Kuwait’s economic recovery is ongoing, but risks to the oil producer’s outlook “remain substantial” and gridlock between the government and parliament continues to delay reforms, the International Monetary Fund said on Wednesday, Reuters reports.
The IMF’s executive board, in an assessment following “Article IV” consultations with the Kuwaiti government, said real gross domestic product (GDP) is seen slowing to just 0.1 per cent this year after 8.2 per cent growth in 2022, mainly due to oil production cuts.
Kuwait is part of OPEC+, a producer group comprising the Saudi-led Organisation of the Petroleum Exporting Countries and Russia-led allies, which has been cutting crude output since November to prop up prices.
The IMF, in May, had forecast real GDP to slow to 0.9 per cent. Despite the expected stagnation, the IMF, on Wednesday, forecast real non-oil GDP growth at 3.8 per cent this year from 4 per cent in 2022.
“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.
Feuding between successive appointed cabinets and elected parliaments has hampered fiscal reform for years, including passing a debt law that would allow Kuwait to borrow international debt. It resorted to palliative measures to temporarily boost finances after the pandemic slammed oil prices in 2020.
“Resolving the impasse is critical to accelerate reform momentum, and to thereby boost growth and diversify the economy,” the IMF said.
The IMF said higher spending in Kuwait’s draft budget for the fiscal year that began on 1 April “is appropriate, given the negative non-oil output gap” but said that, starting from April 2024, fiscal consolidation should target higher non-oil revenue “and tackle current spending rigidities while increasing capital outlays to raise potential growth.”
Kuwait has a lavish cradle-to-grave welfare system and salaries make up more than half of total expenditure in the 2023-2024 draft budget. Oil accounts for 88.2 per cent of projected revenues.
Measures to boost revenues could include introducing excise and value-added tax under a common framework of the six-country Gulf Cooperation Council, the IMF said.
Kuwait is the only GCC country that has no excise taxes, and is joined by Qatar as an outlier in having no VAT.
Kuwait, in June, elected its third parliament in two and a half years. Sheikh Ahmad Nawaf Al-Ahmad Al-Sabah, the son of Kuwait’s ruling Emir, was then reappointed as Prime Minister.