The need for a vibrant private sector employing more Kuwaiti nationals has heightened as the Gulf country is facing "lower for longer" oil prices, the International Monetary Fund (IMF) has said.
In a new report, the IMF said that although Kuwait is facing the oil price fall from a position of strength, the decline has weakened fiscal and external positions and generated large fiscal financing needs.
Against this backdrop, the authorities have laid out a comprehensive reform strategy and have already taken steps to curtail spending and foster an environment more conducive to private investment, the IMF noted.
It said the key challenge is to build on the strategy to accelerate reforms that underpin fiscal consolidation.
The IMF said it supports a broad fiscal reform package that aims at tackling current spending rigidities - particularly wage bill, subsidies and transfers.
"Better aligning public sector compensation with that in the private sector, accelerating privatisation and public-private partnerships, and further improving the business climate is key to creating private sector jobs for nationals and promoting diversification," the report said.
Non-oil growth has picked up modestly over the past two years, and inflation has moderated. After coming to a standstill in 2015, real non-hydrocarbon GDP growth has recovered and is set to reach two-and-a-half percent this year.
However, a cut in hydrocarbon output by close to 6 percent, reflecting implementation of the OPEC deal, will bring overall real GDP down by about two-and-a-half percent in 2017.
The IMF said the government’s underlying fiscal position has improved on the back of spending restraint, but financing needs have remained large.
Driven by accelerated project implementation under the 5-year development plan and improved confidence, non-oil growth is projected to increase gradually to about 4 percent, the IMF added.
Inflation is expected to peak at three and three-quarters percent in 2019, due to the introduction of the new taxes, before stabilising below 3 percent, the report noted.
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