{
  "title": "Kuwait: Staff Concluding Statement of the 2020 Article IV Mission",
  "publication": "IMF News, January 27, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/01/24/mcs012720-kuwait-staff-concluding-statement-of-the-2020-article-iv-mission",
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  "summary": "Growth and external",
  "publishDate": "2020-01-27",
  "sections": [
    {
      "heading": "Recent Macro-Financial Developments",
      "content": "- Growth and external\n  - Nonoil growth strengthened in 2019; overall growth about 0.7 percent in 2019 from 1.2 percent in 2018.\n  - Oil output expected to contract by 1 percent in 2019, broadly in line with the OPEC+ agreement.\n  - Current account surplus estimated to have narrowed to 8½ percent of GDP in 2019.\n  - Inflation rose to 1.1 percent in 2019.\n- Fiscal and sovereign buffers\n  - Consolidated fiscal balance improved in FY2018/19, but the nonoil balance excluding investment income fell by about 6 percentage points of nonoil GDP.\n  - Government spending grew almost 25 percent in dinar terms from FY2016/17 to FY2018/19.\n  - Public wage bill has grown by about 6 percent annually over the same period.\n  - Lowering of civil servants’ retirement age widened the state pension fund’s actuarial gap to about 45 percent of GDP.\n- Financing and assets\n  - 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.\n  - 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.\n  - 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.\n- Financial sector and markets\n  - Credit growth accelerated following CBK easing; CBK kept policy lending rate unchanged (except in March) while raising only the repo rate.\n  - Systemwide capital adequacy ratio (CAR) reached 17.6 percent in September 2019.\n  - Nonperforming loans net of specific provisions stood at 1.2 percent; loan-loss provisioning at 229 percent.\n  - MSCI Kuwait surged 29 percent in 2019; market capitalization reached an all-time high of US$35 billion in December 2019."
    },
    {
      "heading": "Macroeconomic Outlook and Risks",
      "content": "- Oil-price and output baseline\n  - 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.\n  - Assumed small increase in oil output in 2020 consistent with OPEC+ extension.\n- Growth and inflation projections\n  - Nonoil GDP could expand by 3 percent in 2020 and accelerate to 3½ percent over the medium term.\n  - Inflation expected to increase to 1.8 percent in 2020 as housing rents start to recover.\n- Capital flows and credit\n  - 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.\n- Risks\n  - Downside risks mainly from delays in reforms and a sustained drop in oil prices.\n  - A sustained drop in oil prices would weaken fiscal and current account balances and widen financing needs.\n  - Heightened security tensions and regional geopolitical risks could weigh on confidence, investment, and growth."
    },
    {
      "heading": "Fiscal and Financing Outlook",
      "content": "- Near-term measures and reform difficulty\n  - 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.\n  - 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.\n- Financing needs and projections\n  - 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.\n  - 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.\n  - 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.\n  - Without recourse to other financing sources, GRF’s readily available assets would be exhausted in less than two years."
    },
    {
      "heading": "Policy Discussions — A. Ensuring Long-Term Fiscal Sustainability",
      "content": "- Urgency and magnitude of adjustment\n  - Mission emphasizes urgency of adjustment to put fiscal position on a sounder path and close intergenerational savings’ gap.\n  - 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.\n- Proposed adjustment path (10-year closure of the intergenerational gap)\n  - Total spending would decline to about 75 percent of non-oil GDP (from 100 percent now) — a level broadly consistent with 2000-10 experience.\n  - Policy elements listed by the mission:\n    - 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.\n    - 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.\n    - Increase growth-enhancing public investment and improve its efficiency; accompany higher capital spending with reforms to improve project selection, planning, and implementation.\n    - Introduce a 5-percent value added tax (VAT) to broaden the tax base and yield stable revenue.\n    - Broaden coverage of profit tax and introduce excises on luxury goods or alternatively a personal income tax on high earners.\n- Building consensus\n  - 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."
    },
    {
      "heading": "Policy Discussions — B. Putting Robust Policy Frameworks in Place",
      "content": "- Fiscal framework and rules\n  - 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.\n  - 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.\n  - 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.\n- Fiscal governance and risk management\n  - 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.\n  - Improve transparency of oil wealth management and disclose value chain from extraction to government/KIA financials.\n  - Improve management of fiscal risks from SOEs and PPPs: MoF should systematically analyze fiscal risks and gather comprehensive PPP information and contingent liabilities.\n- Monetary and financial sector frameworks\n  - Pegged exchange rate regime considered appropriate; peg to an undisclosed basket provides an effective nominal anchor.\n  - 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.\n  - Strengthen supervisory frameworks: better integrate on- and off-site supervision; establish centralized Shariah Board at CBK.\n  - 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).\n  - Enhance liquidity management framework: CBK operationalized liquidity forecasting tool with IMF assistance; further refinements recommended to allow market forces greater role.\n  - 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.\n- Statistics\n  - Commend CSB for starting quarterly national accounts dissemination; household consumption and expenditure survey underway; groundwork for 2020 establishment census."
