The International Monetary Fund (IMF) on Monday urged Kuwait to regulate the country’s public finances and to gradually phase out large energy subsidies to reduce current spending.
In a staff concluding statement of the 2023 Article IV Mission, the IMF said substantial fiscal consolidation based on both expenditure and non-oil revenue measures will be needed in Kuwait.
“To reduce current spending, it is critical to rationalize the public sector wage bill, as well as to gradually phase out large energy subsidies while replacing them with targeted income support to vulnerable households,” the Fund said.
Also, in order to raise non-oil revenue, a 5 percent value-added tax should be introduced, while excises on tobacco and sugary drinks should be levied, as agreed with other GCC countries in 2015-16.
However, the IMF affirmed that Kuwait’s economic recovery continues thanks to the high oil production and prices and that inflation has been contained, while the fiscal and external balances have strengthened, and financial stability has been maintained.
“Inflation has been contained, given limited pass-through from higher global food and energy prices due to administered prices and subsidies, as well as monetary policy tightening broadly,” the statement noted.
Meanwhile, the Fund revealed that Kuwait’s economy has largely recovered from the pandemic.
“Growth is estimated to have surged to 8.2 percent in 2022, up from 1.3 percent in 2021, primarily driven by high oil production and prices,” it stated.
Despite the figures, the IMF predicted that in 2023, growth is projected to fall to 0.1 percent, reflecting agreed OPEC+ oil production cuts and slower external demand growth.
In October, OPEC+ agreed steep oil production cuts, curbing supply of 2 million barrels per day of output until the end of 2023.
The influential Organization of the Petroleum Exporting Countries also met last Sunday in Vienna and announced in a statement that it will limit combined oil production to 40.463 million barrels per day over January-December 2024.
On Monday, Kuwait said it will continue its voluntary oil output reduction by 128,000 bpd until the end of 2024.
Concerning Kuwait’s non-oil growth, the IMF said on Monday that it is projected to remain robust at 3.8 percent, due to fiscal stimulus and a partial rebound in expatriate employment, despite slower real credit growth.
Non-oil growth had risen to a brisk 4.0 percent in 2022, up from 3.4 percent in 2021, reflecting strong domestic demand.
