ASIATODAY.ID, WASHINGTON — The International Monetary Fund (IMF) has concluded its 2025 Article IV Consultation with Kuwait, delivering a clear message: the economy is recovering, but heavy dependence on oil continues to pose significant fiscal and external risks.
While growth momentum is returning, the IMF warns that without decisive fiscal and structural reforms, Kuwait’s public finances could face increasing strain in the years ahead.
Growth Returns, Inflation Eases
Kuwait’s economic activity is rebounding after last year’s contraction. Real GDP expanded by 1.7% year-on-year in Q2 2025, driven by strong non-oil sector growth of 3.1%.
Inflation continues to moderate. Headline inflation fell to 2.4% in November 2025 and is projected to decline further to 2.1% in 2026, stabilizing just below 2% over the medium term.
Looking ahead, the IMF forecasts real GDP growth of 3.8% in 2026, supported by the unwinding of OPEC+ production cuts and sustained non-oil expansion.
Fiscal Deficit Set to Widen, External Surplus Shrinks
Despite the recovery, lower oil prices are weighing heavily on fiscal and external balances:
– The central government fiscal deficit is projected to widen to 8.7% of GDP in FY2025/26 and 9.4% in FY2026/27.
– The current account surplus is expected to narrow from 23.6% of GDP in 2025 to 19.6% in 2026.
– Gross government debt is projected to rise sharply to 24.2% of GDP in 2026, up from just 2.9% in 2024.
However, external buffers remain substantial, with official reserves covering more than seven months of imports.
Oil Dependence Remains the Core Risk
The IMF stressed that Kuwait remains highly exposed to global risks, particularly:
– Commodity price volatility
– A slowdown or acceleration in global growth
– Shifts in global financial conditions
These risks are transmitted primarily through oil prices and OPEC+ production decisions.
Domestically, the main uncertainty lies in the pace of structural reforms and infrastructure project implementation aimed at economic diversification.
Bold Reform Agenda Urged
The IMF welcomed Kuwait’s Vision 2035 strategy to transition from an oil-dependent welfare state toward a more diversified and dynamic economy. However, it emphasized that reform momentum must accelerate.
Key recommendations include:
– Gradual fiscal consolidation of about 1% of GDP annually over the next decade.
– Expanding the 15% corporate income tax (CIT) to all domestic companies.
– Introducing a 5% value-added tax (VAT) and GCC-wide excise taxes.
– Phasing out energy subsidies by gradually increasing fuel, electricity, and water prices while protecting vulnerable groups through targeted cash transfers.
– Rationalizing the public wage bill and limiting public sector hiring.
– Scaling up on-budget public investment by around 2% of GDP over the medium term.
The IMF also called for stronger public financial management, including a medium-term fiscal framework, debt ceiling rules, and a transparent bond issuance calendar.
Financial Stability Intact
Kuwait’s financial system remains stable and prudently managed. Credit to the nonfinancial private sector is projected to grow by 6.1% in 2026, reflecting a strengthening credit cycle.
The IMF advised continued vigilance from the central bank, particularly as the upcoming Real Estate Financing Law will allow banks to offer mortgage loans for the first time.
Key 2026 Projections
Real GDP Growth: 3.8%
Inflation: 2.1%
Fiscal Deficit: 9.3% of GDP
Current Account Surplus: 19.6% of GDP
Government Debt: 24.2% of GDP
Nominal GDP: US$159.5 billion
GDP per Capita: US$30,593
Reform or Fiscal Strain?
The IMF concluded that Kuwait’s exchange rate peg remains an appropriate monetary anchor, having supported macroeconomic stability and low inflation for years.
However, it cautioned that Kuwait’s external position in 2025 was weaker than warranted by fundamentals, largely due to excessive reliance on oil exports and insufficient saving of oil revenues.
The message is unmistakable: Kuwait’s recovery is real, but its long-term resilience hinges on bold fiscal consolidation and structural transformation. Without reform, oil price volatility could once again destabilize public finances. (AT Network)
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