The International Monetary Fund’s (IMF) Executive Board has wrapped up its Article IV consultation with Kuwait.
The IMF’s press release summarised the key points discussed during the consultation: OPEC+ production cuts have put the economy in a recession, but the non-oil sector is rebounding and inflation is decreasing.
A 4.3% drop in the oil sector and a 1% contraction in the non-oil sector were the main causes of the 3.6% real GDP contraction in 2023. Real GDP shrank 1% year over year in the second quarter of 2024, with the oil sector declining 6%, partially offset by a 4% recovery in the non-oil sector.
In September 2024, headline CPI inflation further moderated to 2.6% after dropping to 3.6% in 2023. Financial stability is unaffected, although Kuwait’s external and fiscal balances have been weakened by lower oil production and prices.
The current account surplus moderated to 31.4% of GDP in 2023, indicating that the external position is still strong. By the end of 2023, official reserves totalled USD 47.6 billion, which was enough to cover projections for imports for 9 months.
The central government’s fiscal balance changed to a 31.1% GDP deficit in the fiscal year 2023–2024. Nonetheless, the overall fiscal balance of the government, which includes the income from SWF investments and the profit transfers from SOEs, remained robust at 26.1% of GDP.
In 2023, banks maintained strong capital and liquidity buffers, and non-performing loans (NPLs) remained low and well-provisioned, despite a slowdown in credit growth brought on by higher interest rates.
As a result of ongoing production cuts by OPEC+, Kuwait’s economy is predicted to remain in recession in 2024, contracting by 20.8%, before gradually improving.
As the cuts are unwound, real GDP growth is anticipated to reach 2.6% in 2025. Despite fiscal consolidation, the non-oil sector will continue to recover, with real credit growth increasing and non-oil GDP growing by 2.0%.