{
  "title": "IMF Executive Board Concludes 2020 Article IV Consultation with Kuwait",
  "publication": "IMF News, March 30, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/03/27/pr20117-kuwait-imf-executive-board-concludes-2020-article-iv-consultation",
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  "summary": "(Note: table contains many additional year-by-year figures for oil exports, oil prices, crude oil production, nominal GDP in KWD and USD, external assets, KIA assets, net government financial assets, and other items.)",
  "publishDate": "2020-03-30",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Press Release No. 20/117, March 30, 2020.\n- Staff report prepared for Executive Board consideration on March 24; reflects discussions with Kuwaiti authorities in January 2020 and information available as of March 2. Supplementary Information based on information available as of March 12.\n- Report prepared before COVID-19 became a global pandemic and therefore does not reflect the implications of those developments; outbreak amplified uncertainty and downside risks around the outlook."
    },
    {
      "heading": "Recent economic developments",
      "content": "- Real GDP growth:\n  - Real GDP growth slowed to estimated 0.7 percent in 2019 from 1.2 percent in 2018.\n  - Nonoil growth estimated to have strengthened to 3 percent in 2019.\n  - Oil output contracted by 1 percent in 2019, broadly in line with the OPEC+ agreement.\n- Inflation and credit:\n  - Inflation rebounded to 1.1 percent in 2019 as food and transport prices recovered.\n  - Credit growth accelerated to 4.4 percent in 2019, spurred by relaxation of macroprudential ceilings on personal loans and supportive monetary conditions."
    },
    {
      "heading": "Fiscal position and public finances",
      "content": "- Fiscal balances and financing:\n  - Fiscal and current account surpluses narrowed in 2019 due to lower oil prices and output.\n  - Underlying fiscal stance loosened in FY2018/19; nonoil balance excluding investment income in percent of nonoil GDP deteriorated as government spending continued to rise.\n  - Fiscal financing needs—the overall balance after compulsory transfers to the Future Generations Fund (FGF) and excluding investment income—remained large at 7.7 percent of GDP.\n  - Lacking borrowing authorization since October 2017, the government continued drawing solely on General Reserve Fund (GRF) assets; total and liquid GRF balances fell to 56 and 24 percent of GDP by June 2019.\n  - Combined FGF and GRF assets continued to grow as the FGF generated strong returns and received mandatory transfers from the government.\n- Fiscal projections and indicators (selected from table):\n  - Revenue (percent of GDP): 59.3 in 2019; projected 55.5 in 2020, 52.6 in 2021, 50.6 in 2022, 49.?\n  - Oil revenue (percent of GDP): 39.8 in 2019; projected 36.7 in 2020, 35.5 in 2021, 34.6 in 2022, 33.9 in 2023, 33.3 in 2024, 32.8 in 2025.\n  - Investment income (percent of GDP): 14.2 in 2019; projected 13.1 in 2020, 13.2 in 2021, 12.8 in 2022, 12.4 in 2023.\n  - Expenditures (percent of GDP): 56.9 in 2019; projected 57.1 in 2020, 57.0 in 2021, 56.8 in 2022, 56.9 in 2019 listed earlier.\n  - Balance (percent of GDP): -2.6 in 2019; projected -3.7 in 2020, -4.4 in 2021, -5.2 in 2022, -5.6 in 2023.\n  - Balance after transfer to FGF and excl. investment income (percent of GDP): -13.9 in 2019; projected -18.3 in 2020, -19.8 in 2021, -20.9 in 2022, -21.4 in 2023, -21.8 in 2024, -21.9 in 2025.\n  - Nonoil balance excl. investment income (percent of nonoil GDP): -88.4 in 2019; projected -86.7 in 2020, -85.4 in 2021, -84.5 in 2022, -83.4 in 2023, -82.3 in 2024, -81.1 in 2025.\n  - Total gross debt (calendar year): 41.6 in 2019; projected 55.1 in 2020, 65.2 in 2021, 74.4 in 2022.\n\n  (Note: table contains many additional year-by-year figures for oil exports, oil prices, crude oil production, nominal GDP in KWD and USD, external assets, KIA assets, net government financial assets, and other items.)"
    },
    {
      "heading": "Financial sector and markets",
      "content": "- Banking system:\n  - Systemwide capital adequacy ratio reached 17.6 percent in September 2019.\n  - Banks have plentiful short-term liquidity.\n  - Nonperforming loans net of specific provisions remain low; loan-loss provisioning is high.\n  - Net interest income declined due to a narrowing spread between bank lending rates and cost of funds.\n- Markets:\n  - Real estate market has stabilized.\n  - Equity markets outperformed in 2019, in part thanks to inclusion in emerging market indices."
