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Kuwait: Staff Report for The 2017 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
January 2018
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Fund Relations

(As of October 31, 2017)

Membership Status: Joined September 13, 1962

Article VIII on April 5, 1963

General Resources Account:SDR Million% Quota
Quota1,933.50100.00
Fund holdings of currency1777.7991.95
Reserve position in Fund156.688.10
SDR Department:SDR Million% Allocation
Net cumulative allocation1,315.57100.00
Holdings1,327.80100.93

Outstanding Purchases and Loans: None

Financial Arrangements: None

Lending to the Fund and Grants: SDR million 341.29 (New Arrangements to Borrow)

Kuwait has made a contribution to the PRGF-HIPC Trust in support of Fund’s concessional assistance to low-income countries. These include an interest-free deposit of SDR 4.2 million with a maturity at end-2018, and a grant contribution of SDR 0.1 million to the PRGF-HIPC Trust.

Exchange Rate Arrangement:

Since May 2007, Kuwait’s exchange rate arrangement has been a conventional peg against an undisclosed currency basket. Kuwait has accepted the obligations of Article VIII, Sections 2 (a), 3, and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions, other than those notified to the Fund pursuant to Decision 144-(52/51). On April 2, 2002 Kuwait notified the Fund, under Decision 144-(52/51), of exchange restrictions it introduced in order to implement UN Security Council resolutions 1373 (2001), 1333 (2000) and 1267 (1999).

Article IV Consultations:

The last Article IV consultation was completed on January 6, 2017 (SM/17/15—Published January 17, 2017). The staff report is available at http://www.imf.org/en/Publications/CR/Issues/2017/01/17/Kuwait-2016-Article-IV-Consultation-Press-Release-and-Staff-Report-44532

FSAP Participation

An FSAP Update was conducted in March 2010. It included an updated assessment of a selected number of Basel Core Principles. An FSSA report was discussed by the Executive Board along with the staff report for the 2010 Article IV consultation and it is available at: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24096.0.

Technical Assistance since 2004:

MFD/LEGBank InsolvencyOctober 2004
FADMacro Fiscal UnitFebruary 2009
STAExternal Sector StatisticsFebruary 2009
STAExternal Sector StatisticsDecember 2009
FADValue-Added TaxOctober 2011
FADMacro-Fiscal UnitSeptember 2012
FADTax Policy and AdministrationApril 2013
LEGCentral Bank LawApril 2013
LEGCentral Bank LawSeptember 2013
FADMacro-Fiscal Unit (resident advisor)October 2013
LEGCentral Bank LawJanuary 2014
FADTax Policy and AdministrationFebruary 2014
MCMMacroprudential PolicyMarch 2014
FADFiscal RuleFebruary 2015
STANational Accounts StatisticsMarch 2015
MCMDeposit Insurance SystemSeptember 2015
FADTax Policy and AdministrationSeptember 2015
LEGAML/CFT ongoing TA projectMay 2012–16
FADEstablishing a Debt Management OfficeNovember 2015
FADDebt Management StrategyJanuary 2016
MCMBank Stress TestingMay-June 2016
FADMacro-Fiscal UnitNovember 2016
MCMCrisis Management and ResolutionApril-May 2017
FADMacro-Fiscal UnitMay 2017

Resident Representative: None

Kuwait has consented to the quota increase under the Fourteenth General Review of Quotas.

Relations With the World Bank

(As of November 12, 2017)

The World Bank and the Government of Kuwait developed a rolling four-year Country Partnership Strategy (CPS), which leverages the setup of a World Bank Country Office in Kuwait (inaugurated in January 2009). The Kuwait program emphasizes implementation of reforms. Hence all activities are grounded in the Government’s five-year plan, and are developed closely with the line ministry/agency as well as with the Ministry of Finance, which plays the role of a coordinator and key Bank counterpart. The current Reimbursable Advisory Services (RAS) program is structured around the following four strategic themes under the latest 2016–20 Country Partnership Strategy:

(i) Public sector performance and citizen accountability– Bank support in this area aims at ensuring that public services are delivered transparently, efficiently and effectively and that citizen accountability is enhanced. Key activities under this pillar include Bank support of a public expenditure and financial accountability (PEFA) project and an engagement to support the development of a guidebook for public private partnerships. Other pipeline engagements focus on providing capacity-building assistance to the Kuwait National Assembly, VAT implementation, as well as Public Financial Management (PFM). The latter is designed as a programmatic multi-year engagement to improve the quality of fiscal policies and the system of procedures governing public financial management in the country.

