{
  "title": "Public Information Notice: IMF Executive Board Concludes 2008 Article IV Consultation with Kuwait",
  "publication": "IMF News, June 12, 2008",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0867",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2008-06-12",
  "sections": [
    {
      "heading": "Background and recent macroeconomic developments",
      "content": "- Macroeconomic performance in 2007 described as \"strong\" with prudent macroeconomic management supporting high growth, especially in the non-oil economy.\n- Large increase in oil revenue generated substantial fiscal and external current account surpluses, enabling buildup of foreign assets.\n- Structural reforms continued to promote a dynamic private sector and enhance incentives for bringing in foreign know-how.\n- Inflation:\n  - \"Gradually picking up,\" reaching \"7.3 percent year-on-year in October 2007,\" driven by domestic demand pressures (especially rents) and higher import prices (mostly food).\n- Output and sectoral performance:\n  - Real GDP growth in 2007 is estimated at \"4.6 percent.\"\n  - Oil production declined by \"2.6 percent in 2007,\" in line with OPEC decisions.\n  - Non-oil activity—particularly financial, transportation, and communication services—grew by \"almost 9 percent per annum,\" benefiting from surge in investment and expansionary macroeconomic policies.\n- Fiscal position:\n  - Fiscal surplus estimated to have increased to \"40 percent of GDP in FY2007/08 (ended March 31).\"\n  - Projected to narrow in FY2008/09 due to a large transfer to the Kuwait Public Institution for Social Security (KPISS) and large increases in public wages, transfers and subsidies, and capital expenditure.\n- Exchange rate and monetary conditions:\n  - Kuwait abandoned the peg to the U.S. dollar in May 2007 and pegged the Kuwaiti dinar (KD) to an undisclosed basket of currencies.\n  - REER of the Kuwaiti dinar appreciated by \"about 2 percent in 2007,\" largely due to a \"6 percent appreciation against the U.S. dollar\" and relatively higher inflation.\n  - Broad money and credit to the private sector expanded rapidly in 2007.\n  - Central Bank measures: tightened loan-to-deposit ceiling, drove KIBOR below LIBOR.\n- Financial markets:\n  - Kuwait stock exchange (KSE) corrected \"12 percent\" in 2006, recovered with KSE index gaining \"25 percent\" in 2007, and fell again in early 2008 as global turbulences intensified.\n  - Banking system described as sound; available financial soundness indicators through September 2007 point to strong capitalization, asset quality, and profitability.\n- Structural reforms and institutional measures:\n  - Profit tax on foreign investors reduced from \"55 percent to 15 percent\"; capital gains from stock investment exempted from tax.\n  - Sale of State Properties Law approved to provide state land to investors and legal basis for PPP projects.\n  - Parliament authorized privatization of Kuwait Airways; licenses granted to three private airlines and four new private universities; privatized a number of gas stations.\n  - Budget preparation consolidated in the ministry of finance, including wage bill and capital budget."
