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.
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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.