(ii) Private sector development - Aims to support reform efforts geared towards transforming Kuwait into a commercial and financial hub with diversified economic activities and the creation of a more conducive business environment for private sector development and foreign direct investment. Bank activities under this theme include: supporting the design and implementation of an insolvency and creditors rights framework, enhancing the institutional effectiveness of the new Competition Protection Authority and providing strategic implementation support to the National Fund for SME Development. Upcoming work for the Ministry of Commerce and Industry has been approved for an analysis of Kuwait trade outcomes in terms of diversification opportunities. Also, at the request of the Minister, a proposal has been submitted for a Kuwait Investment Road Map and Diversification Opportunities for the Kuwait Direct Investment Promotion Authority. In addition, at the request of the Capital Markets Authority, the World Bank has submitted a proposal to provide capacity development support in key institutional areas.

(iii) Human development - major program to enhance the quality of education as well as support in social protection, labor and health. The education program is the flagship program and has evolved into a $35 million multi-year strategic partnership between the Bank and the Ministry of Education in support of education reforms with emphasis on improving the quality of teaching and learning in schools. The Bank is also preparing large engagements in the areas of labor market reforms and social safety nets.

(iv) Infrastructure Development and Urban Management - aims to make significant improvements in its infrastructure and urban management sectors including land management and the environment. Current engagements include a multi-year land management modernization project with the Ministry of Finance and the State Property Sector and a disaster risk management project with the Kuwait Institute for Scientific Research. Pipeline activities include support to urban management and e-government services at the Kuwait Municipality.

Ongoing Activities for FY17 and Beyound
Counterpart Agency – Basic Activity DataActivity Description
I. PUBLIC SECTOR PEFORMANCE & CITIZEN ACCOUNTABILITY
Ministry of Finance (MoF)

PEFA Capacity Building and PFM Reforms (P157053)
The Bank is providing further support on the PEFA framework and in light of the revisions undergone to PEFA.
Ministry of Finance (MoF)

Kuwait National ML/TF Risk Assessment (P159136)
The aim of this one-year project is to assist Kuwait’s efforts to enhance the capacity of relevant AML/CFT Kuwaiti agencies in carrying out an assessment of money laundering and terrorism financing (ML/TF) risks, and developing risk-based action plans to mitigate these risks, through the Bank’s National Money Laundering / Terrorist Financing Risk Assessment (NRA) tool.
II. PRIVATE SECTOR DEVELOPMENT
Ministry of Finance

Insolvency and Creditors Rights – Phase II (P144858)
The Ministry of Commerce and Industry (MOCI) requested World Bank support in improving Kuwait’s investment climate. Following a review of the insolvency and creditors rights regime (ICR), the World Bank recommended developing a new set of insolvency laws. The World Bank team supported the preparation of two draft laws on the liquidation and rehabilitation of companies and presented them to the Legal Committee of the Cabinet. Other activities include providing support for the preparation of a secured transaction law and a credit report law – as well as for the development of specialized commercial courts.
Kuwait Direct Investment Promotion Authority (KDIPA)

