Kuwait – Mubasher: The International Monetary Fund's (IMF) mission expected that the economic growth to gain momentum over the medium term, backed by infrastructure investment.
The mission noted that the continued improvement in project implementation under the Kuwait Development Plan will support a gradual recovery in real non-oil gross domestic product (GDP) growth to about 3.5% in 2017 and 4% thereafter, according to published the mission's final statement during its visit to Kuwait.
The financial sector has remained sound and credit conditions favorable, where banks featured high capitalization ratio reached 17.9% and low non-performing loans saw lower ratio of 2.4%, the IMF said.
Moreover, high loan-loss provisioning rose to around 206% coverage, adding to an improvement in bank liquidity, supported by a recovery in deposits of government entities. Credit to the private sector has been increasing at a solid pace.
"Dwindling oil revenues have pushed the government’s fiscal balance—excluding investment income and after mandatory transfers to the Future Generations Fund (FGF)—into a large deficit of over 17% of GDP in FY 2015/16, generating significant financing needs," the statement added.
The mission pinpointed that the external current account surplus also dropped to 5.25% of GDP in 2015 and is expected to see further decline to 4.5% in 2016.
The government deficit has been financed mainly through draw down of General Reserve Fund (GRF) assets, the IMF said, adding that the issuance of domestic bonds has increased in 2016 by about KWD 1.43 billion.
The mission pointed that the government disclosed its intention to tap international capital markets to raise up to KWD 2.9 billion.
Kuwait’s fiscal position is projected to improve modestly, noting that the mission’s baseline scenario assumes oil prices to reach $60 per barrel by 2021.
"The government fiscal balance, after transfers to the Future Generations Fund (FGF), is projected to decline to 13% from about 17.5% of GDP over the medium term in FY 2016-2017," the IMF stated.
As per the statement, the mission welcomed the Kuwaiti government's intention to control the wage bill as part of the medium-term fiscal effort, with an aim to simplify and harmonize the wage structure and centralise wage policy decisions.
The mission considers the peg to an "undisclosed" basket appropriate, while the external sector assessment suggests a moderate current account gap, which would be closed by increasing fiscal savings as recommended over the medium term.
