IMF Executive Board Concludes 2019 Article IV Consultation with Kuwait

IMF News, April 3, 2019

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IMF Executive Board Concludes 2019 Article IV Consultation with Kuwait

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Bibliographic details

• Published: April 3, 2019

Growth and external sector

• Growth resumed in 2018, aided by higher oil prices.
• Hydrocarbon output rose by 1.2 percent in 2018 after contracting a year earlier.
• Non-oil growth accelerated to 2.5 percent, buoyed by a rebound in confidence and government spending.
• The current account shifted back into surplus in 2017 and reached an estimated surplus of 12.7 percent of GDP in 2018.
• Inflation fell to 0.7 percent (a multiyear low) due to falling housing rents, easing food prices, and a strengthening dinar.
• Current account and external projections and levels from the report:
  • Current account (percent of GDP): 33.4 (2014); -4.6 (2015); 12.7 (2016); 5.5 (2017); 11.4 (2018); 11.9 (2019 projected); 10.4 (2020 projected); 9.5 (2021 projected).
  • Total oil and gas exports (billions of U.S. dollars): 97.6 (2014); 48.5 (2015); 41.5 (2016); 49.6 (2017); 65.7 (2018); 58.3 (2019 projected); 59.6 (2020 projected); 60.2 (2021 projected); 60.9 (2022 projected); 62.1 (2023 projected); 63.6 (2024 projected).
  • Average oil export price (U.S. dollars/barrel): 96.5 (2014); 49.0 (2015); 41.0 (2016); 53.4 (2017); 70.6 (2018); 61.5 (2019 projected); 61.4 (2020 projected); 60.6 (2021 projected); 60.1 (2022 projected).
  • Crude oil production (millions of barrels/day): 2.87 (2014); 2.86 (2015); 2.95 (2016); 2.70 (2017); 2.74 (2018); 2.79 (2019 projected); 2.93 (2020 projected); 2.99 (2021 projected); 3.05 (2022 projected); 3.11 (2023 projected).

Fiscal position and financing

• Overall fiscal balance improved due to higher oil revenues and investment income.
• Underlying fiscal position (non-oil balance less investment income in percent of non-oil GDP) indicates a modest loosening in FY17/18 and FY18/19.
• Fiscal financing needs remain large when measured as overall balance after compulsory transfers to the Future Generations Fund (FGF) and excluding investment income.
• Delays in passage of a new debt law have prevented the government from issuing debt since October 2017, forcing draws on the General Reserve Fund assets for financing.
• Key fiscal figures (percent of GDP unless otherwise noted):
  • Revenue: 67.4 (2014); 52.3 (2015); 52.8 (2016); 58.9 (2017); 58.6 (2018); 58.0 (2019 projected); 58.7 (2020 projected); 57.2 (2021 projected); 55.8 (2022 projected); 54.6 (2023 projected).
  • Oil revenue: 51.9 (2014); 35.4 (2015); 34.5 (2016); 38.0 (2017); 43.7 (2018); 40.1 (2019 projected); 39.2 (2020 projected); 37.8 (2021 projected); 36.8 (2022 projected); 35.9 (2023 projected); 35.1 (2024 projected).
  • Investment income: 10.6 (2014); 13.3 (2015); 14.6 (2016); 16.5 (2017); 13.0 (2018); 13.9 (2019 projected); 14.3 (2020 projected); 14.7 (2021 projected); 13.5 (2022 projected).
  • Expenditures: 48.8 (2014); 52.7 (2015); 50.8 (2016); 48.3 (2017); 50.5 (2018); 51.0 (2019 projected); 51.7 (2020 projected); 51.1 (2021 projected).
  • Balance: 18.6 (2014); -0.3 (2015); 12.6 (2016); 8.0 (2017); 7.0 (2018); 6.7 (2019 projected); 5.2 (2020 projected).
  • Balance (after transfers to FGF and excl. investment income): 2.3 (2014); -17.5 (2015); -17.9 (2016); -12.6 (2017); -5.2 (2018); -10.4 (2019 projected); -11.6 (2020 projected); -12.3 (2021 projected); -13.0 (2022 projected); -13.5 (2023 projected); -13.7 (2024 projected).
  • Non-oil balance excl. investment income (percent of non-oil GDP): -102.5 (2014); -88.3 (2015); -83.8 (2016); -86.5 (2017); -87.8 (2018); -85.7 (2019 projected); -84.7 (2020 projected); -81.3 (2021 projected); -78.9 (2022 projected); -77.2 (2023 projected); -75.3 (2024 projected).
  • Total gross debt (calendar year): 10.0 (2014); 20.7 (2015); 14.8 (2016); 17.8 (2017); 21.0 (2018); 26.2 (2019 projected); 31.1 (2020 projected); 34.7 (2021 projected); 38.4 (2022 projected).

