (2025), 5.2 (2026), 5.3 (2027)
  - GDP per capita (US$): 33,663 (2023), 31,971 (2024), 30,634 (2025), 30,593 (2026), 31,273 (2027)

### Data, Statistics, and Surveillance
- Statistical capacity:
  - Statistical capacity has weakened further from a low base, hampering surveillance.
  - Major gaps in the national accounts, government finance and external sector statistics should be filled to enable well-informed policymaking.
- Surveillance context:
  - The 2025 Article IV Consultation focused on fiscal and structural reforms to achieve Vision 2035, monetary and financial sector policies to maintain macrofinancial stability, and strengthening economic statistics.

*Source: IMF staff report for the 2025 Article IV consultation with Kuwait.*

### 24.3 percent of GDP in FY2023/24, also reflecting higher estimated Kuwait Investment Authority

### 1kwtea2026001-source-pdf - 24.3 percent of GDP in FY2023/24, also reflecting higher estimated Kuwait Investment Authority

### Recent developments and public balance sheet
- Sovereign assets and fiscal flows:
  - Assets under management of the Kuwait Investment Authority (KIA) are estimated at 640 percent of GDP at end-2025, up from 605 percent of GDP at end-2024, thanks to strong global investment returns.
  - KIA investment income contributed to 24.3 percent of GDP in FY2023/24.
- Sovereign debt issuance in 2025:
  - Domestic bonds placed: 4.6 percent of GDP.
  - External bonds placed: 7.2 percent of GDP.
  - Purposes: finance budgetary central government fiscal deficits, replenish the General Reserve Fund (GRF) managed by the KIA, develop the domestic debt market, and establish a benchmark sovereign yield curve.
- Credit and external shocks:
  - Credit to the non-financial private sector grew by 6.8 percent in 2025 (from 5.2 percent in 2024), broadly based and supported by stronger non-oil growth.
  - Regional conflicts had limited economic impact on Kuwait through oil prices and production; regional shipping disruptions did not curtail its oil exports.

### Outlook and key macro projections (baseline, assuming current policies)
- Real GDP:
  - Projected to expand by 2.6 percent in 2025 and 3.8 percent in 2026, driven by the unwinding of OPEC+ production cuts and robust non-oil growth.
  - Projected to stabilize just above 2.0 percent over the medium term.
- Non-oil GDP:
  - Projected to expand by 2.7 percent in 2025 and 3.0 percent in 2026 on the back of the public investment scale-up.
  - Projected to grow at its potential rate of 2.7 percent over the medium term.
- Inflation:
  - Headline CPI inflation projected to moderate to 2.3 percent in 2025 and 2.1 percent in 2026, then stabilize just below 2.0 percent over the medium term.
- External sector:
  - Current account surplus projected to moderate to 23.6 percent of GDP in 2025 and 19.6 percent of GDP in 2026, primarily reflecting lower oil exports, then gradually decline over the medium term.
- Fiscal outlook:
  - Fiscal deficit of the budgetary central government projected to increase to 8.7 percent of GDP in FY2025/26 and 9.4 percent of GDP in FY2026/27, given higher spending and lower oil revenue.
  - Fiscal deficit projected to widen to 11.5 percent of GDP by FY2031/32.
  - Gross government debt projected to rise to 36.3 percent of GDP by FY2031/32.
  - Financing needs: additional net financing of 32.0 percent of GDP required to fund budgetary central government fiscal deficits from FY2025/26 through FY2031/32.
- Credit:
  - Credit to the non-financial private sector projected to expand by 6.1 percent in 2026, then stabilize just above 5.0 percent over the medium term.

### Risks to the baseline
- External/global risks (economy highly exposed through oil dependence):
  - Commodity price volatility, global growth slowdown or acceleration, shifts in global financial conditions.
  - Transmission to Kuwait mainly via impacts on oil prices and OPEC+ production.
- Domestic risk:
  - Speed of structural reforms and infrastructure project implementation to diversify the economy.
- Quantitative global downside scenario assumptions (GCC-DSGE model, additive decomposition):
  - i) persistent 10 percent decrease in the real price of housing and 10 percent reduction in the real price of equity in China phased in over 2 years;
  - ii) persistent 100 basis point increase in the term premium and 10 percent reduction in the real price of equity in the Euro Area phased in over 1 year;
  - iii) persistent 10 percentage point increase in the non-oil import tariff rate and 10 percent reduction in the real price of equity in the United States phased in over 1 year;
  - iv) permanent 10 percent depreciation of the dollar in nominal effective terms phased in over 1 year.

### Authorities’ views
- Broad agreement with staff’s assessment of recent developments, outlook and risks.
- Authorities point to non-oil growth underpinned by accelerated implementation of large-scale public investment projects: Northern Economic Zone, Mubarak Al-Kabeer Port, the T2 Airport, and the GCC railway.
- Authorities questioned applicability of the EBA-lite framework to Kuwait’s external position given oil dependence.
- Authorities expect the current account surplus to decline slower than staff projections because of increased tourism receipts and contained remittance outflows.

### Policy discussions and recommended strategy
- Overarching aim:
  - Diversify the economy under Vision 2035 via public investment scale-up and wide-ranging fiscal and structural reforms (energy subsidies, mortgage lending).
  - Need for a comprehensive and well-sequenced package to achieve long-term fiscal sustainability while maintaining growth and containing inflation.
  - Fiscal reforms should reinforce intergenerational equity and incentivize Kuwaitis to pursue private sector jobs; structural reforms should unify the labor market and improve the business environment.

