KUWAIT CITY, June 2, (Agencies): Kuwait’s economy will grow steadily in 2011 thanks to government spending and high oil prices after having risen more strongly last year, a document by the International Monetary Fund (IMF) showed on Thursday.

Kuwait’s real GDP is projected to grow by 5.2 percent this year, slightly down from the IMF’s April forecast of 5.3 percent.

“The economy is expected to grow steadily in 2011 and over the medium term as the government implements the development plan and global recovery supports demand for oil,” the IMF said in a document following regular consultations with Kuwait.
In 2010, Kuwait’s economy is estimated to have grown by 3.3 percent, the IMF said, well above its previous estimate of 2.0 percent.

Analysts polled by Reuters in March expected economic output to grow by 4.0 percent this year in Kuwait, which has seen only limited public protests in the political unrest that has swept other parts of the Middle East.

The IMF consultation took place between April 27 and May 9, according to the document posted on Kuwait’s central bank website www.cbk.gov.kw.

Kuwait has been hoping to attract more investment to prepare for the time when oil runs out. So far, its $133 billion economy is dominated by the state oil industry, the biggest employer outside the public service.

The IMF said government expenditure excluding energy subsidies and social security recapitalisation is estimated to have increased by 21.5 percent.

Expenditure accelerated in the second half of the fiscal year 2010/2011 with a cash-and-food social grant accounting for half of the increase.
“Continued fiscal stimulus is appropriate at this juncture,” the IMF said. “Nevertheless ... expenditure should be moderated if signs of overheating emerge.”

Kuwait has boosted projected spending by nearly 10 percent to KD 17.9 billion ($65 billion) in its government budget for the current fiscal year, which started in April.
The fund also said it expected Kuwait’s monetary policy to remain accommodative due to its currency basket peg, dominated by the US dollar, and low global interest rates.
The central bank last cut its discount rate by 50 basis points to 2.5 percent in February 2010 to help Kuwait’s economy recover from an estimated 4.6 percent contraction in 2009.
The IMF welcomed the planned introduction of a value-added tax in 2013 as part of wider implementation by the Gulf Cooperation Council, which also includes Saudi Arabia, United Arab Emirates, Qatar, Oman and Bahrain.
Kuwait has for years also been considering introducing an income tax for individuals but nothing concrete has happened as some analysts fear this will hit plans to attract much-needed foreign investment.
The IMF also stressed that “the regional unrest has weighed down on stock market prices, similar to other countries in the region,” but at the same time, “Kuwait has increased its oil production to assist in the effort to stabilize the global oil market.” It added that government expenditure in FY 2010/11, excluding energy-related subsidies and recapitalization of social security, is estimated to have increased by 21.5 percent, “with expenditure accelerating in the second half of the fiscal year.”
“Higher international oil prices bolstered Kuwait’s oil revenue with oil export receipts increasing by 19 percent. In 2010, fiscal and external surpluses are estimated at about 21 and 29 percent of GDP, respectively, compared to 28 and 24 percent in 2009,” according to the report.
It said that “profits of local banks increased by 70 percent in 2010 and capitalization strengthened further,” whereas “corporate sector leverage and resilience to interest rate and income shocks have improved, although these improvements were not observed in the real estate sector.”