## Kuwait: Staff Concluding Statement of the 2023 Article IV Mission _IMF News, June 5, 2023_ ## Source details **Canonical URL:** [Kuwait: Staff Concluding Statement of the 2023 Article IV Mission](https://www.imf.org/en/news/articles/2023/06/05/mcs060523-kuwait-staff-concluding-statement-2023-article-iv-mission) ## Other formats - [Markdown version](/en/news/articles/2023/06/05/mcs060523-kuwait-staff-concluding-statement-2023-article-iv-mission/index.md) - [Structured JSON version](/en/news/articles/2023/06/05/mcs060523-kuwait-staff-concluding-statement-2023-article-iv-mission/index.json) - [Bundle manifest](/en/news/articles/2023/06/05/mcs060523-kuwait-staff-concluding-statement-2023-article-iv-mission/bundle-manifest.json) ## Bibliographic details - Published: June 5, 2023 --- ### Recent Developments, Outlook, and Risks - Growth and inflation - Growth is estimated to have surged to 8.2 percent in 2022, up from 1.3 percent in 2021, primarily driven by high oil production and prices. - Non-oil growth is estimated to have risen to 4.0 percent in 2022, up from 3.4 percent in 2021. - Annual headline CPI inflation peaked at 4.7 percent in April 2022 and reached 3.7 percent in April 2023. - Fiscal and external balances; reserves - The overall fiscal surplus is estimated by Fund staff to have surged to 22.5 percent of GDP in 2022, up from 6.4 percent of GDP in 2021. - The current account surplus is estimated to have risen to 33.0 percent of GDP in 2022, up from 26.6 percent of GDP in 2021. - Official reserve assets increased to US$48.2 billion (10.3 months of prospective imports) at end-2022. - The external position in 2022 is assessed as weaker than the level implied by fundamentals and desirable policies, largely due to insufficient public saving of the oil revenue windfall. - Financial stability and banking sector - Banks remain well capitalized and liquid, comfortably exceeding prudential regulatory requirements; non-performing loans remain low. - The Central Bank of Kuwait (CBK) tightened policy by a total of 250 basis points since the global monetary policy tightening cycle began. - Impact of global banking sector turbulence on Kuwait’s banks has been limited. - Political developments - Government resigned on January 23. - Crown Prince reappointed the Prime Minister on March 5 and tasked him to form a new Cabinet. - New Cabinet formed on April 9. - Amir dissolved Parliament and called for a general election on May 1. - A general election will be held on June 6. - 2023 outlook and risks - Real GDP growth is projected to fall to 0.1 percent in 2023 due to agreed OPEC+ oil production cuts and slower external demand growth. - Non-oil growth is projected to remain robust at 3.8 percent in 2023. - Overall fiscal and current account surpluses will fall in 2023, reflecting fiscal expansion and lower oil revenues. - Elevated risks: volatility in oil prices and production; deeper global growth slowdown from further monetary tightening or banking sector stress; domestic risks from delays in fiscal and structural reforms. - Upside scenario: resolution of political gridlock could accelerate reforms, boost investor confidence, and stimulate private investment. ### Fiscal Policy — Supporting the Recovery and Reinforcing Sustainability - Short-term stance and forecast - The draft FY2023/24 Budget envisages a large fiscal expansion concentrated in higher current spending on the public sector wage bill, as well as subsidies and social benefits. - Non-oil output gap is estimated at -1.7 percent in 2023. - The overall fiscal surplus is projected by Fund staff to drop to 6.9 percent of GDP in 2023, and to fall steadily thereafter into deficit over the medium term. - Consolidation needs and recommended measures - Substantial fiscal consolidation based on both expenditure and non-oil revenue measures is needed. - Expenditure measures: rationalize the public sector wage bill; gradually phase out large energy subsidies while replacing them with targeted income support to vulnerable households. - Revenue measures: introduce a 5 percent value-added tax; levy excises on tobacco and sugary drinks as agreed with other GCC countries in 2015-16; expand the 15 percent corporate income tax to cover domestic firms to conform with the OECD-led global minimum corporate tax agreement for multinationals. - Allocate part of fiscal savings towards investments in transport and renewable energy infrastructure; frontload infrastructure investment in the event of a substantial fall in non-oil growth. - Medium-term fiscal framework and governance - Develop a robust medium-term fiscal framework underpinned by a medium-term macroeconomic framework to strengthen fiscal analysis, forecasting, and evaluation of reform options. - Adopt a fiscal rule based on the non-oil structural primary balance to provide discipline and achieve countercyclical