### Fiscal policy stance and sustainability
- Fiscal stance:
  - Projected roughly neutral in FY2025/26 with a fiscal impulse of 0.5 percent of non-oil GDP.
  - FY2024/25 fiscal impulse was −12.7 percent of non-oil GDP following large fiscal consolidation.
  - Fiscal policy conduct has become less procyclical over time; estimated roughly acyclical in FY2025/26.
- PIH (Permanent Income Hypothesis) gap and consolidation need:
  - In 2025, the non-oil fiscal balance of the budgetary central government is estimated to fall short of its PIH target by 14.9 percent of non-oil GDP (9.1 percent of GDP).
  - PIH gap projected to widen to 17.1 percent of non-oil GDP by 2030 (11.1 percent of GDP) despite projected fiscal consolidation of 4.9 percent of non-oil GDP from 2025 to 2030.
  - Recommended pace of gradual fiscal consolidation: about 1.6 percent of non-oil GDP (1.0 percent of GDP) per year; this would close the PIH gap after about 10 years.

### Tax and expenditure policy reform recommendations (quantitative reform scenario)
- Consolidation pace:
  - Implement fiscal consolidation at about 1.6 percent of non-oil GDP (1.0 percent of GDP) per year until the PIH fiscal balance target is achieved; this would reverse the projected roughly 0.5 percent of GDP per year increase in the fiscal deficit of the budgetary central government over the medium term.
- Revenue mobilization:
  - Extend the 15 percent CIT to all domestic companies.
  - Introduce the GCC-wide excise tax and a 5 percent VAT. (Authorities are developing plans to implement these tax reforms.)
- Public sector wage bill:
  - Introduce a performance-based public sector wage setting mechanism that constrains wage growth below inflation to gradually reduce the 40 to 60 percent public–private wage premium.
  - Apply a hiring cap limiting recruitment to retirements to steadily lower the public sector employment share.
  - Streamline allowances or integrate them into base salaries.
- Energy subsidy reform:
  - Reduce energy subsidies at a pace of about 0.8 percent of non-oil GDP (0.5 percent of GDP) per year by gradually raising retail fuel, electricity and water prices toward GCC-average levels.
  - Provide targeted transfers to vulnerable groups via the existing social assistance system.
  - Enhance electricity generation and distribution efficiency to reduce costs.
- Public investment:
  - Scale up on-budget public investment at about 0.6 percent of non-oil GDP (0.4 percent of GDP) per year to improve infrastructure quantity and quality and to mitigate contractionary impacts of fiscal consolidation.
  - Administer more public investment projects on-budget to enhance fiscal transparency.

### Reform scenario assumptions and estimated impacts (GCC-DSGE model, additive decomposition)
- Scenario assumptions (selected):
  - Permanent 2.5 percent of GDP reduction in compensation of government employees phased linearly over 5 years.
  - Permanent 2.5 percent of GDP reduction in hydrocarbon consumption subsidies phased linearly over 5 years.
  - Permanent 2.0 percent of GDP increase in public investment phased linearly over 5 years.
  - Permanent imposition of a 5 percent excise tax on alcohol, pork, sugary drinks and tobacco phased in linearly over 2 years from 2026.
  - Permanent imposition of a 5 percent VAT phased in linearly over 2 years from 2028.
  - Structural reform induced permanent 2.7 percent increase in labor productivity phased linearly over 5 years.
  - Confidence-induced permanent increases: 2.0 percent in private consumption, 8.0 percent in residential investment and 8.0 percent in business investment phased linearly over 5 years.
- Simulated fiscal balance deviations (selected totals, deviations from baseline):
  - Total deviations (Millions of Kuwaiti dinars): 0, 320, 869, 1,566, 2,368, 3,000 (years 2025–2030 row values).
  - Total deviations (Percent of GDP): 0.00, 0.66, 1.70, 2.94, 4.24, 5.16 (years 2025–2030).
  - Total deviations (Percent of non-oil GDP): 0.00, 1.04, 2.67, 4.58, 6.60, 7.98 (years 2025–2030).

### Public financial management, sovereign ALM, and transparency
- PFM reforms recommended to support gradual consolidation:
  - Develop a medium-term fiscal framework including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance of the budgetary central government.
  - Expand fiscal accounts coverage to the general government level and improve timeliness of reporting.
  - Conduct periodic public investment management assessments to ensure infrastructure governance and track contingent liabilities.
  - Publish a medium-term debt management strategy including a bond issuance calendar to inform investors.
- Sovereign asset-liability management:
  - Develop a sovereign asset-liability management framework to balance intergenerational fiscal tradeoffs and manage risks to the public sector balance sheet.
  - Compile and report the public sector balance sheet to enhance fiscal transparency.
- Observations:
  - Kuwait has a very strong public sector balance sheet supported by large proven hydrocarbon reserves and estimated KIA assets versus low government debt.
  - Increasing share of off-budget public investment raises potential contingent liabilities.

