Kuwait: Staff Concluding Statement of the 2020 Article IV Mission
IMF News, January 27, 2020
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- Published: January 27, 2020
Recent Macro-Financial Developments
- Growth and external
- Nonoil growth strengthened in 2019; overall growth about 0.7 percent in 2019 from 1.2 percent in 2018.
- Oil output expected to contract by 1 percent in 2019, broadly in line with the OPEC+ agreement.
- Current account surplus estimated to have narrowed to 8½ percent of GDP in 2019.
- Inflation rose to 1.1 percent in 2019.
- Fiscal and sovereign buffers
- Consolidated fiscal balance improved in FY2018/19, but the nonoil balance excluding investment income fell by about 6 percentage points of nonoil GDP.
- Government spending grew almost 25 percent in dinar terms from FY2016/17 to FY2018/19.
- Public wage bill has grown by about 6 percent annually over the same period.
- Lowering of civil servants’ retirement age widened the state pension fund’s actuarial gap to about 45 percent of GDP.
- Financing and assets
- Consolidated balance after mandatory transfers to the Future Generations Fund (FGF) and excluding investment income amounted to a deficit of about 8 percent of GDP in FY2018/19.
- With a new debt law awaiting parliamentary approval, the government has been unable to issue debt since October 2017 and relied on the General Reserves Fund (GRF) for financing.
- KIA assets estimated to have surpassed 410 percent of GDP by end-2019; estimated GRF total and liquid balances reduced to 56 and 24 percent of GDP by June 2019.
- Financial sector and markets
- Credit growth accelerated following CBK easing; CBK kept policy lending rate unchanged (except in March) while raising only the repo rate.
- Systemwide capital adequacy ratio (CAR) reached 17.6 percent in September 2019.
- Nonperforming loans net of specific provisions stood at 1.2 percent; loan-loss provisioning at 229 percent.
- MSCI Kuwait surged 29 percent in 2019; market capitalization reached an all-time high of US$35 billion in December 2019.
Macroeconomic Outlook and Risks
- Oil-price and output baseline
- Mission projections built on oil prices declining from US$62 per barrel in 2019 to about US$56 per barrel in 2023 and remaining broadly unchanged thereafter.
- Assumed small increase in oil output in 2020 consistent with OPEC+ extension.
- Growth and inflation projections
- Nonoil GDP could expand by 3 percent in 2020 and accelerate to 3½ percent over the medium term.
- Inflation expected to increase to 1.8 percent in 2020 as housing rents start to recover.
- Capital flows and credit
- MSCI inclusion in May is expected to bring about US$3.5 billion inflows (2.3 percent of GDP), of which US$2.6 billion would be passive inflows.
- Risks
- Downside risks mainly from delays in reforms and a sustained drop in oil prices.
- A sustained drop in oil prices would weaken fiscal and current account balances and widen financing needs.
- Heightened security tensions and regional geopolitical risks could weigh on confidence, investment, and growth.
Fiscal and Financing Outlook
- Near-term measures and reform difficulty
- Government focusing on measures not requiring legislative changes: (i) closing loopholes in social transfer programs; (ii) reprioritizing capital expenditure; (iii) reducing waste, including by improving procurement.
- Plans to raise nonoil revenue via: (i) introducing excise on tobacco and sugary drinks; (ii) repricing government services; (iii) strengthening revenue collection, especially utility payments.
- Financing needs and projections
- Consolidated fiscal balance projected to turn from a surplus of 5½ percent of GDP in 2019 to a deficit of a similar magnitude by 2025.
- After compulsory transfers to the FGF and excluding investment income, projected average annual financing needs of 20 percent of GDP or, cumulatively, some KD55 billion (US$180 billion) over the next 6 years.
- Under no legal restriction on borrowing, government debt would have to rise to over 70 percent of GDP in 2025 from 15 percent in 2019 to finance the remaining gap.
- Without recourse to other financing sources, GRF’s readily available assets would be exhausted in less than two years.
Policy Discussions — A. Ensuring Long-Term Fiscal Sustainability
- Urgency and magnitude of adjustment
- Mission emphasizes urgency of adjustment to put fiscal position on a sounder path and close intergenerational savings’ gap.
- Mission estimates the nonoil balance in FY2025/26 would fall about 16 percentage points of nonoil GDP short of the level needed to ensure adequate savings for future generations under an approach allowing a somewhat higher deficit.
- Proposed adjustment path (10-year closure of the intergenerational gap)
- Total spending would decline to about 75 percent of non-oil GDP (from 100 percent now) — a level broadly consistent with 2000-10 experience.
