## IMF Executive Board Concludes 2023 Article IV Consultation with Kuwait

_IMF News, August 23, 2023_

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## Bibliographic details
- Published: August 23, 2023

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### Overview and recent developments
- The Executive Board concluded the Article IV consultation with Kuwait and considered and endorsed the Staff Appraisal on a lapse-of-time basis without a meeting.
- Benefiting from high oil prices, Kuwait’s economic recovery continues and inflation is contained.
- Non-oil GDP growth rose to an estimated 3.4 percent in 2021 and strengthened to 4.0 percent in 2022.
- Overall real GDP growth rebounded to 8.2 percent in 2022, supported by a pickup in oil production.
- Headline inflation peaked at 4.7 percent y-o-y in April 2022 and receded to 3.7 percent in May 2023.
- Core inflation (excluding food and transport items) has been trending down since 2022Q2.

### Macroeconomic performance and projections
- Real GDP:
  - 2021: 1.3 (annual percentage change)
  - 2022: 8.2
  - 2023 (Prel. Est.): 0.1
  - 2024 (Projections): 2.6
  - 2025: 4.1
  - 2026: 2.4
  - 2027: (table continues)
- Real oil GDP (including refineries):
  - 2021: -0.3
  - 2022: 11.6
  - 2023: -2.7
  - 2024: 2.0
  - 2025: 4.8
- Real non-oil GDP:
  - 2021: 3.4
  - 2022: 4.0
  - 2023: 3.8
  - 2024: 3.5
  - 2025: 3.2
  - 2026: 3.0
- Nominal GDP (market prices, in billions of Kuwaiti dinar):
  - 2019: 41
  - 2020: 32
  - 2021: 57
  - 2022: 50
  - 2023: 52
  - 2024: 53
  - 2025: 54
  - 2026: 56
- Oil and gas sector:
  - Total oil exports (billions of U.S. dollars): 2019: 58.7; 2020: 35.8; 2021: 63.0; 2022: 94.0; 2023: 72.5; 2024: 68.1; 2025: 68.5; 2026: 67.7; 2027: 67.2; 2028: 67.0
  - Average crude oil export price (U.S. dollars/barrel): 2019: 64.0; 2020: 41.5; 2021: 69.2; 2022: 102.7; 2023: 77.7; 2024: 71.7; 2025: 68.9; 2026: 66.7; 2027: 64.9; 2028: 63.4
  - Crude oil production (millions of barrels/day): 2019: 2.68; 2020: 2.44; 2021: 2.43; 2022: 2.71; 2023: 2.59; 2024: 2.81; 2025: 2.87; 2026: 2.92; 2027: 2.97
- CPI inflation (average):
  - 2019: 1.1
  - 2020: 2.1
  - 2021: 3.6

### Fiscal and external balances
- Fiscal balances:
  - The overall fiscal balance turned into a surplus of 6.5 percent of GDP in FY2021/22.
  - Non-oil balance (less investment income) improved by about 9 percentage points of non-oil GDP to -90.1 percent.
  - Fiscal financing needs fell substantially.
  - The fiscal surplus is estimated to have improved to 23.4 percent of GDP in FY2022/23.
  - Non-oil balance improved by about 2 percentage points of non-oil GDP to about -88.3 percent in FY2022/23.
- Budgetary operations (Percent of GDP at market prices):
  - Revenue: 2019: 56.2; 2020: 47.6; 2021: 54.3; 2022: 63.9; 2023: 57.2; 2024: 53.1; 2025: 52.2; 2026: 51.3; 2027: 49.4; 2028: 48.7
  - Oil revenue: 2019: 39.3; 2020: 25.3; 2021: 35.7; 2022: 48.2; 2023: 37.6; 2024: 35.6; 2025: 34.8; 2026: 33.8; 2027: 31.5; 2028: 30.6
  - Nonoil (of which): 2019: 16.9; 2020: 22.3; 2021: 18.6; 2022: 15.7; 2023: 19.6; 2024: 17.5; 2025: 17.9; 2026: 18.1
  - Expenditures: 2019: 55.7; 2020: 62.0; 2021: 47.7; 2022: 40.5; 2023: 52.5; 2024: 50.5; 2025: 50.4; 2026: 50.6; 2027: 51.0; 2028: 51.1
  - Expense: 2019: 49.0; 2020: 56.6; 2021: 43.4; 2022: 37.5; 2023: 47.5; 2024: 45.4; 2025: 45.3; 2026: 45.5; 2027: 45.9; 2028: 46.0
  - Capital: 2019: 6.7; 2020: 5.5; 2021: 4.3; 2022: 5.0; 2023: 5.1; 2024: 5.1
  - Balance: 2019: 0.5; 2020: -14.5; 2021: 6.6; 2022: 23.4; 2023: 4.7; 2024: 1.8; 2025: 0.7; 2026: -1.5; 2027: -2.4
  - Balance (after transfer to FGF and excl. invest. income): 2019: 15.9; 2020: -31.5; 2021: -6.5; 2022: 11.4; 2023: -8.4; 2024: -10.5; 2025: -11.1; 2026: -12.2; 2027: -14.6; 2028: -15.4
- External sector:
  - Current account (billions of U.S. dollars): 2019: 4.9; 2020: 37.4; 2021: 63.1; 2022: 42.1; 2023: 36.0; 2024: 33.7; 2025: 30.1; 2026: 26.7; 2027: 23.5
  - Current account (Percent of GDP): 2019: 4.6; 2020: 27.2; 2021: 25.7; 2022: 22.0; 2023: 19.9; 2024: 17.3; 2025: 15.0; 2026: 13.0? (table continues)
  - International reserve assets (US$ billions): 2019: 39.9; 2020: 48.3; 2021: 45.2; 2022: 50.0; 2023: 53.9; 2024: 58.3; 2025: 67.9; 2026: 72.9
  - International reserve assets in months of next year's imports: 2019: 11.3; 2020: 9.7; 2021: 10.4; 2022: 10.5; 2023: 10.6; 2024: 10.9; 2025: 11.1
  - Official reserve assets stood at US$48.2 billion as of end-2022 (10.4 months of prospective imports, 106.5 percent of the IMF Assessing Reserve Adequacy metric).