Doing Business Reform (P155328)
In response to a continuing decline in ranking in the Doing Business Report, the Kuwait Direct Investment Promotion Authority (KDIPA) requested the World Bank Group’s support on government-led measures to improve the country’s business environment in areas measured by the World Bank’s Doing Business Report. Their approach to the World Bank was motivated by the Kuwaiti government’s own moves towards creating a more open, business-friendly and transparent environment for foreign and local firms to operate and prosper. Therefore, KDIPA led a series of workshops with the support of the World Bank Doing Business team to provide members of the Doing Business committee (Permanent Committee for Streamlining the Business Environment) the opportunity to better understand the Doing Business indicators, methodology and recommendations for reforms in areas measured by Doing Business
The Kuwait National Fund for SME Development

SME Fund Support – Phase III (P154183)
Building on the previous Bank engagements with the national SME Fund - Phase I and Phase II - the Bank is supporting the Fund with organizational setup and the implementation of its strategy (Phase III). The current engagement is focused on supporting: (i) organizational set-up and IT architecture, (ii) the SME business environment, (iii) SME business development, (iv) entrepreneurship culture development, and (v) data collection, and monitoring and evaluation.
Kuwait Competition Protection Agency

Phase II: Implementation of Competition Program in Kuwait (P162614)
The goal of the Phase II Implementation is to have, by the end of the program, a fully functional, efficient, and effective Competition Protection Authority capable of carrying out its mandate and able to foster better functioning markets, productivity of firms, better services and prices for consumers, and an overall increase in private sector competitiveness. The four components include: (i) Designing and implementing a model competition framework; (ii) Embedding pro-competition principles in key sectors of the economy; (iii) Fostering agency effectiveness for the CPA; and (iv) Operational Setup, Automation and IT architecture.
III. HUMAN DEVELOPMENT
Ministry of Education (MOE)

School Education Quality Improvement (SEQI) – Phase II (P154848)
This engagement is the flagship project of the Kuwait Country Program and builds on the earlier success of the School Education Quality Improvement (SEQI 1) Technical Cooperation Program, designed to support the Ministry of Education (MOE) and the National Center for Education Development (NCED) in the implementation of a comprehensive education reform program. The current engagement consists of five main components: (i) curriculum development and enhancement; (ii) effective teaching; (iii) school effectiveness; (iv) system accountability and effectiveness and (v) education policy, decision-making and implementation support.
IV. INFRASTRUCTURE AND URBAN MANAGEMENT
Ministry of Finance (MoF)

Program for Modernization of Land Management in Kuwait (P151988)
This engagement builds on an earlier diagnostics phase which supported the State of Kuwait in developing a strategic understanding of the institutional and regulatory issues related to state land policy management. The current multi-year engagement on modernizing land administration builds on the work of this earlier phase and received formal approval from the Ministry of Finance in the third quarter of FY16. The engagement seeks to modernize the land management system in the country.
Municipality of Kuwait

Solid Waste II (P122085)
This current engagement with the Kuwait Municipality related to solid waste focuses on: (i) the preparation and the implementation of a national priority project for the closure and rehabilitation of existing dumpsites, (ii) the elaboration and adoption of a solid waste master plan consistent with the Kuwait Land-Use Master Plan, (iii) the completion and harmonization of existing legal instruments, starting with a Solid Waste Law, and (iv) the establishment of a Municipal Solid Waste Agency.
Kuwait Authority for Partnership Projects (KAPP)

Public-Private Partnerships Project Guidebook (P157147)
This reengagement with Kuwait Authority for Partnership Projects (formally known as PTB) came about after the PPP law (law 116/2014) and Executive Regulations were passed early 2015. KAPP requested the Bank’s urgent support on revising the PPP Project Guidebook that was previously prepared by Aijaz and Paul Noumba in 2009. Overall, the one-year engagement covers 3 main components (i) inception report – comprehensive review of the new PPP law, (ii) Revised Guidebook, and (iii) Consultation and Dissemination of the revised Guidebook.

