Kuwait – Mubasher: The decline in oil prices has adversely affected Kuwait’s fiscal and current account balances and slowed growth in 2014–15, said the International Monetary Fund in a report issued Wednesday.
It added that, with high financial buffers and substantial borrowing space, the government can smooth the fiscal adjustment in response to the decline in oil prices, and continue to support growth through sizable investment spending.
“The fiscal balance based on the authorities’ presentation is projected to remain in deficit over the medium term. Despite this accounting deficit, which will cumulatively reach KWD 26.2 billion (US$94 billion) and create financing needs of similar amount during 2015–20, the government will continue to accumulate fiscal buffers of $35 billion during 2015-20, as it adheres to the fiscal rule of transferring 10 percent of total revenue to the FGF and retaining investment income in the fund,” said the fund.
Real non-oil GDP growth is projected to slow in 2015 and 2016, and pick up to 4% in the medium term, supported by government investment in infrastructure and private investment. Average inflation is projected to increase to 3.4% in 2015 and will remain broadly stable at that level over the medium term, given limited global inflation, according to IMF.
The fiscal and external positions are projected to deteriorate further in 2015 and 2016, and improve somewhat over the medium term as oil prices and production recover partially. The oil price decline has increased the urgency of diversifying the economy and creating high productivity jobs is a priority to reduce Kuwait’s dual dependency on oil revenue and expatriate workers. The government is focusing on reforms to contain current expenditure, prioritize capital expenditure and pursue with policies aimed towards increasing the role of private sector investment and job creation for nationals.
