Kuwait is facing “lower-for-longer” oil prices from a position of strength given large financial buffers, low debt, and sound financial sector, according to the International Monetary Fund (IMF).
Directors noted that non-oil growth is expected to continue to recover gradually over the medium term, with the fiscal and external positions remaining broadly balanced.
They commended the government’s recent efforts to streamline current spending, diversify revenue, and improve the business climate, adding that the new environment calls for deep and sustained reforms.
IMF directors encouraged the authorities to proceed with the planned introduction of excises and the VAT and to further curtail current expenditure. They also recommended further steps to contain the wage bill.
In its Article IV consultation with Kuwait, the IMF stressed that better aligning public and private sector compensation would enhance nationals’ incentive to consider private sector jobs and support competitiveness, and recommended limiting public sector employment growth as more private sector jobs are created.
Kuwait was urged to move from a public sector-led growth model to one driven by the private sector, saying it requires creating incentives for risk-taking and entrepreneurship.
The IMF said non-oil growth in Kuwait has picked up modestly over the past two years, and inflation has moderated. After coming to a standstill in 2015, real non-hydrocarbon growth has recovered and is set to reach 2.5 percent this year, driven by improved confidence.
It added that the government’s underlying fiscal position has improved on the back of spending restraint, but financing needs have remained large.
The banking sector has remained sound, although deposit and credit growth have slowed, they noted.
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