IMF staff concludes visit to Kuwait

IMF staff concludes visit to Kuwait

May 9, 2024

End-of-mission press releases include statements by IMF staff teams that convey preliminary findings after a country visit. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF Executive Board. This mission will not result in a Board discussion.

• The economic recovery from the pandemic has been disrupted by OPEC+ production quota cuts. Non-oil growth is expected to recover this year, but will remain below the GCC average.
• Inflation is moderating thanks to tighter monetary policy, while the current account balance remains strong. Prudent regulation and supervision by the Central Bank of Kuwait (CBK) has helped maintain financial stability.
• The fiscal balance has weakened and political stagnation is delaying much-needed fiscal and structural reforms. Continued delays would undermine fiscal prudence and investor confidence, while slowing economic diversification and competitiveness.
• The outlook is surrounded by elevated external risks, mainly associated with the volatility of oil prices and production, and the contagion effects of regional conflicts.

Kuwait City, Kuwait: A mission from the International Monetary Fund (IMF), headed by Mr. Francisco Parodi, held talks with the Kuwaiti authorities in Kuwait City from April 30 to May 7, 2024. At the conclusion of the mission, Mr. Parodi issued the following statement:

“The economic recovery from the pandemic has been disrupted. Real economic activity is estimated to have fallen 2.2 percent in 2023, with the oil sector contracting 4.3 percent due to an OPEC+ production quota cut in May, and the non-oil sector expanding only 0.8 percent amid moderate growth in domestic demand. The economy is projected to contract another 1.4 percent in 2024, and oil production will fall another 4.3 percent due to the OPEC+ quota cut in January. The non-oil sector is expected to expand 2.0 percent as domestic demand growth recovers, compared with an average growth of 3.6 percent for the GCC.

“Inflation is moderating, while the fiscal balance has weakened and the current account balance remains strong. CPI inflation recorded 3.6 percent in 2023 and is projected to reach 3.2 percent in 2024. After achieving a surplus of 11.8 percent of GDP in fiscal year 2022/23, the balance The central government’s fiscal budget swung into deficit, estimated at 4.3 percent of GDP in fiscal year 2023/24, as oil revenues fell and government expenditures increased across all spending categories. In the absence of fiscal consolidation measures, this deficit is expected to increase further in the medium term. In parallel, after peaking at 34.5 percent of GDP in 2022 thanks to high oil exports, the current account surplus moderated to 32.9 percent of GDP in 2023, as a lower trade surplus offset by far the increase in income from international investments.

“Financial stability has been maintained despite tighter financial conditions. Credit growth to the non-financial private sector continued to decline in 2023, to just 1.8 percent, as bank lending rates rose in response to gradual policy rate increases by the BCK, generally in line with the tightening of global monetary policy that helped control inflation. Thanks to prudent financial regulation and supervision by the BCK, banks have maintained strong capital and liquidity reserves, while their profitability has recovered from pandemic lows and non-performing loans remain low and well provisioned. It is crucial to preserve the independence of the CBK in the implementation of its mandate.

“The progress of fiscal and structural reforms has been slowed by the political deadlock between the government and Parliament. Continued delays in fiscal and structural reforms due to political deadlock could lead to procyclical fiscal policy and undermine investor confidence, while hampering progress towards diversifying the economy and increasing its competitiveness. The new Public Debt Law must be approved quickly to ensure orderly fiscal financing and at the same time promote the development of the local debt market.

“High external risks surround the economic outlook. Volatility in oil prices and production stemming from global factors poses bilateral risks to growth and inflation, as well as to fiscal and external balances. While conflicts in the Middle East and shipping disruptions in the Red Sea have had limited impacts on the economy so far, any major shock to the global oil market would have significant effects.

“The IMF mission team thanks the authorities for their hospitality and productive discussions. “We look forward to continuing our dialogue and close collaboration.”