stabilization and intergenerational equity objectives. - Strengthen sovereign asset and liability management framework to identify and manage risks to the consolidated public sector balance sheet. - Reinstate monthly fiscal reporting and expand coverage to SOEs to enhance fiscal transparency and governance. - Public Debt Law - Expeditiously pass the new Public Debt Law to permit borrowing and facilitate orderly fiscal financing through sovereign bond issuance while supporting development of the domestic bond market. - The new law should ideally not impose restrictions on sovereign bond maturities or have a predetermined expiration date. - Financing note - In the absence of borrowing authority or legal access to the Future Generations Fund, fiscal financing has relied on the much smaller General Reserve Fund. ### Monetary and Financial Sector Policies — Safeguarding Financial Stability - Exchange rate and monetary policy - The exchange rate peg to an undisclosed basket of currencies remains an appropriate nominal anchor. - The peg has delivered low and stable inflation and provides the CBK with some monetary policy autonomy. - Maintaining central bank independence is critical; fiscal consolidation and structural reforms are desirable to strengthen the external position and support the peg. - Prudential supervision and emerging risks - Prudent regulation and supervision by the CBK have helped maintain a resilient banking system. - Internationally active banks in Kuwait could face higher interbank dollar funding costs in the event of global systemic financial instability, constraining credit supply. - The domestic credit cycle is maturing as interest rates rise; the CBK should closely monitor banks’ dollar funding liquidity and credit quality. - Now that pandemic-related financial regulatory support measures have been unwound, the CBK could consider activating the countercyclical capital buffer. - Financial sector reforms and instruments - CBK plans to regularly review the adequacy of its financial regulatory perimeter and macroprudential policy toolkit and to continue regular stress testing of the banking system. - Replace the existing blanket guarantee on bank deposits with a limited deposit insurance framework to address moral hazard. - Phase out the interest rate cap on commercial loans to support efficient risk pricing and credit supply to SMEs. ### Structural Reforms — Strengthening Non-Oil Growth and Employment - Labor market and employment - Over the next five years, roughly 100,000 young Kuwaitis will join the labor force, as implied by demographics. - Given fiscal consolidation needs and global decarbonization trends, most labor force entrants should join the non-oil private sector. - Implement labor market reforms to incentivize nationals to seek private sector employment: gradually align compensation and working conditions across public and private sectors; harmonize labor market policies for nationals versus expatriates; enhance job search assistance and training programs. - Progress noted: encouraging female labor force participation by improving the working environment for women; digitalizing public services. - Business environment and investment - Reforms to strengthen competition and promote investment, including relaxing foreign ownership restrictions on firms, are needed. - Enhance public land allocation for commercial development with longer lease terms. - Climate change mitigation and adaptation - 2019-30 National Adaptation Plan addresses extreme heat impacts on health and productivity; the plan needs translation into investment projects and implementation following parliamentary approval. - Kuwait committed under the Paris Agreement to cut greenhouse gas emissions by 7.4 percent relative to business-as-usual by 2035. - Kuwait plans to reach net zero greenhouse gas emissions in the oil sector by 2050, and economy-wide by 2060. - To achieve emissions targets, finish developing the mitigation plan, including phasing out fossil fuel subsidies while replacing them with targeted income support to vulnerable households and promoting investment in renewables-based electricity generation infrastructure. - Governance and anti-corruption - Implement remaining elements of the 2019-24 Integrity and Anti-Corruption Strategy, including enhancing compliance with the asset declaration system and strengthening integrity and efficiency of public procurement. - Continue strengthening the AML/CFT framework in line with FATF recommendations, including beneficial ownership elements. *IMF staff concluding statement, June 5, 2023.* --- ## References - [Kuwait and the IMF](http://www.imf.org/external/country/KWT/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) _Source: https://www.imf.org/en/news/articles/2023/06/05/mcs060523-kuwait-staff-concluding-statement-2023-article-iv-mission_