Press Release No. 24/147

IMF Staff Concludes Staff Visit to Kuwait

May 9, 2024

• The economic recovery from the pandemic has been disrupted by OPEC+ production quota cuts. Non-oil growth is projected to recover this year, but to remain below the GCC average.
• Inflation is moderating given 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 gridlock is delaying much needed fiscal and structural reforms. Continued delays would undermine fiscal prudence and investor confidence, while holding back economic diversification and competitiveness.
• Elevated external risks surround the outlook, mainly associated with volatility in oil prices and production, and spillovers from regional conflicts.

Kuwait City, Kuwait: An International Monetary Fund (IMF) mission, led by Mr. Francisco Parodi, held discussions with the Kuwaiti authorities in Kuwait City during April 30 – 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 by 2.2 percent in 2023, with the oil sector contracting by 4.3 percent due to an OPEC+ production quota cut in May, and the non-oil sector expanding by only 0.8 percent amid subdued domestic demand growth. The economy is projected to contract by a further 1.4 percent in 2024, with oil production falling by another 4.3 percent due to the OPEC+ quota cut in January. The non-oil sector is expected to expand by 2.0 percent as domestic demand growth picks up, compared to 3.6 percent average growth for the GCC.

“Inflation is moderating, while the fiscal balance has weakened, and the current account balance remains strong. CPI inflation registered 3.6 percent in 2023, and is projected to reach 3.2 percent in 2024. After realizing a surplus of 11.8 percent of GDP in FY2022/23, the fiscal balance of the budgetary central government swung to a deficit—estimated at 4.3 percent of GDP in FY2023/24—as oil revenues fell and government expenditures rose across all spending categories. In the absence of fiscal consolidation measures, this deficit is projected to widen further over the medium-term. In parallel, after peaking at 34.5 percent of GDP in 2022 on the back of high oil exports, the current account surplus moderated to 32.9 percent of GDP in 2023, as a lower trade surplus more than offset higher international investment income.

“Financial stability has been maintained in spite of tighter financial conditions. Growth in credit to the nonfinancial private sector continued to fall in 2023, to only 1.8 percent as bank lending rates rose in response to gradual policy rate hikes by the CBK broadly in line with global monetary policy tightening which helped control inflation. Given prudent financial regulation and supervision by the CBK, banks have maintained strong capital and liquidity buffers, while their profitability has rebounded from pandemic lows, and non-performing loans remain low and well provisioned for. It is crucial to preserve the CBK’s independence in implementing its mandate.

“Progress with fiscal and structural reforms has been held back by political gridlock between the government and Parliament. Continued delays in fiscal and structural reforms due to political gridlock could give rise to procyclical fiscal policy and undermine investor confidence, while hindering progress towards diversifying the economy and enhancing its competitiveness. The new Public Debt Law should be passed expeditiously to ensure orderly fiscal financing while promoting local debt market development.

“Elevated external risks surround the economic outlook. 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 external balances. While the 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 the productive discussions. We look forward to continuing our dialogue and close collaboration.”