Kuwait recovering but facing ‘substantial’ risks says IMF  

Reuters

• GDP growth will slow to 0.1%
• Country in ‘position of strength’
• But political gridlock a threat

Kuwait’s economy is recovering post-pandemic, but risks to the oil producer’s outlook “remain substantial”, the International Monetary Fund (IMF) said in a new report.

In an assessment after annual bilateral discussions with the Kuwaiti government known as Article IV consultations, the fund estimated real gross domestic product (GDP) growth will slow to 0.1 percent in 2023 as a result of oil production cuts after growing 8.2 percent in 2022.

Kuwait is part of Opec+, which has been reducing crude output since November 2022 to prop up prices. Reforms should focus on curtailing the wage bill and gradually phasing out energy subsidies while improving targeted income support, the IMF said.

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“Given Kuwait’s large fiscal and external buffers, it can undertake needed reforms from a position of strength. However, political gridlock between the government and parliament could continue to delay reforms,” the IMF said.

Resolving the impasse is needed to accelerate reform momentum, boost growth and diversify the economy, it added.

“Comprehensive and growth-friendly fiscal consolidation is required to reinforce fiscal sustainability and support intergenerational equity,” the IMF said.

It added that a fiscal expansion envisaged in the draft 2023-2024 budget is appropriate given a negative non-oil output gap.

Kuwait remains a wealthy economy, running a $21 billion budget surplus this year and has one of the lowest sovereign debt to GDP ratios globally, according to acting finance minister Saad Al-Barak. 

The 2023-2024 budget, based on an oil price of $80 per barrel, set spending at KD23.5 billion ($75.90 billion) and revenue at KD23.4 billion, according to a parliamentary committee report. 

The IMF recommended that Kuwait’s fiscal consolidation should aim to increase non-oil revenue and tackle current spending rigidities.

Added revenue measures can include introducing GCC-wide excises and VAT, as well as expanding corporate income taxation to cover domestic companies.

The administration of Sheikh Ahmad Nawaf al-Ahmad al-Sabah, the prime minister, last month announced a four-year programme featuring 107 major projects.

This includes a commitment to pass a long-stalled public debt law during the first year of the new parliament. 

The law has long been advocated by international ratings agencies and the World Bank, as well as by many government supporters. Yet, it has also proved a tough proposition for successive administrations. 

Political opposition is strong. Twenty Kuwaiti parliamentarians spoke out against the new debt law when the government introduced its programme to parliament on July 18.

“Governments have been trying to pass this for years,” Mohammad Al Jouan from the Kuwait Economic Society previously told AGBI.

But while passing a debt law has proved too much for governments in the past, it may be even more difficult now.

“Back in 2021, when this was being debated, interest rates were very low,” Al Jouan said. 

“Now they are high. It doesn’t make economic sense to be returning to the debt market at this time.”