### Box 1 — Managing the public sector wage bill (key findings)
- Size and growth:
  - Public sector wage bill including allowances: over 31 percent of GDP in FY2024/25 (highest in the GCC and among the highest globally).
  - Wage bill grew by about 15 percent in nominal terms over the past 5 years.
  - About 80 percent of employed Kuwaitis work for the government.
  - Public sector offers a 40 to 60 percent wage premium over comparable private sector jobs.
- Structure and governance:
  - Public salaries governed by about 20 different pay scales and 60 types of allowances under the Civil Service Commission (CSC).
  - Basic pay for civil service employees has not been revised for decades and is not indexed to inflation; allowances account for up to 70 percent of salaries and are set independently by line ministries with little oversight.
  - The Civil Service Law prioritizes tenure over productivity and performance in wage and promotion systems.
- Outcomes and implications:
  - Despite high wage bill, outcomes in government effectiveness and education lag GCC and peers.
  - High public sector wage bill has crowded out public investment and hampered private sector development by raising reservation wages.

*Source: IMF staff report content (selected excerpts).*

### Box 1. Kuwait: Managing the Public Sector Wage Bill (concluded)

### Box 1. Kuwait: Managing the Public Sector Wage Bill (concluded)

### Key findings and fiscal risks
- If public hiring were to continue at its current pace, the wage bill could reach 45 percent of GDP by 2050, putting major strain on public finances.
- Public sector employment preferences and generous compensation contribute to a large public sector wage premium and labor market duality, which impede private sector development.

### Recent reform step
- In January 2026, following a government-mandated review of the Civil Service Law aimed at instating a more efficient and merit-based system, the Civil Service Council approved amendments to the Law linking allowances and other benefits to actual performance.

### Policy recommendations to manage the wage bill and enhance efficiency
- Adoption of a medium-term wage bill management strategy to guide hiring and pay policies, consistent with overall fiscal objectives and setting clear targets for wage bill growth.
- Simplification and unification of the wage structure through integration of multiple allowances into a revised base salary scale, and establishment of a structured wage-setting mechanism to enhance transparency and consistency.
- Parallel measures to incentivize private sector employment:
  - Reducing the reservation wage and public-private wage divide.
  - Introducing time-bound wage subsidies to kickstart private sector jobs.
  - Aligning non-wage benefits between sectors.
  - Strengthening targeted skills development and vocational training.

*Source: Box 1. Kuwait: Managing the Public Sector Wage Bill (concluded).*

### 29.      Progress is being made on strengthening AML/CFT effectiveness. The 2024 FATF Mutual

### Progress is being made on strengthening AML/CFT effectiveness.

### AML/CFT effectiveness
- The 2024 FATF Mutual Evaluation Report identified significant deficiencies in the effective implementation of the AML/CFT legal framework, in particular measures to combat terrorist financing.
- The authorities are working to address these deficiencies.
- Authorities noted they have worked fastidiously to address all areas identified for improvement by the 2024 FATF Mutual Evaluation Report within the 1-year notice period, particularly on:
  - risk understanding,
  - investigation and prosecution,
  - targeted financial sanctions,
  - beneficial ownership.

### Strengthening statistics
- Statistical capacity has weakened further from a low base since the pandemic, hampering surveillance (Annex V).
- Major gaps persist in the national accounts, government finance and external sector statistics:
  - the Central Statistical Bureau (CSB) has not conducted its annual establishment survey since 2019;
  - expenditure-side GDP statistics remain unavailable for 2024;
  - the fiscal accounts statistics exclude KIA investment income and SOE profit transfers.
- The CSB paused reporting CPI statistics in July 2025 due to the suspension of its field survey, but resumed data publication with a lag in December 2025.
- The CSB is working to address deficiencies identified by the Data Adequacy Assessment, supported by technical assistance from the AMF, IMF and GCC Stat.
- Recommendations to strengthen economic statistics:
  - boost CSB funding and restructure operations to reverse deterioration in the quality and timeliness of national accounts and CPI statistics produced since the pandemic;
  - fill major gaps in coverage of fiscal accounts and external sector statistics, especially now that the government has resumed issuing debt.

### Authorities’ views
- The authorities broadly agreed with staff’s policy recommendations to diversify the economy while maintaining macrofinancial stability.
- They broadly supported the composition of staff’s proposed medium-term fiscal consolidation package, prioritizing:
  - mobilizing non-oil revenue,
  - rationalizing the public sector wage bill,
  - reforming energy subsidies.
- Considered reforms and actions under consideration:
  - revamping the Civil Service Law to encourage Kuwaitis to pursue private sector jobs through labor market reforms, including by introducing centralized compensation schemes, performance-based hiring, and vocational training aligned with market needs;
  - publishing a public debt management strategy to inform investors;
  - introducing an auction mechanism for domestic public debt issuance to develop a benchmark sovereign yield curve.
- Views on monetary and financial policy:
  - the authorities view the CBK as conducting independent and prudent monetary policy, leveraging flexibility under the exchange rate regime to achieve its objectives, while maintaining the attractiveness of the Kuwaiti dinar;
  - the authorities maintain that bank lending rate caps are appropriate for Kuwait, supporting access to credit for consumers and SMEs;
  - lending rates remain below ceilings, while regulations ensure fair pricing and risk management;
  - the authorities view the unlimited deposit guarantee as a fundamental mechanism for reinforcing financial sector stability and confidence, protecting depositors, improving resource allocation, mitigating systemic risk, and supporting overall economic growth.

