An International Monetary Fund (IMF) mission led by Mr. Ananthakrishnan Prasad visited Kuwait during May 4–6 to hold discussions with the authorities in preparation for the Article IV Consultation later this year. The mission met with Minister of Finance, H.E. Anas Al-Saleh; Minister of Social Affairs and Labor and State Minister for Planning Affairs, H.E. Hend S.B. Al-Subaih; Governor of Central Bank of Kuwait, H.E. Mohammad Al-Hashel; senior government officials, and representatives from the private sector.
At the end of the mission, Mr. Prasad issued the following statement, outlining the mission's preliminary assessment:
“The current economic outlook is positive. Non-oil GDP growth in Kuwait is expected to accelerate from 2.7 percent in 2013 to 3.9 percent in 2014, and is projected to increase to about 5 percent in the medium term in the baseline, backed by government investment in infrastructure and refineries. Structural reforms will be required to improve the business environment to enable the sustained implementation of Kuwait’s Development Plan to meet growth target. However, protracted political uncertainty could affect overall business confidence and the investment climate, and result in lower non-oil growth than projected.
“The fiscal position is strong. However, a sustained drop in oil prices could deplete fiscal surpluses and adversely affect long-term fiscal sustainability. Measures to contain current expenditures, particularly wages and subsidies, and continued heavy dependence on oil revenues are required to mitigate risks to the economy from downward oil price shocks.
“A medium-term fiscal strategy is required to drive reforms, the elements of which would include containing current expenditure growth, particularly, subsidies and public sector wages; prioritizing capital expenditure; and increasing non-oil revenues. Generalized subsidies, particularly for electricity and fuel, constituting about 7 percent of GDP in the budget (25 percent to total expenditure), engender wasteful consumption, and take resources away from core government spending priorities. A gradual alignment with international prices, while ensuring that a social safety net is in place to protect the vulnerable, would in the long run increase overall efficiency and generate more fiscal space. Conservation-oriented tariff structures could boost efficiency in fuel and power consumption.
“Institutional reforms are needed to support fiscal policymaking through implementing a medium-term budgeting framework and strengthening the macro-fiscal unit.
“The banking system remains amply capitalized. The capitalization and asset quality of banks continued to show significant improvements with a combined capital adequacy ratio of almost 19 percent and gross non performing loans of 3.2 percent. The mission welcomes the recent macroprudential regulations on loan-to-value ratios for the residential sector and the ongoing strengthening of banks’ capital, which would contribute to further strengthening financial stability.
“The mission is thankful to the authorities for their collaboration and frank discussions and wishes them success in their endeavors.”