    },
    {
      "heading": "Policy Discussions — C. Promoting Private Sector-Led Growth and Diversification",
      "content": "- Labor market and employment\n  - 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.\n  - Reduce large public-private wage premium and implement education reforms to address skill mismatches.\n- State role, competition, and PPPs\n  - Reduce the role of the state through PPPs and privatization where appropriate; ensure PPPs are transparent, competitive, and with limited fiscal risks.\n  - Address anti-competitive practices and empower the Competition Promotion Agency; aim for “competitive neutrality” between private firms and government-owned commercial entities.\n- Business environment improvements\n  - 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.\n  - Authorities plan to streamline registration, expedite business and import licenses, and remove regulatory barriers to FDI.\n  - Need to improve efficiency of courts, expedite contract enforcement, and pass the draft insolvency law to modernize bankruptcy proceedings."
    },
    {
      "heading": "Selected Key Statistics (as presented in Table 1)",
      "content": "- Oil and gas sector (billions of U.S. dollars)\n  - 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).\n  - 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).\n  - 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).\n- National accounts and prices\n  - 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).\n  - 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).\n  - 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).\n  - CPI inflation (average): 0.6 (2016); 1.1 (2019); 2.5 (year shown in table without explicit alignment).\n- Fiscal (percent of GDP at market prices)\n  - 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).\n  - 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).\n  - Expenditures: 50.7 (2016); 52.0 (2017); 54.4 (2018); 54.8 (2019); 56.7 (2020); 55.9 (2021).\n  - 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).\n  - 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).\n  - 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).\n  - 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).\n  - 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).\n  - 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).\n- External sector (billions of U.S. dollars)\n  - 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).\n  - 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).\n  - Imports of goods (percent of GDP series-style entries across years appear in table).\n  - Current account: -5.1 (2016); 9.6 (2017); 20.4 (2018); 11.6 (2019); 3.7 (2020); 1.7 (2021).\n- International reserve assets (billions of U.S. dollars)\n  - 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).\n- Memorandum\n  - Exchange rate (U.S. dollar per KD, period average): 3.31 (listed).\n\nSource: IMF Communications Department — Kuwait: Staff Concluding Statement of the 2020 Article IV Mission (January 27, 2020).\n\n---\n\n\n References\n\n- Kingdom of Bahrain and the IMF\n- Kuwait and the IMF\n- Oman and the IMF\n- Qatar and the IMF\n- Saudi Arabia and the IMF\n- United Arab Emirates and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/01/24/mcs012720-kuwait-staff-concluding-statement-of-the-2020-article-iv-mission"
    }
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    "Published: January 27, 2020",
    "Growth and external",
    "Fiscal and sovereign buffers",
    "Financing and assets",
    "Financial sector and markets",
    "Oil-price and output baseline",
    "Growth and inflation projections",
    "Capital flows and credit",
    "Risks",
    "Near-term measures and reform difficulty",
    "Financing needs and projections",
    "Urgency and magnitude of adjustment",
    "Proposed adjustment path (10-year closure of the intergenerational gap)",
    "Building consensus",
    "Fiscal framework and rules",
    "Fiscal governance and risk management",
    "Monetary and financial sector frameworks",
    "Statistics",
    "Labor market and employment",
    "State role, competition, and PPPs",
    "Business environment improvements",
    "Oil and gas sector (billions of U.S. dollars)",
    "National accounts and prices",
    "Fiscal (percent of GDP at market prices)",
    "External sector (billions of U.S. dollars)",
    "International reserve assets (billions of U.S. dollars)",
    "Memorandum",
    "[Kingdom of Bahrain and the IMF](http://www.imf.org/external/country/BHR/index.htm)",
    "[Kuwait and the IMF](http://www.imf.org/external/country/KWT/index.htm)",
    "[Oman and the IMF](http://www.imf.org/external/country/OMN/index.htm)",
    "[Qatar and the IMF](http://www.imf.org/external/country/QAT/index.htm)",
    "[Saudi Arabia and the IMF](http://www.imf.org/external/country/SAU/index.htm)",
    "[United Arab Emirates and the IMF](http://www.imf.org/external/country/ARE/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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