### Staff appraisal — macroeconomic outlook and policy recommendations
- Recent developments and outlook:
  - An economic recovery is underway, in spite of lower oil prices.
  - Growth is rebounding, driven by the unwinding of OPEC+ production cuts and robust non-oil growth.
  - Inflation continues to moderate, reflecting lower core and food inflation.
  - Lower oil revenues have weakened the external and fiscal positions, but buffers remain strong.
  - Financial stability has been maintained, with a credit cycle upturn underway.
  - These macrofinancial developments are projected to persist under the baseline, which is subject to broadly balanced risks arising mainly from the heavy dependence of the economy on oil.
- Structural reform agenda:
  - Staff welcomes the authorities’ Vision 2035 aspirations to implement economic reforms in pursuit of a more diversified economy.
  - To sustainably boost non-oil growth a comprehensive and well-sequenced package of fiscal and structural reforms is needed.
  - Fiscal reforms should reinforce long-term fiscal sustainability and intergenerational equity while incentivizing Kuwaitis to pursue jobs in the private sector.
  - Structural reforms should unify the labor market and improve the business environment.
- Fiscal consolidation and revenue measures:
  - Gradual fiscal consolidation at a pace of about 1 percent of GDP per year would be needed over the next decade to achieve long-term fiscal sustainability.
  - To mobilize non-oil revenue:
    - the 15 percent CIT should be extended to all domestic companies;
    - the GCC-wide excise tax and 5 percent VAT should be introduced.
  - To rationalize the public sector wage bill:
    - a performance-based public sector wage setting mechanism should be introduced to gradually reduce the large premium over the private sector;
    - a hiring cap should be instituted to steadily lower the public sector employment share.
  - To reform energy subsidies:
    - retail fuel, electricity and water prices should be gradually raised towards their GCC-average levels while providing targeted cash transfers to vulnerable groups.
  - To improve infrastructure:
    - on-budget public investment should be further scaled up, by around 2 percent of GDP over the medium term.
- Public financial management and debt management:
  - Implement comprehensive PFM reforms to strengthen the conduct of fiscal policy.
  - Priority actions:
    - develop a medium-term fiscal framework, including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance;
    - undertake public investment management assessments periodically to ensure best practice in infrastructure governance and track contingent liabilities;
    - publish a medium-term debt management strategy including a bond issuance calendar;
    - develop a sovereign asset-liability management framework to balance intergenerational fiscal policy tradeoffs while managing risks to the public sector balance sheet.
- Monetary and macroprudential policy:
  - The exchange rate peg remains an appropriate nominal anchor for monetary policy and has helped support macroeconomic and financial stability for many years, including relatively low and stable inflation.
  - The external position was substantially weaker than the level implied by medium-term fundamentals and desirable policies in 2025, reflecting an excessive reliance on oil exports and inadequate public and private saving of oil revenue.
  - Fiscal consolidation together with structural reforms would help strengthen the external position and support the exchange rate peg.
  - With a credit cycle upturn underway, the CBK should consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer.
  - The forthcoming Real Estate Financing Law will permit banks to offer mortgage loans for the first time; the CBK should continue regularly reviewing the adequacy of its financial regulatory perimeter and extensive macroprudential policy toolkit.
  - The CBK should continue its risk-based supervisory approach to assessing banks and effectively addressing any vulnerabilities.

### Key statistical and institutional points reiterated
- Statistical capacity has weakened further from a low base, hampering surveillance.
- Major gaps in the national accounts, government finance and external sector statistics should be filled to enable well-informed policymaking.
- The CSB is working to improve the quality and timeliness of the national accounts and CPI statistics and is actively collaborating with other government entities, as well as international and regional partners, to support capacity development and improve data granularity and coverage.

*IMF staff appraisal and authorities’ views as presented in the source document.*

### 43.      Staff recommends that the next Article IV Consultation take place on the standard 12-

### 1kwtea2026001-source-pdf - 43.      Staff recommends that the next Article IV Consultation take place on the standard 12-

### Policy timing
- Staff recommends that the next Article IV Consultation take place on the standard 12-month cycle.

### National accounts: recovery, drivers, and near-term outlook
- Economic recovery from the pandemic was disrupted in 2023 and 2024 by OPEC+ production cuts; real GDP growth (annual percent change) for 2024 was -2.6.
- Sectoral performance (2024):
  - Oil sector growth: -6.9 (annual percent change).
  - Non-oil sector growth: 1.8 (annual percent change).
- Expenditure contributions in 2024: domestic demand supported activity while net exports dragged on real GDP.
- Non-manufacturing non-oil growth projections (contributions to annual percent change, 2025–2031): key contributors include Intercept, Credit, Fiscal expenditure, Fiscal revenue, and Judgement (visual decomposition present in source).
- Selected projection highlights from Table 1:
  - Real GDP projections: 2025 = 2.6; 2026 = 3.8; 2027 = 2.5; 2028 = 2.4; 2029 = 2.4; 2030 = 2.4; 2031 = 2.4.
  - CPI inflation (average): 2024 = 2.9; 2025 = 2.3; 2026 = 2.1; 2027 = 2.1; 2028 = 1.9; 2029 = 1.8; 2030 = 1.7; 2031 = 1.6.
  - Crude oil production (millions of barrels per day): 2024 = 2.4; 2025 = 2.5; 2026 = 2.6; 2027 = 2.6; 2028 = 2.7; 2029 = 2.7; 2030 = 2.8; 2031 = 2.9.
  - Price of crude oil exports (US$ per barrel): 2024 = 80.6; 2025 = 69.2; 2026 = 63.3; 2027 = 63.3; 2028 = 64.4; 2029 = 65.6; 2030 = 66.5; 2031 = 67.0.