### Financial sector soundness
- Financial soundness indicators and authorities’ stress tests suggest the banking system is stable and resilient to severe shocks.
- Banks are well-capitalized and highly liquid; non-performing loans remain sufficiently provisioned; profitability is recovering.
- Policy guidance:
  - CBK should continue to closely monitor banks’ dollar funding liquidity and credit quality.
  - Now that all pandemic-related financial regulatory support measures have been unwound, the CBK should consider adjusting the composition of capital requirements to make macroprudential policy more countercyclical.
  - The interest rate ceiling on commercial loans should be phased out to support efficient risk pricing and credit supply to SMEs.
  - The existing blanket guarantee on bank deposits should be replaced with a limited deposit insurance framework to address moral hazard.

### Risks to the outlook
- The risks surrounding the baseline macroeconomic outlook are elevated and tilted to the downside.
- External/global risks:
  - Volatility in oil prices and production—arising from global factors—poses two-sided risks to growth and inflation, as well as to the fiscal and current account balances.
  - A deeper global growth slowdown, possibly caused by further monetary policy tightening or banking sector stress in major advanced economies, would adversely impact Kuwait’s economy.
  - Deepening geo-economic fragmentation would reduce potential growth, while structurally worsening the fiscal and current account balances.
- Domestic risks:
  - Delays in needed fiscal and structural reforms could amplify the risk of procyclical fiscal policy and undermine investor confidence.
  - Delays would hinder progress towards diversifying the economy, making it more vulnerable to climate transition risks.
- Upside scenario:
  - A resolution to the political gridlock could accelerate needed fiscal and structural reforms, boost investor confidence, and stimulate private investment.

### Executive Board policy recommendations
- Fiscal policy and public finances:
  - Comprehensive and growth-friendly fiscal consolidation is needed to reinforce fiscal sustainability and support intergenerational equity.
  - The fiscal expansion envisaged in the draft FY 2023/24 budget is appropriate given the negative non-oil output gap.
  - Starting next fiscal year, fiscal consolidation should aim to increase non-oil revenue and tackle current spending rigidities while increasing capital outlays to raise potential growth.
  - Revenue measures could include introducing the GCC-wide excises and VAT, as well as expanding corporate income taxation to cover domestic firms.
  - Expenditure measures should focus on curtailing the wage bill and gradually phasing out energy subsidies while improving targeted income support.
  - A target for the non-oil structural primary balance could serve as an appropriate fiscal anchor.
  - Strengthen fiscal governance and transparency: enhance fiscal data coverage and reporting, strengthen corporate governance, enhance public procurement, and reinvigorate the integrated asset-liability management framework.
- Monetary and exchange rate policy:
  - The fixed exchange rate regime—based on the peg to an undisclosed basket of currencies—remains an appropriate framework for monetary policy.
  - Fiscal consolidation and structural reforms should be pursued to strengthen the external position and support the peg.
- Structural reforms to boost growth and productivity:
  - Implement a comprehensive structural reform package to boost labor productivity and non-oil private sector-led growth.
  - Labor market reforms to promote a market-aligned wage structure and gradually align compensation and working conditions across public and private sectors.
  - Harmonize labor market policies between nationals and expatriates.
  - Proceed with social safety net reforms in parallel to ensure adequate social protection for nationals during the transition period.
  - Strengthen governance and the business environment: relax foreign ownership restrictions, improve public land allocation for commercial development with longer lease terms, and invest in human capital.

### Selected economic indicators (highlights)
- Official reserve assets: US$48.2 billion as of end-2022.
- Current account surplus: estimated 33.8 percent of GDP in 2022.
- Overall fiscal surplus: 6.5 percent of GDP in FY2021/22; estimated 23.4 percent of GDP in FY2022/23.
- Non-oil balance (less investment income): -90.1 percent of non-oil GDP in FY2021/22; about -88.3 percent in FY2022/23.
- Non-oil GDP growth: 3.4 percent in 2021; 4.0 percent in 2022; projected 3.8 percent in 2023.
- Headline inflation: peaked at 4.7 percent y-o-y in April 2022; 3.7 percent in May 2023.

*International Monetary Fund press release: IMF Executive Board Concludes 2023 Article IV Consultation with Kuwait.*

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## References

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- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [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)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2023/08/22/pr23291-kuwait-imf-executive-board-concludes-2023-article-iv-consultation_