Kuwait is well positioned to mitigate the impact of lower oil prices on the economy despite a deterioration in the country’s fiscal position, according to the International Monetary Fund.
It said in a new report that Kuwait’s nonhydrocarbon growth has moderated from 5 percent in 2014 to about 3.25 percent last year as a result of the drop in oil prices.
However, large financial buffers and low debt provide policy space to implement the necessary fiscal consolidation gradually while increasing public investment to support growth, the IMF said.
It added that against this backdrop, the fiscal and external positions are projected to improve as adjustment proceeds and oil prices recover and nonoil growth is projected to regain momentum to about 4 percent over the medium term.
“The main risk to the outlook stems from a further sustained decline in oil prices. Slow project implementation, more volatile global financial conditions and spillovers from heightened regional security risks could also affect economic prospects,” the IMF noted.
It welcomed the government’s six-pillar reform strategy which is focused on reforming public finances and promoting a greater role for the private sector in generating growth and jobs for nationals.
“Maintaining consensus in favor of economic transformation and sustaining the reform momentum is paramount for the success of the strategy,” said the report.
The IMF said gradual removal of fuel and electricity subsidies and control of the wage bill “would help reduce budget rigidities”, while the introduction of the VAT and business profit tax and the repricing of government services “would go a long way in diversifying revenue away from oil”.
IMF officials noted that steps can be taken to further strengthen financial sector resilience, adding that the peg to an undisclosed basket of currencies is appropriate and can be further underpinned by fiscal adjustment.
“Greater use of privatisation and partnerships with the private sector will help boost productivity, private sector investment and job creation for nationals,” the report said.
“This should be combined with further steps to improve the business environment, including reforms to facilitate access to land and finance, reduce the burden of administrative procedures and excessive regulations, foster competition, and facilitate SMEs’ access to finance,” it added.