### Inflation, output gaps, and employment
- Headline and core CPI inflation have been moderating; core CPI (excluding food and non‑alcoholic beverages) reported in Table 1: 2024 core = 2.4 (note: Table 1 footnote 1).
- Output gap:
  - Non-oil output gap has been positive; Table 1 output gap: Non-oil (percent) 2024 = 1.7; projections show non-oil output gap declining toward 0.0 by 2029–2031.
- Employment:
  - The post-pandemic rebound in employment was concentrated among expatriates in the private sector.
  - Employment growth figures (visuals) show private sector expatriates and government Kuwaitis/expatriates with distinct contributions to total employment growth (annual percent change series through 2024).

### External sector and balance of payments
- The current account surplus remained large in 2024 due to high oil exports and net investment income.
- Table 2 selected figures (percent of GDP unless noted otherwise):
  - Current account balance: 2024 = 46.7; 2025 = 36.9; 2026 = 31.3; 2027 = 30.1; 2028 = 29.8; 2029 = 29.2; 2030 = 28.1; 2031 = 26.3.
  - Trade balance for goods: 2024 = 41.2; 2025 = 34.0; 2026 = 28.9; 2027 = 28.1; 2028 = 28.2; 2029 = 28.3; 2030 = 27.8; 2031 = 26.7.
  - Exports (billions of U.S. dollars): 2024 = 77.5; 2025 = 70.8; 2026 = 68.6; 2027 = 70.3; 2028 = 76.1; 2029 = 78.9; 2030 = 81.5; 2031 = 84.0.
  - Investment income, net (billions of U.S. dollars): 2024 = 33.1; 2025 = 36.1; 2026 = 36.8; 2027 = 38.3; 2028 = 40.1; 2029 = 42.0; 2030 = 43.7; 2031 = 45.5.
- Trade concentration:
  - Bilateral export shares (2020–2022 average) are concentrated among the United Arab Emirates, India, Saudi Arabia, China, Iraq, and Other (visual).
  - Bilateral import shares (2020–2022 average) show China, United Arab Emirates, United States, Japan, India, and Other (visual).
- Exchange rate and reserves:
  - The Kuwaiti dinar appreciated in nominal and real effective terms (visual indices through 2025).
  - Official reserve assets (months of imports): 2024 = 8.1; Table 2 memorandum: Official reserve assets (billions of U.S. dollars) 2024 = 44.4; months of imports 2024 = 8.1.

### Fiscal outlook and public finances
- FY2024/25 fiscal position:
  - Fiscal balance was stable in FY2024/25, with higher non-oil revenue offsetting lower oil revenue.
  - KIA investment income is estimated to have increased in FY2024/25.
  - Current expenditure was rationalized in FY2024/25, and government debt outstanding remained insignificant (visuals and Table 3).
- Selected government finance figures (Table 3):
  - Revenue (percent of GDP): FY2024/25 = 36.7.
  - Oil revenue (percent of GDP): FY2024/25 = 19.4.
  - Other revenue (percent of GDP): FY2024/25 = 14.7.
  - Expenditure (percent of GDP): FY2024/25 = 23.2.
  - Net lending (+) / borrowing (−) FY2024/25 = 13.6 (percent of GDP, Table 3 projection line).
  - Budgetary central government balance FY2024/25 = -1.1 (percent of GDP).
  - Gross government debt (billions of Kuwaiti dinars, memorandum Table 3): 2024/25 = 14.0 (billions of Kuwaiti dinars) and projections rise thereafter.

### Money, credit, and banking sector soundness
- Money and credit:
  - Money and credit growth recovered in 2024 despite high interest rates.
  - Credit to the nonfinancial private sector (percent change): 2024 = 5.2 (Table 4 memorandum and Table 1 row).
  - Broad money (M2) percent change: 2024 = 5.3 (Table 4 memorandum; Table 1 row shows similar series).
  - Policy rate (period average): 2023 = 4.1; 2024 = 4.2; 2025 = 3.9 (Table 4 memorandum; later periods omitted).
- Banking sector buffers and performance:
  - Banks have maintained strong capital and liquidity buffers (visuals and Table 5).
  - Capital adequacy metrics (Table 5):
    - Common equity Tier 1 capital to risk-weighted assets: 2024 = 15.0.
    - Regulatory capital to risk-weighted assets: 2024 = 19.4.
    - Tier 1 capital to assets: 2024 = 11.7.
  - Liquidity metrics (Table 5):
    - Liquidity coverage ratio (where reported): 2024 = 163.9 (visual series).
    - Liquid assets to short term liabilities: 2024 = 22.8.
  - Profitability and asset quality (Table 5):
    - Return on assets: 2024 = 1.9.
    - Return on equity: 2024 = 14.2.
    - Non-performing loans to total gross loans: 2024 = 1.5.
    - Provisions to non-performing loans: 2024 = 47.2.

### Key macro-financial risks and dynamics emphasized in the chapter visuals
- External exposure and commodity dependence: oil export volumes and prices remain central to the current account and fiscal balances (price path and export volumes explicitly reported).
- Domestic demand vs. external sector: domestic demand supported activity while trade net flows weighed on headline GDP in 2023–2024.
- Fiscal and sovereign buffers: significant reserve and KIA-related investment income underpin external and fiscal positions, though projections show some decline in current-account and fiscal surpluses over the decade.
- Banking sector resilience: strong capital, liquidity, low non-performing loans, and improved profitability mitigate near-term systemic banking risk.

