Kuwait: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, December 18, 2025
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- Published: December 18, 2025
Developments, the Outlook and Risks
- Transition underway from an oil dependent welfare state towards a dynamic and diversified economy; reform momentum has been building since May 2024 with enactment of the Financing and Liquidity Law.
- Economic activity and inflation:
- Real GDP expanded by 1.7 percent (y-o-y) in 2025Q2.
- Non-oil growth was 3.1 percent (y-o-y) in 2025Q2.
- Headline CPI inflation reached 2.4 percent (y-o-y) in August (so far in 2025).
- External position and buffers:
- Current account surplus declined to 29.1 percent of GDP in 2024.
- Official reserve assets stood at 8.3 months of projected imports at end-2024.
- External position in 2025 was substantially weaker than the level implied by medium-term fundamentals and desirable policies, reflecting excessive reliance on oil exports and inadequate public saving of oil revenue; external buffers are ample.
- Fiscal outcomes:
- Fiscal deficit of the budgetary central government narrowed to 2.2 percent of GDP in FY2024/25.
- General government fiscal surplus widened to 27.7 percent of GDP in FY2024/25, reflecting higher estimated SWF investment income.
- Government issued 4.6 percent of GDP in domestic bonds and 7.1 percent of GDP in external bonds as of end-October (resuming sovereign debt issuance after an almost decade long hiatus).
- Financial sector:
- Banks have maintained strong capital and liquidity buffers consistent with CBK regulatory requirements.
- Credit growth to the non-financial private sector has been picking up.
- Nonperforming loans remain low and well provisioned for.
- Baseline projections (assuming current policies):
- Real GDP: 2.6 percent in 2025 and 3.8 percent in 2026; stabilizing just above 2.0 percent over the medium term.
- Non-oil GDP: 2.7 percent in 2025 and 3.0 percent in 2026; then at 2.7 percent over the medium term.
- Headline CPI inflation: 2.3 percent in 2025 and 2.1 percent in 2026; stabilizing just below 2.0 percent over the medium term.
- Current account surplus: 22.9 percent of GDP in 2025 and 19.1 percent of GDP in 2026; then gradually declining over the medium term.
- Budgetary central government fiscal deficit: 8.7 percent of GDP (4.2 billion KD) in FY2025/26 and 9.4 percent of GDP (4.6 billion KD) in FY2026/27; widening to 11.5 percent of GDP (7.0 billion KD) by FY2031/32.
- Net financing need for the budgetary central government from FY2025/26 to FY2031/32: 39.1 billion KD.
- Risks:
- Broadly balanced around the baseline.
- External risks: commodity price volatility, global growth slowdown or acceleration, shifts in global financial conditions—transmitted mainly via oil prices and OPEC+ production.
- Main domestic risk: pace of structural reforms and infrastructure project implementation.
Fiscal Policy — Reinforcing Long-Term Fiscal Sustainability
- Long-term fiscal need:
- Kuwait would need about 10 percent of GDP in fiscal consolidation over the next decade to equitably distribute oil wealth across current and future generations, accounting for population growth.
- Fiscal consolidation should be implemented at a pace of about 1 percent of GDP per year—without which the fiscal deficit would deteriorate by about 0.5 percent of GDP per year—with manageable impacts on growth and inflation.
- Revenue and tax measures:
- Mobilize non-oil revenue by extending the 15 percent CIT to all domestic companies, introducing the GCC-wide excise tax, and introducing a 5 percent VAT.
- Public sector pay and employment:
- Introduce a performance-based public sector wage-setting mechanism to gradually reduce the large premium over the private sector.
- Institute a hiring cap to steadily lower the public sector employment share.
- Streamline or integrate allowances into base salaries.
- Energy subsidies and pricing:
- Phase out energy subsidies by gradually raising retail electricity, water and fuel prices towards their GCC-average levels.
- Provide targeted transfers to vulnerable groups via the existing social assistance system.
- Enhance electricity generation and distribution efficiency to reduce costs.
- Public investment:
- Scale up public investment by around 2.5 percent of GDP over the medium term to mitigate contractionary impacts of consolidation when combined with structural reforms.
- Public financial management (PFM) and debt management:
- Develop a medium-term fiscal framework, including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance.
- Expand coverage of fiscal accounts statistics to the general government level.
- Undertake periodic public investment management assessments and publish a medium-term debt management strategy including a bond issuance calendar.
- Develop a sovereign asset-liability management framework to balance intergenerational fiscal policy tradeoffs and manage public sector balance sheet risks.
Monetary Policy and Financial Sector — Maintaining Macrofinancial Stability
- Exchange rate and monetary stance:
- The exchange rate peg remains an appropriate nominal anchor for monetary policy.
- Since September 2024, the CBK has cut its policy rate by 75 basis points.
- The policy rate remains above neutral and is in line with controlling inflation and stabilizing non-oil output.
- Under the baseline, monetary normalization should continue as inflation moderates and the non-oil output gap closes.
- Financial stability and regulation:
- Under CBK stress tests, system capitalization and liquidity generally exceeded Basel III minimum requirements; individual bank shortcomings were limited.
- With the credit cycle near its midpoint, CBK could consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer.
- The forthcoming Real Estate Financing Law will permit banks to offer mortgage loans for the first time; CBK should continue regular reviews of the regulatory perimeter and macroprudential toolkit.
- Continue risk-based supervisory approach to assess banks and address vulnerabilities.
- Financial regulatory reforms recommended:
- Replace the unlimited guarantee on bank deposits with a limited deposit insurance framework to address moral hazard.
- Adopt Basel III endgame requirements to constrain capital risk-weights.
- Phase out bank lending rate caps to support efficient pricing of default risk while expanding access to credit to riskier borrowers.
- Financial deepening:
- The Financing and Liquidity Law presents an opportunity to deepen the domestic bond market and develop a market-based benchmark yield curve.
- CBK is developing an auction-based primary market open to a broader range of investors to support price discovery and fiscal savings.
Structural Reforms — Boosting Non-Oil Growth
- Overall approach:
- Implement a structural reform package to unify the labor market and improve the business environment to sustainably boost non-oil growth.
- Labor market:
- Address labor market duality: Kuwaitis largely prefer public sector jobs while expatriates fill most private sector jobs.
- Move toward performance-based compensation in the public sector and expand vocational training programs to incentivize private sector employment by Kuwaitis.
- Housing and land policy:
- Government announced PPP projects to build some 185,000 homes and associated infrastructure to meet strong housing demand.
- Sustainably satisfying housing demand will require reducing implicit subsidies.
- Full foreign ownership of land is now permitted; scale up public land sales for commercial development.
- Financial markets and AML/CFT:
- Use the Financing and Liquidity Law to deepen the domestic bond market and develop a benchmark yield curve.
- Progress is being made to strengthen AML/CFT effectiveness; authorities are working to address deficiencies identified by the 2024 FATF Mutual Evaluation Report.
Statistics and Data Gaps
- Statistical capacity has weakened further from a low base, hampering IMF surveillance.
- Major gaps persist in national accounts, prices, government finance and external sector statistics.
- Priority actions:
- Boost funding of the Central Statistical Bureau (CSB) to resume the annual establishment survey suspended since 2020.
- Fill gaps where:
- Expenditure-side GDP statistics remain unavailable for 2024.
- Publication of CPI statistics was temporarily paused.
- Fiscal accounts statistics exclude government investment income and SOE profit transfers.
- IIP statistics exclude government foreign assets.
- Expand coverage of fiscal accounts and external sector statistics, especially now that the government has resumed issuing debt.
Source: Kuwait: Staff Concluding Statement of the 2025 Article IV Mission