- Policy elements listed by the mission:
- Curtail the public wage bill over time by aligning public sector wages more closely with private sector wages, harmonizing public wage grid structure, fostering merit-based compensation, and reducing public-private wage premia.
- Phase out generalized subsidies and reform transfers: at almost 7½ percent of GDP, fuel, electricity, and water subsidies and transfers are large; raise utility prices to cost recovery and rationalize transfers with strict eligibility enforcement; introduce targeted cash transfers in parallel.
- Increase growth-enhancing public investment and improve its efficiency; accompany higher capital spending with reforms to improve project selection, planning, and implementation.
- Introduce a 5-percent value added tax (VAT) to broaden the tax base and yield stable revenue.
- Broaden coverage of profit tax and introduce excises on luxury goods or alternatively a personal income tax on high earners.
- Building consensus
- Adjustment should be growth-friendly and socially equitable; supplemented by reforms to cut waste, improve public service quality, and strengthen accountability and transparency; accompanied by vigorous communication.
Policy Discussions — B. Putting Robust Policy Frameworks in Place
- Fiscal framework and rules
- Recommend adopting a rules-based fiscal framework to ensure future generations enjoy a broadly similar standard of living and insulate the economy from oil price fluctuations.
- Current arrangement: 10 percent of revenue transferred to the FGF, remaining surpluses to GRF; arrangement does not ensure adequate savings and imposes no constraint on “above the line” fiscal policy.
- Current FGF arrangement should be maintained until a properly calibrated fiscal rule is in place; FGF stock should not be tapped while the rule is implemented.
- Fiscal governance and risk management
- Continue strengthening fiscal governance: accelerate implementation of procurement law (2017) including e-procurement; consider public expenditure review in health; undertake PIMA and Fiscal Transparency Evaluation.
- Improve transparency of oil wealth management and disclose value chain from extraction to government/KIA financials.
- Improve management of fiscal risks from SOEs and PPPs: MoF should systematically analyze fiscal risks and gather comprehensive PPP information and contingent liabilities.
- Monetary and financial sector frameworks
- Pegged exchange rate regime considered appropriate; peg to an undisclosed basket provides an effective nominal anchor.
- Support for CBK’s prudential regulation and supervision; recommended inventory of macroprudential tools, upgrade stress-testing, remove preferential zero risk weights for exposures to GCC sovereigns.
- Strengthen supervisory frameworks: better integrate on- and off-site supervision; establish centralized Shariah Board at CBK.
- Strengthen crisis management and resolution: draft banking resolution law in cabinet; internal discussions on deposit insurance; draft law in parliament assigning CBK explicit financial stability mandate and establishing a Financial Stability Committee (FSC).
- Enhance liquidity management framework: CBK operationalized liquidity forecasting tool with IMF assistance; further refinements recommended to allow market forces greater role.
- Recommend gradual relaxation of lending rate caps to expand credit access and promote longer maturities; welcome amendments enabling credit bureau to gather business credit information.
- Statistics
- Commend CSB for starting quarterly national accounts dissemination; household consumption and expenditure survey underway; groundwork for 2020 establishment census.
Policy Discussions — C. Promoting Private Sector-Led Growth and Diversification
- Labor market and employment
- Private sector needs to absorb most of 100 thousand Kuwaiti nationals (22 percent of the current Kuwaiti labor force) expected to enter the job market in the next 5 years.
- Reduce large public-private wage premium and implement education reforms to address skill mismatches.
- State role, competition, and PPPs
- Reduce the role of the state through PPPs and privatization where appropriate; ensure PPPs are transparent, competitive, and with limited fiscal risks.
- Address anti-competitive practices and empower the Competition Promotion Agency; aim for “competitive neutrality” between private firms and government-owned commercial entities.
- Business environment improvements
- Kuwait jumped in the 2020 Ease of Doing Business ranking due to improvements in starting a business, getting electricity, access to credit, and trading across borders.
- Authorities plan to streamline registration, expedite business and import licenses, and remove regulatory barriers to FDI.
- Need to improve efficiency of courts, expedite contract enforcement, and pass the draft insolvency law to modernize bankruptcy proceedings.
Selected Key Statistics (as presented in Table 1)
- Oil and gas sector (billions of U.S. dollars)
- Total oil and gas exports: 41.5 (2016); 49.6 (2017); 65.4 (2018); 58.2 (2019); 59.6 (2020); 56.5 (2021); 55.2 (2022); 55.4 (2023); 56.6 (2024); 58.3 (2025).
- Average crude oil export price (U.S. dollars/barrel): 39.5 (2016); 51.6 (2017); 68.8 (2018); 61.8 (2019); 63.3 (2020); 58.6 (2021); 56.1 (2022); 55.3 (2023); 56.0 (2024).