*Sources: Kuwaiti authorities; IMF staff estimates and projections as presented in the source content.*

### Annex I. Implementation of 2024 Article IV Recommendations

### Annex I. Implementation of 2024 Article IV Recommendations

### Fiscal Policy
- Undertake medium-term fiscal consolidation through current expenditure rationalization focused on the public sector wage bill and energy subsidies, together with non-oil revenue mobilization by expanding the CIT to cover all domestic companies while introducing the GCC-wide VAT and excise tax.
  - Status: Partially implemented.
  - Details: Fiscal consolidation focused on current expenditure rationalization and non-oil revenue mobilization occurred in FY2024/25. However, measures to rationalize energy subsidies, expand the CIT to cover all domestic companies, and introduce a VAT and excise tax, have not been implemented.
- Introduce a Medium-Term Fiscal Framework including a Fiscal Rules Framework, underpinned by a Medium-Term Macroeconomic Framework.
  - Status: Not implemented.
  - Details: The MoF requested IMF CD support to develop a Medium-Term Fiscal Framework underpinned by a Medium-Term Macroeconomic Framework.
- Enact the new Public Debt Law to support orderly fiscal financing.
  - Status: Implemented.
  - Details: The Financing and Liquidity Law authorizing sovereign debt issuance has been enacted.
- Enhance fiscal transparency by publishing the KIA’s balance sheet.
  - Status: Not implemented.
  - Details: The KIA’s balance sheet has not been published, which would require a constitutional amendment.

### Monetary and Financial Sector Policies
- Replace the unlimited guarantee on bank deposits with a limited deposit insurance framework.
  - Status: Not implemented.
  - Details: The unlimited deposit guarantee remains in place.
- Phase out the bank lending rate caps.
  - Status: Not implemented.
  - Details: The CBK has not started to phase out the bank lending rate caps.
- Deepen the interbank and domestic sovereign debt markets.
  - Status: Partially implemented.
  - Details: Sovereign debt issuance has resumed, facilitated by the enactment of the Financing and Liquidity Law.

### Structural Reforms
- Implement a structural reform package to improve the business environment and better harmonize the labor market.
  - Status: Partially implemented.
  - Details: Some recommended structural reforms to improve the business environment and better harmonize the labor market have been implemented. In particular, infrastructure investment and public land sales for development have been scaled up, while the public sector wage premium has been eroded.

*Source: Annex I. Implementation of 2024 Article IV Recommendations*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Debt coverage and disclosures
- The DSA covers the general government, which includes extra budgetary funds and social security funds.
- There are no state or local governments in Kuwait.
- Fiscal data for the broader public sector is currently unavailable. Staff is working with the authorities on expanding the coverage of the fiscal data to encompass the broader public sector.
- Reporting notes and definitions preserved in source:
  - 1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector.
  - 2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.
  - 3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities.
  - 4/ Includes accrual recording, commitment basis, due for payment, etc.
  - 5/ Nominal value at any moment in time is the amount the debtor owes to the creditor.
  - 6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity.
  - 7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values.
- Commentary: All indicators are reported on a calendar year basis.

### Public debt structure indicators (figures and notes)
- Perimeter shown is general government across charts: Debt by Currency; Public Debt by Holder; Public Debt by Governing Law, 2024; Debt by Instruments; Public Debt by Maturity.
- Projection captions and elements shown in figures include:
  - Debt by Currency: Foreign currency / Local currency / Local-linked (2015–2033 projection shown).
  - Public Debt by Holder: External private creditors / External official creditors / Domestic other creditors / Domestic commercial banks (2015–2023 shown).
  - Public Debt by Governing Law, 2024: Domestic law / Foreign law ex. multilateral / Multilateral (2020–2024 shown).
  - Public Debt by Maturity: ≤ 1 year / 1-5 years / > 5 years (2020–2030 shown); Residual maturity: 6. years (label as in source).

### Baseline scenario: projections, contributions, and key fiscal numbers
- Table of projections and contributions (Percent of GDP unless indicated otherwise). Selected rows and series as presented:
  - Public debt: 2.9 13.0 22.5 27.5 31.7 34.3 36.0 37.1 37.6 37.8 37.4 (Actual 2024 then 2025–2034)
  - Change in public debt: -0.2 10.1 9.5 5.0 4.2 2.7 1.7 1.0 0.5 0.2 -0.4
  - Contribution of identified flows: 8.7 6.2 6.1 3.9 2.3 1.3 0.5 0.1 1.2 -0.8 -1.1
  - Primary deficit: -1.2 3.7 6.0 6.6 7.1 7.5 7.9 8.3 8.6 9.0 9.4
  - Noninterest revenues: 49.3 46.7 44.7 43.8 43.4 43.1 42.8 42.5 42.1 41.7 41.4
  - Noninterest expenditures: 48.1 50.4 50.7 50.3 50.4 50.7 50.7 50.7 50.7 50.7 50.7
  - Automatic debt dynamics: 0.2 0.0 0.5 0.9 1.1 1.2 1.3 1.4 1.4 1.4 1.4
  - Real interest rate and relative inflation: 0.0 0.0 1.0 1.4 1.7 2.0 2.1 2.2 2.2 2.3 2.3
  - Real interest rate: 0.1 0.3 1.4 1.4 1.7 1.9 2.1 2.3 2.3 2.3 2.3
  - Relative inflation: -0.1 -0.2 -0.4 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0
  - Real growth rate: 0.1 -0.1 -0.5 -0.6 -0.7 -0.8 -0.8 -0.8 -0.9 -0.9 -0.9 (formatting as in source)
  - Other identified flows: 9.7 2.5 -0.4 -3.5 -5.9 -7.5 -8.8 -9.5 -8.8 -11.2 -11.8
  - Contingent liabilities: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
  - (minus) Interest Revenues: -25.0 -31.0 -31.4 -31.7 -31.9 -32.0 -32.0 -32.1 -32.1 -32.1 -32.0
  - Other transactions: 34.8 33.5 31.0 28.3 26.1 24.5 23.3 22.6 23.3 20.9 20.2
  - Contribution of residual: -8.9 3.9 3.4 1.1 1.9 1.4 1.2 0.9 -0.7 1.1 0.7
  - Gross financing needs: -25.7 -26.7 -19.4 -17.9 -16.5 -15.4 -14.7 -14.2 -13.8 -12.9 -11.8
  - of which: debt service: 0.5 0.5 6.0 7.3 8.3 9.0 9.5 9.6 9.7 10.1 10.8
    - Local currency: 0.4 0.4 0.8 1.4 1.7 1.8 2.2 2.6 2.9 3.1 3.4
    - Foreign currency: 0.1 0.1 5.2 5.9 6.6 7.2 7.3 7.1 6.9 7.0 7.4
- Memo items:
  - Real GDP growth (percent): -2.6 2.6 3.8 2.5 2.5 2.4 2.4 2.4 2.4 2.4 2.4
  - Inflation (GDP deflator; percent): -0.7 -4.8 -1.9 1.7 2.1 2.1 1.9 1.7 1.6 1.7 1.7
  - Nominal GDP growth (percent): -3.3 -2.3 1.8 4.2 4.7 4.6 4.3 4.1 4.0 4.1 4.1
  - Effective interest rate (percent): 3.3 3.8 8.9 8.3 8.7 8.5 8.3 8.2 8.1 8.1 8.0