    },
    {
      "heading": "Executive Board assessment — key findings and recommendations",
      "content": "- Commendations and priorities:\n  - Directors commended prudent macroeconomic policies and structural reform efforts contributing to strong growth, especially in labor-intensive non-oil sector.\n  - Agreed that dealing with inflation pressures will be a priority for the near term.\n  - Vigorous implementation of government reform plans should support favorable medium-term growth prospects for oil and non-oil sectors.\n- Oil policy and capacity:\n  - Directors commended Kuwait's intention to play a constructive role in the global oil market and welcomed plans to increase oil production and refinery capacity.\n- Fiscal policy guidance:\n  - Kuwait's strong fiscal position enhances resilience to shocks.\n  - Fiscal policies should balance moderating demand pressures, addressing domestic supply bottlenecks, and building financial assets for future generations to reduce dependence on volatile oil revenue.\n  - Recommendations:\n    - Contain wage bill and subsidies through merit-based wage increases and better-targeted social spending.\n    - Build on improvements in budget planning and execution by adopting a medium-term budget preparation framework.\n    - Welcome plans to close the actuarial deficit of the Pension Fund.\n- Sovereign wealth fund and transparency:\n  - Directors welcomed the stabilizing role of the Kuwait Investment Authority (KIA) domestically and in global markets.\n  - Some Directors saw scope for greater transparency regarding the KIA's financial position.\n  - Encouraged participation in initiative to formulate best practices for sovereign wealth funds; some Directors shared authorities' reservations about participating in such initiatives.\n- Exchange rate regime and monetary union:\n  - Most Directors agreed the pegged exchange rate regime remains appropriate; move to a basket peg may have helped contain imported inflation.\n  - Peg limits active use of interest rate policy; some Directors suggested reviewing the nature of the exchange rate arrangement.\n  - To counter rising domestic inflationary pressures, supply response in nontradables—particularly housing and land—needs enhancement while maintaining fiscal prudence.\n  - Containing domestic credit growth through continued supervisory vigilance recommended.\n  - Directors noted Kuwait's commitment to GCC monetary union; implementation by 2010 will require speeding up institutional framework building and removing remaining obstacles to labor and capital flow among GCC countries.\n  - Several Directors looked forward to forthcoming staff paper on exchange rate arrangement options under the planned monetary union.\n- Financial sector supervision and regulation:\n  - Noted sound position of banking sector; cautioned that rapid growth of financial investment companies calls for continued vigilance.\n  - Encouraged completion of outstanding FSAP recommendations, including:\n    - Establishing a unified and independent capital market regulatory authority applying best international practices.\n    - Continuing and broadening regular stress testing of the overall financial sector.\n- Structural reforms and private sector development:\n  - Further structural reforms critical to sustain medium-term growth.\n  - Recommendations:\n    - Focus public expenditure on infrastructure and education rather than subsidies and transfers to develop human capital and create private sector employment for Kuwaiti nationals.\n    - Establish a strong capital market regulator and enact legal reforms to encourage competition and facilitate doing business.\n- Data and international assistance:\n  - Directors welcomed authorities' intention to improve economic statistics and encouraged adopting a program aimed at subscribing to the Fund's Special Data Dissemination Standard (SDDS).\n  - Commended Kuwait for substantial development assistance and support for the Highly Indebted Poor Countries (HIPC) Initiative; encouraged extending HIPC debt relief to claims held by the Kuwait Investment Authority."
    },
    {
      "heading": "Kuwait: Selected Economic Indicators, 2003-08 (highlights)",
