The fund said that inflation has been contained, and the balance of public finances and the external account has been strengthened, while maintaining financial stability.
With regard to the dominance of oil in the economy, coupled with global general trends towards reducing carbon emissions, the fund said that the Gulf state must carry out reforms in public finances to enhance sustainability, and structural reforms to give impetus to non-oil growth led by the private sector.
The latest developments in the economy
The IMF believes that the Kuwaiti economy has recovered significantly from the pandemic, as it is estimated that growth will rise to 8.2 percent in 2022 compared to 1.3 percent in 2021, mainly driven by increased oil production and higher prices.
Non-oil growth also rose, according to estimates, to 4 percent in 2022, compared to 3.4 percent in 2021, reflecting the strength of domestic demand.
Inflation was contained, given the limited transmission of the effects of rising world food and energy prices thanks to the system of administratively directed prices and subsidies, as well as the tightening of monetary policy on a large scale, as is the case with major central banks around the world.
The annual headline inflation in the consumer price index had reached its peak in April 2022, recording 4.7 percent, then it took a downward trend and reached 3.7 percent in April 2023.
The Fund added that the balance of public finances and the external balance received a boost thanks to the increase in oil revenues, and the estimates of the Fund’s experts indicate that the total public finance surplus rose to 22.5 percent of GDP in 2022 compared to 6.4 percent of GDP in 2021.
In parallel, the current account surplus increased, according to estimates, to 33 percent of GDP in 2022, compared to 26.6 percent of GDP in 2021.
Moreover, official reserve assets increased to USD 48.2 billion (equivalent to 10.3 months of expected imports) by the end of 2022 which is sufficient to cover balance of payments financing risks.
However, the external position in 2022 is estimated to be weaker than implied by economic fundamentals and favorable policies, largely due to insufficient public saving from windfall oil revenues.
The fund confirmed that the country was able to maintain financial stability, as banks still enjoy good levels of capital and liquidity, as these levels reassuringly exceed the precautionary regulatory requirements, while non-performing loans remain low.
Credit growth to the private sector remains strong, despite the Central Bank of Kuwait’s gradual increase in the base interest rate, until the total increase reached 250 basis points since the start of the global monetary policy tightening cycle last year.
The impact of the global banking sector turmoil on Kuwaiti banks remained limited, as a reflection of their locally and regionally oriented business models and the power of prudential control by the Central Bank of Kuwait.
The IMF expected the growth of Kuwait’s economy to slow down in 2023 to 0.1 percent due to the oil production cuts agreed upon in OPEC + and the slow growth of external demand.
However, the fund confirmed that non-oil growth will remain strong at 3.8 percent, thanks to financial stimulus and a partial recovery in expatriate employment, despite the slowdown in real credit growth.
The Fund also predicted that inflation would remain contained, while the economic recovery would slow, underpinned by lower global food and energy prices.
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