The non-oil sector supports the growth of the Kuwaiti economy

The fund indicated that inflation has been contained and the balance of public finance and the external account has been strengthened, while maintaining financial stability.

Regarding the dominance of oil in the economy, coupled with general global trends towards reducing carbon emissions, the fund said the Gulf state needs to carry out public finance reforms to strengthen sustainability, and structural reforms to boost non-oil growth. led by the private sector.

The latest developments in the economy

The IMF estimates that Kuwait’s economy has recovered significantly from the pandemic, as growth is estimated to reach 8.2% in 2022 from 1.3% in 2021, mainly due to increased oil production and to rising prices.

Non-oil growth is also estimated to have increased to 4% in 2022 from 3.4% in 2021, reflecting strong domestic demand.

Inflation has been contained, given the limited transmission of the effects of higher world food and energy prices through the system of administered prices and subsidies, as well as the tightening of large-scale monetary policy, as is the case with major central banks around the world.

The annual headline consumer price index inflation had peaked in April 2022, recording 4.7%, then it took a downward trend and reached 3.7% in April 2023.

The Fund added that the public finance balance and the external balance have received a boost thanks to the increase in oil revenues, and the Fund’s expert indicate estimates that the total public finance surplus has increased to 22.5% of GDP in 2022 against 6.4% of GDP in 2021.

At the same time, the current account surplus is estimated to have increased to 33% of GDP in 2022 from 26.6% of GDP in 2021.

Additionally, official reserve assets increased to USD 48.2 billion (equivalent to 10.3 months of expected imports) at the end of 2022, which is sufficient to cover the balance of payments financing risks. .

However, the external position in 2022 is expected to be weaker than implied by favorable economic fundamentals and policies, largely due to insufficient public savings from windfall oil revenues.

The fund confirmed that the country was able to maintain financial stability, as banks still benefit from good levels of capital and liquidity, these levels reassuringly exceeding precautionary regulatory requirements, while non-performing loans remain low. .

Credit growth to the private sector remains strong, despite the Central Bank of Kuwait’s gradual increase in the base interest rate, until the total increase reaches 250 basis points since the start of the tightening cycle of global monetary policy last year.

The impact of the turmoil in the global banking sector on Kuwaiti banks remained limited, due to their locally and regionally oriented business models and the power of prudential supervision exercised by the Central Bank of Kuwait.

The IMF expected growth in the Kuwaiti economy to slow in 2023 to 0.1% due to OPEC+-agreed oil production cuts and weak external demand growth.

However, the fund confirmed that non-oil growth will remain strong at 3.8%, thanks to the financial stimulus and a partial recovery in expatriate employment, despite slowing real credit growth.

The Fund also predicted that inflation would remain contained, while the economic recovery would be slow, supported by lower global food and energy prices.

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