- Crude oil production (millions of barrels/day): 2.95 (2016); 2.70 (2017); 2.74 (2018); 2.76 (2019); 2.81 (2020); 2.87 (2021); 2.93 (2022); 2.99 (2023).
- National accounts and prices
- Nominal GDP (market prices, in billions of Kuwaiti dinar): 33 (2016); 37 (2017); 42 (2018); 41 (2019); 43 (2020); 45 (2021); 46 (2022); 49 (2023); 51 (2024); (2025 value listed as blank in source table).
- Nominal GDP (market prices, in billions of U.S. dollars): 109 (2016); 121 (2017); 141 (2018); 137 (2019); 143 (2020); 144 (2021); 148 (2022); 154 (2023); 161 (2024); 169 (2025).
- Real GDP growth: 2.9 (2016); -4.7 (2017); 1.2 (2018); 0.7 (2019); 1.5 (2020); 2.7 (2021); (2022–2025 values partially omitted in source table).
- CPI inflation (average): 0.6 (2016); 1.1 (2019); 2.5 (year shown in table without explicit alignment).
- Fiscal (percent of GDP at market prices)
- Revenue: 52.7 (2016); 60.9 (2017); 59.9 (2018); 58.0 (2019); 55.6 (2020); 54.0 (2021); 52.8 (2022); 52.2 (2023); 51.2 (2024); (2025 value present in table formatting).
- Oil revenue: 34.4 (2016); 37.8 (2017); 43.7 (2018); 40.6 (2019); 39.6 (2020); 37.0 (2021); 35.2 (2022); 34.2 (2023); 33.5 (2024); 32.9 (2025).
- Expenditures: 50.7 (2016); 52.0 (2017); 54.4 (2018); 54.8 (2019); 56.7 (2020); 55.9 (2021).
- Balance: 0.5 (2016); 7.5 (2017); 8.9 (2018); 5.5 (2019); 3.2 (2020); -0.5 (2021); -2.7 (2022); -3.9 (2023); -4.3 (2024); -4.8 (2025).
- Balance (after transfer to FGF and excl. investment income): -17.9 (2016); -12.9 (2017); -8.2 (2018); -13.1 (2019); -14.5 (2020); -17.8 (2021); -20.0 (2022); -21.0 (2023); -21.4 (2024); -21.4 (2025) (as formatted in source table).
- Non-oil balance excl. investment income (percent of non-oil GDP): -83.5 (2016); -85.5 (2017); -91.1 (2018); -89.6 (2019); -88.6 (2020); -86.4 (2021); -84.7 (2022); -83.2 (2023); -82.0 (2024); -80.7 (2025).
- Total gross debt (calendar year): 10.0 (2016); 14.8 (2017); 15.3 (2018); 30.7 (2019); 40.3 (2020); 53.0 (2021); 64.1 (2022); 73.6 (2023).
- Estimated KIA assets: 476.6 (2016); 460.4 (2017); 398.2 (2018); 412.4 (2019); 410.3 (2020); 414.1 (2021); 412.3 (2022); 405.3 (2023); 394.7 (2024); 380.5 (2025).
- Net government financial assets: 466.6 (2016); 439.9 (2017); 383.3 (2018); 397.1 (2019); 392.0 (2020); 383.4 (2021); 372.0 (2022); 352.4 (2023); 330.5 (2024); 306.9 (2025).
- External sector (billions of U.S. dollars)
- Exports of goods: 46.5 (2016); 72.3 (2017); 64.6 (2018); 66.3 (2019); 62.2 (2020); 62.8 (2021); 64.4 (2022); 66.6 (2023).
- Non-oil exports: 5.0 (value listed in table section); 5.6; 6.4; 6.8; 7.3; 7.8; 8.3 (year alignment as in table).
- Imports of goods (percent of GDP series-style entries across years appear in table).
- Current account: -5.1 (2016); 9.6 (2017); 20.4 (2018); 11.6 (2019); 3.7 (2020); 1.7 (2021).
- International reserve assets (billions of U.S. dollars)
- 31.2 (2016); 33.6 (2017); 37.2 (2018); 39.7 (2019); 41.1 (2020); 42.8 (2021); 44.8 (2022); 46.4 (2023); 48.3 (2024); 50.4 (2025).
- Memorandum
- Exchange rate (U.S. dollar per KD, period average): 3.31 (listed).
Source: IMF Communications Department — Kuwait: Staff Concluding Statement of the 2020 Article IV Mission (January 27, 2020).