Financial sector and monetary settings

• Banking sector indicators reported sound:
  • Systemwide capital adequacy ratio reached 18 percent in September 2018.
  • Liquidity ratios were comfortably within regulatory requirements.
  • Profits rose and asset quality improved, with NPLs net of specific provisions falling to a historical low.
• Central Bank of Kuwait (CBK) actions and effects:
  • CBK raised the repo rate, a benchmark for deposits, several times but kept the policy lending rate at 3 percent since March 2018.
  • Bank lending interest rates have risen by less than deposit rates.
  • Ample liquidity—stemming from deposit growth and government debt redemption in 2018—has supported a credit recovery.
• Credit developments:
  • Private sector loans grew 4.1 percent year-on-year in December 2018, driven by household, construction, and oil sector borrowing.
• Monetary and financial figures:
  • Net foreign assets (percent change): 3.6 (2014); 8.7 (2015); -3.1 (2016); 5.6 (2017); 7.5 (2018); 6.1 (2019 projected); 6.5 (2020 projected); 6.9 (2021 projected).
  • Claims on nongovernment sector (percent change): 7.6 (2014); 2.8 (2015); 4.1 (2016); 7.2 (2017); 7.1 (2018); 7.4 (2019 projected).
  • Kuwaiti dinar 3-month deposit rate (year average; in percent): 0.8 (2014); 1.1 (2015); (2018 based on latest available data noted elsewhere).

Executive Board Assessment and Directors' recommendations

• Directors' overall view:
  • Growth is expected to strengthen and the underlying fiscal position to gradually improve over the medium term.
  • Given oil price volatility and exhaustible oil resources, timely and well-sequenced fiscal and structural reforms are needed to reduce dependence on oil, boost government saving, and create more private sector jobs.
• Fiscal recommendations:
  • Undertake deeper fiscal reforms to ensure adequate savings for future generations.
  • Tackle spending rigidities and increase non-oil revenue while boosting capital outlays to improve infrastructure and raise potential growth.
  • Address the large public sector wage bill; public sector wages should be gradually aligned with those in the private sector to incentivize nationals to seek private sector opportunities and support competitiveness.
  • Proceed with the introduction of GCC-wide excises and VAT.
  • Strengthen fiscal transparency, improve the public procurement framework, and increase spending efficiency to bolster fiscal policy credibility and reduce vulnerability to corruption.
• Financial sector recommendations:
  • Implement recommendations of the Financial System Stability Assessment (FSSA).
  • Enhance the crisis management framework, notably by establishing a special resolution regime for banks and unwinding the blanket guarantee of deposits once preconditions are met.
  • Strengthen liquidity management, bolster systemic risk oversight, and gradually relax interest ceilings.
  • Further strengthen the AML/CFT framework.
• Structural and business environment recommendations:
  • Implement structural reforms to improve the business environment, support entrepreneurship, and foster productivity.
  • Ease administrative procedures, facilitate trading across borders, and promote competition.
  • Create a more enabling environment for SMEs and startups by enhancing access to finance, facilitating participation in public tenders, and training entrepreneurs.
• Exchange rate and external policy:
  • Directors concurred that the pegged currency regime remains appropriate, with the peg to a basket of currencies continuing to provide an effective nominal anchor.
  • Directors noted that the recommended fiscal adjustment would largely close the current account gap over the medium term.

Selected economic indicators and projections (highlights)

• Nominal GDP (market prices, in billions of Kuwaiti dinar): 46 (2014); 34 (2015); 33 (2016); 36 (2017); 43 (2018); 41 (2019 projected); 45 (2020 projected); 47 (2021 projected); 49 (2022 projected); 52 (2023 projected).
• Nominal GDP (market prices, in billions of U.S. dollars): 163 (2014); 115 (2015); 109 (2016); 120 (2017); 141 (2018); 137 (2019 projected); 143 (2020 projected); 150 (2021 projected); 156 (2022 projected); 172 (2023 projected).
• Real GDP growth (annual percent change): 0.5 (2014); 0.6 (2015); 2.9 (2016); -3.5 (2017); 1.7 (2018); 2.5 (2019 projected); 2.7 (2020 projected).
• Real oil GDP: -2.1 (2014); -1.7 (2015); 3.9 (2016); -7.2 (2017); 1.2 (2018); 2.0 (2019 projected).
• Real non-oil GDP: 4.9 (2014); 4.2 (2015); 1.4 (2016); 2.1 (2017); 3.0 (2018); 3.5 (2019 projected); 3.4 (2020 projected); 3.2 (2021 projected); 3.7 (2022 projected); 4.0 (2023 projected).
• CPI inflation (average): 3.1 (2014); 1.5 (2015); 0.7 (2016); 4.7 (2017); (multiyear low of 0.7 percent noted for 2018).
• Exports of goods (billions of U.S. dollars): 104.5 (2014); 54.5 (2015); 46.5 (2016); 55.1 (2017); 71.6 (2018); 64.6 (2019 projected); 66.3 (2020 projected); 67.3 (2021 projected); 68.4 (2022 projected); 70.2 (2023 projected); 72.3 (2024 projected).
• International reserve assets (billions of U.S. dollars): 32.3 (2014); 28.3 (2015); 31.2 (2016); 33.5 (2017); 37.0 (2018); 37.2 (2019 projected); 38.8 (2020 projected); 41.1 (2021 projected); 43.0 (2022 projected); 45.3 (2023 projected); 47.9 (2024 projected).

IMF Communications Department, Press Release No. 19/104, April 3, 2019 — Executive Board conclusions and selected data as presented in the Article IV consultation with Kuwait.

References

• Kuwait and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home