The International Monetary Fund assessed that while Kuwait’s economy continues to recover and inflation remains under control, there are still considerable risks to economic prospects. These risks are primarily tied to the volatile nature of oil prices and production. The IMF emphasized that resolving the political deadlock in Kuwait could expedite the necessary financial and structural reforms, bolstering investor confidence and promoting private investment.
Issuing a press release following the conclusion of consultations with Kuwait in 2023, the IMF highlighted Kuwait’s substantial financial reserves and robust external buffers. These strengths provide Kuwait with a advantageous position to carry out essential reforms. However, the ongoing political impasse between the government and the National Assembly could potentially impede the progress of these reforms, reports Al-Rai daily.
The IMF cautioned against procrastinating the imperative financial and structural changes, as such delays could magnify the risks associated with pro-cyclical fiscal policies and undermine investor trust. These delays also hinder the advancement of economic diversification, leaving the economy more susceptible to the perils of climate change.
The Fund underscored the necessity for comprehensive and supportive fiscal measures to ensure the sustainability of public finances and uphold fairness across generations. It advocated for an increase in non-oil revenues starting from the upcoming fiscal year. Addressing stagnation in current expenditures was advised, alongside boosting capital spending to foster potential growth.
The IMF proposed that revenue reforms might encompass targeted taxes such as selective taxes and value-added tax, alongside broadening corporate income tax to encompass domestic companies. In terms of public spending, a focus on reducing the wage burden and gradually phasing out energy subsidies was recommended.
Simultaneously, targeted income support measures could be improved. Emphasizing the importance of prudent fiscal management for the sake of intergenerational equity and advocating for economic diversification, the IMF stressed the requirement for robust growth in non-oil sectors led by private enterprise, accommodating the influx of new participants in the job market.
Regarding employment dynamics, the IMF highlighted the necessity for labor market reforms to align wage structures with the market, including the gradual harmonization of wages and work conditions between the public and private sectors. Alongside this, reforms to the social safety net were deemed essential to provide sufficient support for citizens during the transitional phase.
The IMF also affirmed that the Kuwaiti banking sector remains stable and resilient against systemic risks, supported by a robust precautionary framework that should continue to be reinforced.