Kuwait’s economy records fastest growth sin
In 2003-04, Kuwait’s macroeconomic performance strengthened further as a result of sharply higher oil prices and production, with renewed trade relations with Iraq being another positive factor. Real GDP expanded at its fastest pace since the 1990 Gulf War, the IMF said in its annual economic review. The IMF Executive Board welcomed Kuwait’s strong economic rebound, which boosted per capita income, kept unemployment low, and helped build up assets for future generations. The Board also welcomed Kuwait’s continued low inflation.
Owing to higher oil revenues, the central government budgetary position remained strong. Fiscal policy was expansionary, as much of the revenue was spent on various government programs. While welcoming the large overall fiscal surpluses, the Board expressed concern about the pace of expenditure growth, including the higher wage bill, and the associated sharp increase in the non-oil fiscal deficit. It cautioned that increasing the relative size of the public sector would undermine the authorities’ objective of boosting the role of the private sector.
Monetary conditions tightened in the second half of 2004 following the rise in U.S. interest rates and the introduction of a ceiling on the credit-to-deposit ratio. The Board agreed that the authorities needed to take precautionary steps to stem the unsustainable pace of expansion of credit to the private sector. However, it noted that the ceiling, if maintained over the medium term, would constrain market-based operations, and welcomed the authorities’ intention to abolish the measure once domestic credit expansion stabilizes.
The Board urged the authorities to accelerate structural reforms by expeditiously passing those laws and amendments that open the economy further to private sector investment. The improved security situation and relations with Iraq reposition Kuwait in its traditional role as a gateway to regions to its north and east. In stressing the importance of generating jobs for Kuwait’s fast growing labor force, the Board supported labor market reforms aimed at training and providing incentives to develop private sector skills.
|Real oil GDP||2.2||-3.3||-7.9||19.8||9.5|
|Real non-oil GDP||1.9||3.6||4.3||4.8||5.5|
|(percent of GDP)|
|Overall fiscal balance||40.8||17.5||21.3||19.1||22.1|