IMF Executive Board Concludes 2021 Article IV Consultation with Kuwait
IMF News, March 28, 2022
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- Published: March 28, 2022
Economic outlook and activity
- Non-oil GDP growth is estimated at 3.4 percent in 2021 and is projected to rise slightly to 3.5 percent in 2022.
- Oil production is projected to rebound as OPEC+ quotas are relaxed.
- Overall, GDP is projected to grow around 2.7 percent over the medium term.
- Inflation is estimated at 3.4 percent in 2021 and is projected to rise to 4.4 percent in 2022 before declining to 2.4 percent over the medium term.
- Recovery drivers: higher oil prices, relaxation of mobility restrictions, high vaccination rate achieved in 2021.
- Table highlights (selected):
- Total oil and gas exports (billions of U.S. dollars): 59.1 (2021); 78.9 (2022); 74.6 (2023); 71.4 (2024); 70.5 (2025); 71.5 (2026); 71.9 (2027).
- Average crude oil export price (U.S. dollars/barrel): 82.4 (2021); 75.3 (2022); 70.9 (2023); 68.1 (2024); 66.3 (2025); 65.5 (2026).
- Crude oil production (millions of barrels/day): 2.43 (2021); 2.72 (2022); 2.77 (2023); 2.83 (2024); 2.88 (2025); 2.94 (2026); 3.00 (2027).
- Real GDP growth: 1.3 (2021); 8.2 (2022); 2.6 (2023); 2.7 (2024).
- Real oil GDP (including refineries): -0.3 (2021); 12.0 (2022); 2.0 (2023).
Fiscal developments and public finances
- FY 2020/21 fiscal deficit increased to an estimated 16.6 percent of GDP.
- Drivers of the wider deficit: fiscal stimulus for COVID-19, a 13.9 percent of GDP decline in oil revenues, and a slump in economic activity.
- Financing constraints: absence of a public debt law permitting borrowing and no legal authority to draw from the Future Generations Fund (FGF) led to drawdown of liquid assets of the General Reserve Fund (GRF).
- FY 2021/22 headline fiscal balance is expected to improve to a surplus of 3.7 percent of GDP, driven by rebound in oil revenues, announced spending cuts (August 2021), and significantly higher nominal GDP reflecting higher oil prices on the GDP deflator.
- Supported by higher oil exports, the 2021 current account surplus is projected to increase to 16.1 percent of GDP.
- Table highlights (percent of GDP at market prices):
- Revenue: 53.8 (2021); 56.9 (2022); 55.1 (2023); 53.7 (2024); 52.5 (2025); 50.4 (2026); 48.6 (2027).
- Oil revenue: 36.0 (2021); 40.0 (2022); 37.8 (2023); 34.7 (2024); 32.6 (2025); 30.9 (2026).
- Expenditures: 44.5 (2021); 46.6 (2022); 48.1 (2023); 48.7 (2024); 49.3 (2025); 49.8 (2026).
- Expense: 38.7 (2021); 40.5 (2022); 41.8 (2023); 42.5 (2024).
- Capital: 5.5 (2021); 6.1 (2022); 6.2 (2023).
- Balance: -16.6 (2021); 3.7 (2022); 5.6 (2023); 3.8 (2024).
- Balance (after transfer to FGF and excl. investment income): -31.1 (2020); -9.9 (2021); -4.4 (2022); -7.6 (2023); -9.5 (2024); -12.2 (2025); -14.4 (2026).
- Total gross debt (calendar year): 8.8 (2021); 17.9 (2022); 25.0 (2023); 33.7 (2024); 42.2 (2025).
- Estimated KIA assets (billions of U.S. dollars): 597.6 (2020); 544.8 (2021); 472.1 (2022); 497.4 (2023); 517.7 (2024); 530.0 (2025); 534.4 (2026); 535.7 (2027).
- Net government financial assets: 585.9 (2020); 535.9 (2021); 458.9 (2022); 483.8 (2023); 499.8 (2024); 505.0 (2025); 500.7 (2026); 493.5 (2027).
Financial sector resilience
- Kuwait’s financial sector has weathered the crisis well: banks are well-capitalized and highly liquid.
- As of 2021Q3, bank capital adequacy ratio stood at 18.6 percent, well above the required minimum level.
- Nonperforming loans net of specific provisions remain low; loan-loss provisioning is high.
- Directors commended the Central Bank of Kuwait for prudent regulation and supervision.
- Recommendations to safeguard resilience:
- Continued forward-looking assessment of bank asset quality.
- Maintain strong capital and liquidity buffers.
- Relax interest ceilings on commercial loans.
- Enhance credit information infrastructure to improve access to finance, including for SMEs.
- Strengthen the AML/CFT framework.
Risks and uncertainties
- Substantial uncertainties surround the outlook, with the balance of risks tilted to the downside.
- Downside risk factors:
- Rapid spread of the Omicron variant and renewed global pandemic control challenges.
- Delays in fiscal and structural reforms leading to procyclical fiscal policies, reduced investor confidence, hindered diversification and competitiveness, and increased social pressures.
- Volatility in oil prices significantly impacting the outlook and macroeconomic balances.
- Upside risks:
- Stronger rebound in global activity boosting oil revenues.
- Resolution to political gridlock and strong fiscal consolidation improving investor sentiment.
Executive Board assessment and policy recommendations
- Directors agreed with staff appraisal and commended authorities for swift policy actions and strong vaccination efforts.
- Key policy directions recommended by Directors:
- Comprehensive fiscal consolidation to reinforce fiscal sustainability and support intergenerational equity.
- Consider introducing a VAT and excise duties, expand corporate tax to domestic firms, and implement a property tax to boost revenues.
- Curtail the wage bill and consolidate subsidies and social benefits.
- Pass the new public debt law and establish a robust medium-term fiscal framework with a clear fiscal anchor to limit procyclicality, enhance fiscal credibility, reduce fiscal risks, and improve capacity to manage adverse shocks.
- Strengthen fiscal governance and transparency to improve public financial management.
- Continue supporting banking system resilience and supervision.
- Implement a comprehensive set of well-sequenced structural reforms to diversify away from hydrocarbon dependence and promote private sector-led growth, including reforms to the social safety net, labor market, regulatory framework, and business environment.
- Address climate challenges by supporting green infrastructure and strengthening energy efficiency standards.
- Forcefully implement the anti-corruption strategy and action plan to strengthen governance and improve the business environment.
Other procedural note
- It is expected that the next Article IV consultation with Kuwait will be held on the standard 12-month cycle.
Source: IMF Press Release No. 22/92, "IMF Executive Board Concludes 2021 Article IV Consultation with Kuwait", March 28, 2022.