Statistical Issues

(As of October 5, 2017)

I. Assessment of Data Adequacy for Surveillance
General: Data provision has some shortcomings, but is broadly adequate for surveillance. Despite further improvements in the current year, there is scope for improved compilation of the national accounts and balance of payments statistics through better coordination among statistical agencies. Timeliness, particularly for the national and fiscal accounts, is an area of concern.
National Accounts and Production: Kuwait’s national accounts are compiled by the Central Statistical Bureau (CSB). A number of areas could be improved based on international best practice, as suggested below. Annual GDP estimates are derived from a benchmark year of 2010 and considered broadly adequate for surveillance. The authorities are encouraged to select and implement a contemporary benchmark to rebase the GDP time series to ensure structural changes in Kuwait’s economy are reflected in published estimates. Ongoing efforts to rebase the national accounts using 2013 as a base year are welcome in this regard. The sources and methods used to estimate individual components of GDP should be publicly disclosed to identify areas where further improvement is required. Two areas for improvement are being discussed between the CSB and IMF staff: (i) the methodology used to construct volume movements for subsidies on products, and (ii) the methodology used to aggregate financial services indirectly measured (FISIM) into GDP. A quarterly GDP time series for 2010–17 will be disseminated during 2018. A technical assistance mission conducted in March 2015 provided other recommendations to: enhance source data by improving coordination between government agencies; compile comprehensive estimates of informal activity; and implement methods consistent with international standards.

Price statistics: The Consumer Price Index (CPI) is published on a monthly basis (last observation for August 2017). The weights were revised in June 2017 based on the 2013 Household Income and Expenditure Survey (HIES). The Producer Price Index (PPI) covers selected Mining and Quarrying and Manufacturing industries as well as Utilities. The PPI should be further developed by updating the weights from the 2010 base year, by extending coverage to include services and construction and by compiling separate indexes for the domestic and export markets. Improvements in these dimensions are under consideration in coordination with other GCC countries.

Government finance statistics: Annual GFS data are reported for publication in the Government Finance Statistics Yearbook (GFSY). The major components of extra-budgetary revenues (investment income and transfers of profits of public institutions), extra-budgetary expenditures (interest on foreign debt and treasury paper), and financing operations conducted by two reserve funds are not reported. Data on interest on foreign debt and treasury paper are usually provided to Article IV consultation missions, but the regular provision of data on investment income is lacking.

The authorities have made some progress in fiscal data presentation, but the lack of a suitable classification of data on the execution of the budget remains a constraint on monitoring effectively fiscal developments during the year. Progress is being made toward improving compliance with the GFSM 2001 guidance, particularly in terms of creating a new chart of accounts and moving reporting to an accrual basis.

Data on the operations of the Public Institute for Social Security are not made available. Sharing of information between various government agencies could be improved. STA has indicated to the authorities that operations of the two reserve funds should be classified as part of government, as they perform activities for public policy purposes (management of debt and assets, and financing of the budget). An additional extension of coverage would be to report GFS in the form of the Statement of Sources and Uses of Cash for the consolidated central government. The authorities have also been briefed on the IMF’s ongoing work to enhance the transparency of fiscal accounts and presentations detailed in the “Code of Good Practices on Fiscal Transparency” and were encouraged to adopt some of the practices recommended in the Code.
Monetary and financial statistics: The CBK reports sectoral balance sheet data for the Central Bank, other depository corporations and other financial corporations to STA based on the Standardized Report Forms (SRFs). However, the data submission could be improved as it is not always reported on a timely basis. A future work should be on expanding the coverage of the ODC sector by including investment companies that accept deposits as well as expanding the coverage of other financial corporations (insurance companies and other financial intermediaries).
Financial Surveillance: Kuwait is not reporting financial soundness indicators (FSIs) to STA for public dissemination. The authorities are encouraged to report FSIs for the deposit-taking sectors and other financial corporations.
Balance of Payments Statistics: From 2009 data, the CBK compiles and disseminates detailed annual balance of payments and international investment position data, and from 2015 – quarterly balance of payments data in accordance with the methodology of the BPM6, while trade data estimates are disseminated quarterly by the Central Statistical Bureau (CSB). Enhancements have been made in the estimation of travel services and communication services, but further improvements are needed in compilation practices and in the estimation of data on several service items and private transfers.