    },
    {
      "heading": "Executive Board assessment and recommended policy actions",
      "content": "- Main judgment:\n  - The challenge to reduce dependence on oil and boost savings has become more urgent.\n  - Kuwait has large financial buffers and low debt, but the window of opportunity to tackle challenges from a position of strength is narrowing.\n- Risks if no course correction:\n  - At current policies, the overall fiscal balance would turn into a growing deficit, which, after mandatory savings in the FGF, would give rise to large financing needs over the medium term.\n  - Borrowing should be viewed as temporary; while slowing depletion of liquid assets it would lead to rapid debt buildup.\n- Fiscal policy recommendations:\n  - Pursue ambitious, growth-friendly, and socially equitable fiscal adjustment.\n  - Cut current expenditure by tackling spending rigidities and boost nonoil revenue to create space for growth-enhancing investment.\n  - Reform the large public wage bill.\n  - Phase out generalized subsidies and transfers in favor of targeted compensation schemes.\n  - Initiate broad consultations, engage parliament, and continue technical work on GCC-wide excises and VAT.\n  - Consider taxes on corporate income, luxury items, and personal income of the wealthy for a more socially-balanced adjustment mix.\n  - Embed fiscal measures in a comprehensive reform package that promotes private sector growth, strengthens governance and accountability, and improves public services to build support for reforms.\n- Fiscal framework and governance:\n  - Introduce a rules-based fiscal framework to manage oil revenues and anchor fiscal policy on intergenerational equity.\n  - Include a well-calibrated operational rule reconciling long-term savings and near-term stabilization.\n  - Enshrine fiscal rule in a sound institutional framework; until in place, maintain current arrangement with respect to the FGF.\n  - Implement fiscal governance reforms to enhance transparency, modernize public procurement, and boost spending efficiency.\n- Monetary and exchange rate policy:\n  - Exchange rate peg remains appropriate and has provided an effective nominal anchor.\n  - Proposed fiscal adjustment would close the current account gap over the medium term; arrangement should be periodically reviewed as the economy diversifies.\n- Financial sector reforms:\n  - Enhance corrective action framework and establish a special resolution regime for banks; unwind blanket deposit guarantee to reduce moral hazard.\n  - Continue CBK efforts to recalibrate macroprudential tools.\n  - Gradually relax interest rate ceiling on commercial loans to expand lending to new market segments, including SMEs.\n  - Allow greater market role in allocation and pricing of liquidity to promote interbank market development.\n- Structural reforms for private sector development:\n  - Reduce economic footprint of the state, promote market competition, and improve business environment.\n  - Revamp insolvency framework, reduce excessive regulations, and ease trading across borders.\n  - Align public sector wages with private sector to incentivize private sector employment, accompanied by improvements in education and training programs to nurture entrepreneurship and equip graduates with in-demand skills."
    },
    {
      "heading": "Selected key statistics (from the report and table)",
      "content": "- Nonoil growth: 3 percent (2019 estimate).\n- Overall GDP growth: 0.7 percent (2019 estimate).\n- Oil output change: -1 percent (2019).\n- Inflation (average): 1.1 percent (2019).\n- Credit growth: 4.4 percent (2019).\n- Fiscal financing needs (overall balance after compulsory transfers to FGF and excluding investment income): 7.7 percent of GDP.\n- GRF total and liquid balances: 56 and 24 percent of GDP by June 2019.\n- Systemwide capital adequacy ratio: 17.6 percent (September 2019).\n- Total gross debt (calendar year): 41.6 (2019); projected 55.1 (2020), 65.2 (2021), 74.4 (2022).\n- Nominal GDP (market prices, in billions of U.S. dollars): 137 (2019); projected 135 (2020), 140 (2021), 146 (2022), 152 (2023), 159 (2024), 168 (2025).\n- Total oil and gas exports (billions of U.S. dollars): 58.2 (2019); projected 52.9 (2020), 52.8 (2021), 53.4 (2022), 54.6 (2023), 56.0 (2024), 57.5 (2025).\n- Average crude oil export price (U.S. dollars/barrel): 61.8 (2019); projected 55.9 (2020), 54.2 (2021), 54.3 (2022), 54.7 (2023), 55.2 (2024).\n\nSource: Press Release No. 20/117 — IMF Executive Board Concludes 2020 Article IV Consultation with Kuwait (March 30, 2020).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/03/27/pr20117-kuwait-imf-executive-board-concludes-2020-article-iv-consultation"
    }
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    "Published: March 30, 2020",
    "Press Release No. 20/117, March 30, 2020.",
    "Staff report prepared for Executive Board consideration on March 24; reflects discussions with Kuwaiti authorities in January 2020 and information available as of March 2. Supplementary Information based on information available as of March 12.",
    "Report prepared before COVID-19 became a global pandemic and therefore does not reflect the implications of those developments; outbreak amplified uncertainty and downside risks around the outlook.",
    "Real GDP growth:",
    "Inflation and credit:",
    "Fiscal balances and financing:",
    "Fiscal projections and indicators (selected from table):",
    "Banking system:",
    "Markets:",
    "Main judgment:",
    "Risks if no course correction:",
    "Fiscal policy recommendations:",
    "Fiscal framework and governance:",
    "Monetary and exchange rate policy:",
    "Financial sector reforms:",
    "Structural reforms for private sector development:",
    "Nonoil growth: 3 percent (2019 estimate).",
    "Overall GDP growth: 0.7 percent (2019 estimate).",
    "Oil output change: -1 percent (2019).",
    "Inflation (average): 1.1 percent (2019).",
    "Credit growth: 4.4 percent (2019).",
    "Fiscal financing needs (overall balance after compulsory transfers to FGF and excluding investment income): 7.7 percent of GDP.",
    "GRF total and liquid balances: 56 and 24 percent of GDP by June 2019.",
    "Systemwide capital adequacy ratio: 17.6 percent (September 2019).",
    "Total gross debt (calendar year): 41.6 (2019); projected 55.1 (2020), 65.2 (2021), 74.4 (2022).",
    "Nominal GDP (market prices, in billions of U.S. dollars): 137 (2019); projected 135 (2020), 140 (2021), 146 (2022), 152 (2023), 159 (2024), 168 (2025).",
    "Total oil and gas exports (billions of U.S. dollars): 58.2 (2019); projected 52.9 (2020), 52.8 (2021), 53.4 (2022), 54.6 (2023), 56.0 (2024), 57.5 (2025).",
    "Average crude oil export price (U.S. dollars/barrel): 61.8 (2019); projected 55.9 (2020), 54.2 (2021), 54.3 (2022), 54.7 (2023), 55.2 (2024).",
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