IMF Executive Board Concludes 2019 Article IV Consultation with Kuwait

2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Kuwait


2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Kuwait

On March 25, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the 2019 Article IV consultation with Kuwait.1 The discussion included the Financial System Stability Assessment (FSSA) of Kuwait.

Growth has resumed, and the current account rebounded thanks to higher oil prices. Hydrocarbon output rose by 1.2 percent in 2018 after contracting a year earlier. Buoyed by a rebound in confidence and government spending, non-oil growth has accelerated to 2.5 percent. After the first deficit in more than two decades in 2016, the current account shifted back into surplus in 2017 and reached an estimated surplus of 12.7 percent of GDP in 2018. Inflation fell to a multiyear low of 0.7 percent due to falling housing rents, easing food prices, and a strengthening dinar.

While the overall fiscal balance has improved, financing needs remain large. Higher oil revenues and investment income boosted the overall balance. However, the underlying fiscal position— non-oil balance less investment income in percent of non-oil GDP—indicates a modest loosening in FY17/18 and FY18/19. Fiscal financing needs—overall balance after compulsory transfers to the Future Generations Fund (FGF) and excluding investment income—remain large. Delays in the passage of a new debt law have rendered the government unable to issue debt since October 2017. As a result, it has had to draw on the General Reserve Fund assets for financing.

The banking sector reports sound indicators, and credit is recovering from a slow start in 2018. The systemwide capital adequacy ratio reached 18 percent in September 2018, and liquidity ratios were comfortably within regulatory requirements. Profits rose and asset quality improved, with NPLs net of specific provisions falling to a historical low. The Central Bank of Kuwait (CBK) raised the repo rate, a benchmark for deposits, several times but has kept the policy lending rate at 3 percent since March 2018. As a result, bank lending interest rates have risen by less than deposit rates. Coupled with ample liquidity—a by-product of deposit growth and government debt redemption in 2018—this is supporting a credit recovery. Private sector loans grew 4.1 percent year-on-year in December 2018 on the back of household, construction, and oil sector borrowing.

Executive Board Assessment2

Executive Directors noted that growth is expected to strengthen and the underlying fiscal position to gradually improve over the medium term. Given the volatility of oil prices and the exhaustible nature of oil resources, Directors underscored the need for timely and well-sequenced fiscal and structural reforms to reduce Kuwait's dependence on oil, boost government saving, and create more private sector jobs.

Directors called for deeper fiscal reforms to ensure adequate savings for future generations. They encouraged the authorities to tackle spending rigidities and increase non-oil revenue while boosting capital outlays to improve infrastructure and raise potential growth. They underscored the need to tackle the large public sector wage bill, noting that public sector wages should be gradually aligned with those in the private sector to incentivize nationals to seek private sector opportunities and support competitiveness. Directors also encouraged the authorities to proceed with the introduction of GCC-wide excises and VAT.

Directors emphasized that a robust fiscal framework and strong fiscal governance are vital to bolstering fiscal policy credibility. Directors stressed that enhanced fiscal transparency, an improved public procurement framework, and greater spending efficiency would help increase government accountability, cut waste, and reduce Kuwait's vulnerability to corruption.

Directors welcomed the banking system's sound position and commended the authorities for prudent regulation and supervision. To further enhance financial sector resilience, Directors encouraged the authorities to implement the recommendations of the FSSA. In particular, they saw scope to further enhance the crisis management framework, notably by establishing a special resolution regime for banks and unwinding the blanket guarantee of deposits once the preconditions are met. They also encouraged the authorities to strengthen liquidity management, bolster systemic risk oversight, and called for a gradual relaxation of the interest ceilings. Directors encouraged the authorities to further strengthen the AML/CFT framework.

Directors stressed the need for structural reforms to improve the business environment, support entrepreneurship, and foster productivity. In particular, they saw scope for further easing of administrative procedures, facilitating trading across borders, and efforts to promote competition.

They also called for a more enabling environment for SMEs and startups, by enhancing their access to finance, facilitating participation in public tenders, and training entrepreneurs.

Directors concurred that the pegged currency regime remains appropriate, with the peg to a basket of currencies continuing to provide an effective nominal anchor. Directors noted that the recommended fiscal adjustment would largely close the current account gap over the medium term.

Kuwait: Selected Economic Indicators, 2014–24

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Sources: Data provided by the authorities; and IMF staff estimates and projections.

Calculated on the basis of real oil and non-oil GDP at factor cost.

Based on fiscal year cycle, which starts on April 1 and ends on March 31.

Starting FY 2016/17, there has been a reclassification of expenditure items.

Excludes investment income and pension fund recapitalization.

Excludes debt of Kuwait's SWF related to asset management operations.

Excludes SDRs and IMF reserve position.

For 2018, based on latest available data.

Does not include external assets held by Kuwait Investment Authority.


Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.


At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

Kuwait: 2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Kuwait
Author: International Monetary Fund. Middle East and Central Asia Dept.