The information on IIP data made available to staff is incomplete as it excludes the external assets held by the general government (with the exception of loans granted by the Kuwaiti Fund for Arab Economic Development and general government trade credits). This data is expected to be reported to the Fund by the Executive Director for Kuwait at the time of the upcoming Article IV board meeting.

The CBK also participates in the Coordinated Portfolio Investment Survey (CPIS) with data reported for 2003 onwards, and in the recently introduced Coordinated Direct Investment Survey. Kuwait is successfully reporting inward and outward direct investment data. As for CPIS data, these data are for the financial sector acting as end-investors’ or as intermediaries on behalf of residents and do not include holdings of foreign securities held by government agencies, which comprise the bulk of Kuwait’s cross-border holdings.

In 2009, STA provided TA on improving external accounts data. The CBK has made good progress since then, particularly in the substantial revisions to report forms, including the separate reporting of financial transactions in the BOP and other changes in volume in the international investment position. It has also made progress in the estimation of remittances data. Yet, delays and data gaps remain. In particular, coordination among major government entities is needed to provide quarterly data to the CBK in time to compile timely quarterly statistics. Merchandise trade data are compiled monthly and published quarterly and annually by the CBK, monthly and annually by the CSB. The response rate for the private nonfinancial sector is low.
II. Data Standards and Quality
Kuwait is one of the first GDDS participants. Its metadata were last updated in 2010 and 2011. The CBK maintains its own webpage where it provides the following data to the public: money and banking statistics; balance of payments statistics; trade balance statistics; exchange rate; GDP by sector and expenditure at current and constant prices; public finance statistics; CPI and WPI; and security market indicators. Similarly, the Ministry of Planning has a webpage where the CSB publishes data on national accounts, prices, and other related statistics. The Ministry of Finance webpage includes detailed data for actual and estimated budget operations. In addition, the Kuwait Stock Exchange webpage provides data on stock market indices, volume and value of securities traded, as well as privatization schedules and other related information.No data ROSC is available.
Table of Common Indicators Required for Surveillance(Last updated on October 5, 2017)
Date of latest observation (For all dates in table, please use format (mm/yy)Date receivedFrequency of Data7Frequency of Reporting7Frequency of Publication7Memo Items:8
Data Quality Methodological soundness9Data Quality Accuracy and reliability10
Exchange ratesJul 2017Sep 2017DDD
International reserve assets and reserve liabilities of the monetary authorities1Jun 2017Sep 2017MMM
Reserve/base moneyMay 2017Sep 2017MMM
Broad moneyJun 2017Sep 2017MMM
Central bank balance sheetJun 2017Sep 2017MMM
Consolidated balance sheet of the banking systemJun 2017Sep 2017MMM
Interest rates2Jun 2017Sep 2017MMM
Consumer price indexJul 2017Sep 2017MMQ
Revenue, expenditure, balance and composition of financing3—general government4Dec 2015May 2016MMMNot published on Fund standardsNot published on Fund standards
Stocks of central government and central government-guaranteed debt5Dec 2014Sep 2015MMM
External current account balanceMar 2017Jul 2017QQQ
Exports and imports of goods and servicesMar 2017Jul 2017QQQ
GDP/GNPDec 2015Sep 2017AAA
Gross external debtDec 2014Apr 2015AAA
International investment position6Dec 2016Jun 2017AAA

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents. Data made available to staff is incomplete as it excludes the external assets held by the general government (with the exception of loans granted by the Kuwaiti Fund for Arab Economic Development and general government trade credits)

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.

Reflects the assessment provided in the data ROSC or the Substantive Update for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 9, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents. Data made available to staff is incomplete as it excludes the external assets held by the general government (with the exception of loans granted by the Kuwaiti Fund for Arab Economic Development and general government trade credits)

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.

Reflects the assessment provided in the data ROSC or the Substantive Update for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 9, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

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