Kuwait's economy boosted by higher oil prices in 2018, says IMF

GDP growth forecast to tick up to 2.5 per cent in 2019 from 1.7 last year

Gross domestic product growth in Kuwait, Opec’s fifth largest oil producer, is projected at 2.5 per cent for 2019, up from 1.7 per cent last year. Andrew Henderson / The National

Kuwait’s economic growth is expected to accelerate this year and beyond thanks to higher oil prices after a challenging few years, but fiscal financing needs remain large and the government must enact reforms to strengthen its position, the International Monetary Fund said.

“Growth is expected to strengthen and the underlying fiscal position to gradually improve over the medium term,” the Washington-based lender said in a report on Wednesday, following the conclusion of its 2019 consultation with Kuwait.

Gross domestic product growth in Kuwait, Opec’s fifth largest oil producer, is projected at 2.5 per cent for 2019, up from 1.7 per cent last year and a 3.5 per cent contraction in 2017, according to IMF figures.

Kuwait is benefitting from an increase in oil prices, with benchmark Brent nearing $70 a barrel on Wednesday. Oil prices in the first quarter of this year had the highest quarterly increase since 2009 thanks to crude output cuts by Opec+, the alliance grouping Opec members and countries outside the organisation led by Russia.

Kuwait's current account rebounded in 2017 after the country posted its first deficit in more than two decades in 2016, and reached an estimated surplus of 12.7 per cent of GDP last year, driven by higher oil prices and increased investment, according to the IMF. Hydrocarbon output rose by 1.2 per cent in 2018 after contracting a year earlier.

Meanwhile, inflation fell to a multi-year low of 0.7 per cent due to falling housing rents, easing food prices and a strengthening Kuwaiti dinar. The banking sector is also showing sound indicators and liquidity ratios, the IMF said.

However, given the volatility of oil prices and exhaustible oil reserves, “Kuwait must enact fiscal and structural reforms to reduce its dependence on oil, boost government saving, and create more private sector jobs.”

What is more, parliamentary delays have frustrated the passage of a new debt law, meaning the government has been unable to issue debt since October 2017 and had to draw on its reserves for financing.

Among the much-needed reforms are a tightening of the hefty public sector wage bill, capital investment to improve infrastructure and grow the private sector, and the introduction of a delayed 5 per cent VAT on goods and services, in line with plans set up by the rest of the six-country GCC, the IMF said.

“Deeper fiscal reforms [are needed] to ensure adequate savings for future generations,” the IMF said.

“A robust fiscal framework and strong governance are vital to bolstering fiscal policy credibility.”

Structural reforms should seek to improve the business environment, support entrepreneurship and foster productivity, it added.

The report made several recommendations, including further easing administrative procedures, facilitating cross-border trading, ramping up efforts to promote competition in the market and increasing access to finance and tenders for small businesses and start-ups.