- Commentary: Other flows include government transfers to and from SWFs.

### Medium-term risk assessment and indices
- Debt fanchart module and indices (values as shown):
  - Fanchart width: 215.1 3.1 (percent of GDP) (format as in source).
  - Probability of debt non-stabilization (percent): 65.7 0.6
  - Terminal debt-to-GDP x: 13.8 0.3
  - Debt fanchart index (DFI): 4.0
  - Risk signal: 3/High (mechanical signal high; assessed as low due to large financial asset buffers exceeding 75 percent of GDP and 100 percent of public debt)
- Gross financing needs (GFN) module:
  - Average baseline GFN (percent of GDP): -18.4 -6.3
  - Initial Banks' claims on the gen. govt (pct bank assets): 0.5 0.2
  - Chg. In banks' claims in stress (pct banks' assets): 16.5 5.5
  - GFN financeability index (GFI): -0.6
  - Risk signal: 4/Low
- Medium-term index summary:
  - Debt fanchart index: 4.0
  - GFN financeability index: -0.6
  - Medium-term index: (aggregate elements shown)
  - Final assessment:
    - Prob. of missed crisis, 2025-2030, if stress not predicted: 45.5 pct.
    - Prob. of false alarms, 2025-2030, if stress predicted: 10.2 pct.
- Notes on signals:
  - 2/ The comparison group is emerging markets, commodity exporter, surveillance.
  - 3/ Signal thresholds for DFI: low if below 1.13; high if above 2.08.
  - 4/ Signal thresholds for GFI: low if below 7.6; high if above 17.9.
  - 5/ Signal thresholds (other) given as low if below 0.26; high if above 0.40.

### Triggered stress tests and modules
- Triggered modules chart lists:
  - Pensions, Health, Large amortizations, Climate change: Adaptation, Climate change: Mitigation, Natural Resources.
- Projection variable risk indications shown include GFN-to-GDP ratio and Amortization-to-GDP ratio across modules (Amortization repeatedly flagged).
- Financing provided by banks: Actual vs Baseline vs Stress scenario series shown in figure (2020–2030).
- Medium-term index visualization showing risk range from Low risk to High risk.

### Long-term risk assessment: large amortization, pensions, health
- Long-run projections and scenarios include:
  - Baseline; Baseline with t+5; Baseline with t+5 and DSPB; Historical 10-year average (charts spanning long-run horizons).
- Pension financing metrics:
  - Permanent adjustment needed in the pension system to keep pension assets positive for:
    - 30 years: 0.08%
    - 50 years: 0.93%
    - Until 2100: 1.12%
  - Pension financing needs and Total Benefits Paid trajectories shown in long-run charts (2025–2053 and beyond).
- Health sector projections:
  - GFN-to-GDP Ratio and Total Public Debt-to-GDP Ratio shown under Health (Demographics) and Health (Demographics + ECG) scenarios (2017–2053).

- Commentary repeated: The government has large buffers that can support fiscal financing. The projected public debt increase under the baseline is to finance budgetary central government fiscal deficits while developing the domestic debt market.