      "content": "- Production and prices (Percent change)\n  - Real GDP: 2003: \"17.2\", 2004: \"10.6\", 2005: \"11.5\", 2006: \"6.4\", 2007: \"4.6\", 2008 (Proj.): \"6.0\"\n  - Real oil GDP: 2003: \"19.8\", 2004: \"8.1\", 2005: \"11.4\", 2006: \"2.9\", 2007: \"-2.3\", 2008 (Proj.): \"1.3\"\n  - Real non-oil GDP: 2003: \"13.9\", 2004: \"12.9\", 2005: \"12.0\", 2006: \"9.4\", 2007: \"9.2\", 2008 (Proj.): \"8.6\"\n  - Consumer Price Index (annual average): 2003: \"1.0\", 2004: \"4.1\", 2005: \"3.1\", 2006: \"5.0\", 2007: \"6.5\"\n- Government finances (In percent of GDP; fiscal year ending March 31)\n  - Total Revenue: 2003: \"52.9\", 2004: \"55.7\", 2005: \"64.5\", 2006: \"64.0\", 2007: \"72.6\", 2008 (Est./Proj.): \"70.3\"\n  - Oil and gas revenue: 2003: \"40.8\", 2004: \"42.9\", 2005: \"52.1\", 2006: \"49.5\", 2007: \"56.6\", 2008: \"58.0\"\n  - Investment income: 2003: \"7.7\", 2004: \"9.3\", 2005: \"9.8\", 2006: \"13.6\", 2007: \"10.2\"\n  - Total Expenditure: 2003: \"36.2\", 2004: \"32.8\", 2005: \"27.4\", 2006: \"35.0\", 2007: \"32.2\", 2008: \"45.8\"\n  - Current Expenditure: 2003: \"31.7\", 2004: \"28.6\", 2005: \"23.8\", 2006: \"30.9\", 2007: \"24.7\", 2008: \"37.8\"\n  - Capital Expenditure: 2003: \"4.5\", 2004: \"4.2\", 2005: \"3.6\", 2006: \"7.4\", 2007: \"7.9\"\n  - Overall fiscal balance: 2003: \"16.7\", 2004: \"22.9\", 2005: \"37.1\", 2006: \"29.0\", 2007: \"40.5\", 2008: \"24.5\"\n- Money and credit\n  - Broad money: 2003: \"7.8\", 2004: \"12.1\", 2005: \"12.3\", 2006: \"21.7\", 2007: \"19.3\", 2008: \"14.3\"\n  - Interest Rate (Three-month Kuwaiti dinar deposit rate, period average): 2003: \"1.5\", 2004: \"1.6\", 2005: \"5.2\", 2006: \"...\"\n  - Claims on nongovernment sector: 2003: \"21.4\", 2004: \"16.1\", 2005: \"18.8\", 2006: \"24.8\", 2007: \"35.1\", 2008: \"18.6\"\n- External sector (In billions of U.S. dollars unless otherwise indicated)\n  - Exports, of which: 2003: \"21.8\", 2004: \"30.1\", 2005: \"47.0\", 2006: \"58.6\", 2007: \"62.8\", 2008: \"84.7\"\n  - Crude oil and refined products: 2003: \"19.6\", 2004: \"27.8\", 2005: \"44.1\", 2006: \"59.7\", 2007: \"81.4\"\n  - Imports: 2003: \"-9.9\", 2004: \"-11.7\", 2005: \"-14.2\", 2006: \"-14.3\", 2007: \"-16.7\", 2008: \"-19.9\"\n  - Current account balance (deficit = -): 2003: \"18.2\", 2004: \"34.3\", 2005: \"51.1\", 2006: \"52.7\", 2007: \"65.6\"\n  - Current account in percent of GDP: 2003: \"19.7\", 2004: \"30.6\", 2005: \"42.5\", 2006: \"51.7\", 2007: \"47.4\", 2008: \"45.2\"\n  - International reserve assets (in months of imports of goods and services): 2003: \"7.6\", 2004: \"8.3\", 2005: \"9.0\", 2006: \"12.6\", 2007: \"15.5\"\n  - Months of imports of goods and services: 2003: \"5.5\", 2004: \"4.7\", 2005: \"6.1\", 2006: \"5.7\", 2007: (not explicitly listed)\n  - Real effective exchange rate (percent change): 2003: \"-7.2\", 2004: \"-5.1\", 2005: \"2.1\", 2006: \"0.8\", 2007: \"1.9\"\n\nPublic Information Notice (PIN) No. 08/67; June 12, 2008. Executive Board discussion concluded April 18, 2008.\n\n---\n\n\n References\n\n- Kuwait and the IMF\n- Public Information Notices\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0867"
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    "Published: June 12, 2008",
    "Macroeconomic performance in 2007 described as \"strong\" with prudent macroeconomic management supporting high growth, especially in the non-oil economy.",
    "Large increase in oil revenue generated substantial fiscal and external current account surpluses, enabling buildup of foreign assets.",
    "Structural reforms continued to promote a dynamic private sector and enhance incentives for bringing in foreign know-how.",
    "Inflation:",
    "Output and sectoral performance:",
    "Fiscal position:",
    "Exchange rate and monetary conditions:",
    "Financial markets:",
    "Structural reforms and institutional measures:",
    "Commendations and priorities:",
    "Oil policy and capacity:",
    "Fiscal policy guidance:",
    "Sovereign wealth fund and transparency:",
    "Exchange rate regime and monetary union:",
    "Financial sector supervision and regulation:",
    "Structural reforms and private sector development:",
    "Data and international assistance:",
    "Production and prices (Percent change)",
    "Government finances (In percent of GDP; fiscal year ending March 31)",
    "Money and credit",
    "External sector (In billions of U.S. dollars unless otherwise indicated)",
    "[Kuwait and the IMF](http://www.imf.org/external/country/KWT/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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