International Monetary Fund directors encourage authorities to tackle spending rigidities and increase non-oil revenue
Kuwait needs to implement deeper fiscal reforms to ensure adequate savings for future generations, according to a report by the International Monetary Fund (IMF).
Following a 2019 Article IV consultation with Kuwait, IMF directors have encouraged authorities to tackle spending rigidities and increase non-oil revenue while boosting capital outlays to improve infrastructure and raise potential growth.
They also underscored the need to tackle the large public sector wage bill, noting that public sector wages should be gradually aligned with those in the private sector to incentivise nationals to seek private sector opportunities and support competitiveness.
Directors also encouraged authorities to proceed with the introduction of GCC-wide excises and VAT.
In its report, the IMF said that growth has resumed in Kuwait, and the country's current account has rebounded thanks to higher oil prices. Hydrocarbon output rose by 1.2 percent in 2018 after contracting a year earlier.
Buoyed by a rebound in confidence and government spending, non-oil growth has accelerated to 2.5 percent, it noted, adding that inflation fell to a multi-year low of 0.7 percent due to falling housing rents, easing food prices, and a strengthening dinar.
"While the overall fiscal balance has improved, financing needs remain large... Delays in the passage of a new debt law have rendered the government unable to issue debt since October 2017. As a result, it has had to draw on the General Reserve Fund assets for financing," the report said.
It added that Kuwait's banking sector shows sound indicators, and credit is recovering from a slow start in 2018. Private sector loans grew 4.1 percent year-on-year in December 2018 on the back of household, construction, and oil sector borrowing.
IMF executive directors noted that growth is expected to strengthen and the underlying fiscal position to gradually improve over the medium term.
They also called for a more enabling environment for SMEs and startups, by enhancing their access to finance, facilitating participation in public tenders, and training entrepreneurs.
Directors concurred that the pegged currency regime remains appropriate, with the peg to a basket of currencies continuing to provide an effective nominal anchor.