### Data issues, adequacy assessment, and corrective actions
- Annex V: Data Adequacy Assessment for Surveillance (table and narrative).
- Summary judgments and key points:
  - The data provided to the Fund are adequate for surveillance / have some shortcomings but are broadly adequate for surveillance (varied cell-based assessments shown).
  - Use of data and/or estimates in Article IV consultations in lieu of official statistics available to staff: Since official IIP statistics exclude foreign assets held by the KIA, staff base the External Sector Assessment on IIP estimates from the External Wealth of Nations database. Staff also use estimates from the IEA Fossil Fuel Subsidies database and Global SWF Annual Reports to help inform surveillance.
  - Other data gaps: Expanding coverage and improving timeliness of labor market statistics would help inform surveillance.
  - Changes since the last Article IV consultation:
    - The CPI field survey was paused starting in July 2025, impacting the quality and timeliness of the CPI statistics.
    - Little or no progress has been made on improving the national accounts, government finance and external sector statistics.
- Corrective actions and capacity development priorities recommended to authorities:
  - i) resume the timely publication of monthly CPI statistics informed by a field survey;
  - ii) regularly publish complete national accounts statistics including an expenditure-side GDP decomposition in a timely manner;
  - iii) expand the coverage of the government finance statistics to include government debt service costs, KIA investment income and SOE profit transfers;
  - vi) expand the coverage of the IIP statistics to include foreign assets held by the KIA.
- Rationale for staff assessment (selected specifics):
  - Suspension of the annual establishment survey since 2019 has undermined national accounts quality; an expenditure-side national accounts decomposition remains unavailable for 2024.
  - Exclusion of government debt service costs, KIA investment income and SOE profit transfers from government finance statistics hampers fiscal policy analysis.
  - Omission of foreign assets held by the KIA from IIP statistics generates stock-flow inconsistencies with the BOP statistics.
  - Monetary and financial statistics are broadly adequate but exclusion of real estate price indexes hampers financial conditions measurement.
  - Absence of a decomposition of external debt into short-term versus long-term components hampers FX reserve adequacy assessment.

### Data dissemination and common indicators (as of January 1, 2026)
- Kuwait participates in the Enhanced General Data Dissemination System (e-GDDS) and publishes the data on its National Summary Data Page since September 2021.
- Table of Common Indicators Required for Surveillance: items listed in the source include Reserve/Base Money; Broad Money; Central Bank Balance Sheet (including currency and maturity composition); Consolidated Balance Sheet of the Banking System; Interest Rates; Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing – General Government and Central Government; International Investment Position; Stocks of Central Government and Central Government-Guaranteed Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt; Exchange Rates; International Reserve Assets and Reserve Liabilities of the Monetary Authorities.
- Dates of latest observation and reporting frequencies are shown in the source tables and summary (entries such as Aug-25, Sep-25, Mar-25, Apr-25, Jul-25 with frequency codes M, Q, I, etc., presented in the source).

### Financial deepening: policy reforms and opportunities
- Key reform context from Annex VI:
  - The Financing and Liquidity Law (enacted in March 2025) allows sovereign debt issuance for the first time since 2017.
  - The forthcoming Real Estate Financing Law introduces market-based housing finance.
  - Together with ongoing infrastructure investments, the authorities view these reforms as having the potential to catalyze deeper financial markets.

*Source: IMF staff estimates, projections, and annexes from the provided chapter.*

### 2.      Kuwait’s banking system and equity markets are well developed compared to GCC

### 2.      Kuwait’s banking system and equity markets are well developed compared to GCC peers and emerging market benchmarks

### Banking system and equity markets: current strengths
- Bank assets reached 250 percent of GDP in 2024—among the highest in the GCC—supported by strong balance sheets, high liquidity, and a large Islamic finance segment.
- Equity market capitalization was about 90 percent of GDP in 2024, above the emerging market average.
- The Kuwait Capital Markets Authority recently introduced key tools to facilitate institutional and foreign investor participation:
  - Short selling
  - Securities lending and borrowing
  - Margin trading
  - Omnibus/sub-accounts
- Market infrastructure was strengthened through the launch of a Central Clearing Counterparty (CCP) in 2025.

### Local currency debt market: status and constraints
- Outstanding local currency bonds (private and sovereign) totaled only 5 percent of GDP in 2024 (about 20 percent of GDP below potential market size).
- The long pause in government debt issuance precluded the development of a benchmark sovereign yield curve, limiting price discovery in corporate issuances and the development of an institutional investor base.
- The resumption of local currency sovereign debt issuance is identified as an opportunity to reinvigorate the market.
- Authorities are developing a sovereign sukuk program to expand Islamic debt instruments.

### Reform priorities and policy recommendations
- Establish a transparent and predictable sovereign issuance strategy:
  - Publish a 12-month ahead issuance calendar embedded in a medium-term debt management strategy.
  - Conduct regular auctions across standardized tenors to support price discovery and develop a benchmark sovereign yield curve.
  - Establish a joint Issuance and Market Development Committee among the CBK, MoF, KIA and CMA to better align issuance planning, liquidity management, and market-development objectives.
- Broaden the investor base and strengthen the role of nonbank financial institutions:
  - Encourage greater participation from insurers, pension funds, and asset managers to diversify financing channels and deepen intermediation.
  - Leverage the forthcoming Real Estate Financing Law to expand long-term lending opportunities and create conditions for securitization.
- Strengthen secondary market activity:
  - Leverage the new CCP while further activating repo and collateral tools to strengthen secondary market liquidity.

### Key statistics (preserved exactly)
- Bank assets: 250 percent of GDP in 2024.
- Equity market capitalization: about 90 percent of GDP in 2024.
- Outstanding local currency bonds (private and sovereign): 5 percent of GDP in 2024 (about 20 percent of GDP below potential market size).
- CCP launched: 2025.
- Recommended publication: 12-month ahead issuance calendar embedded in a medium-term debt management strategy.

*Prepared by Middle East and Central Asia Department with inputs from other departments and the World Bank; KUWAIT STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (February 3, 2026).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1kwtea2026001-source-pdf.pdf_