KUWAIT CITY, July 22, (Agencies): Kuwait should put tax reforms on top of its priority list if it is keen on improving its economic structure, the International Monetary Fund said recently. In its regular Article Four report on Kuwait released on July 19 and published on its website, the IMF said, “Priority should be given to tax reforms, including the introduction of value-added tax and a comprehensive income tax system.” The fund stressed the need for Kuwait to offer better subsidies and social privileges, in addition to reallocation of public expenditure toward investment, to strengthen its fiscal management.

According to the fund, the “strong fiscal stimulus and ambitious development plan” of Kuwait greatly contributed to its economic recovery in 2010 despite the current impasse in its political arena. Kuwait had an estimated real GDP growth of 3.3 percent last year, comprising oil growth of 3.2 percent and non-oil growth of 3.4 percent, the fund said. The IMF emphasized the importance of further fiscal, financial and institutional reforms in the country to secure sustainable broad-based growth and to address the challenges ahead. The board said Kuwait needs to adopt more fiscal reforms and guarantee “inter-generational equity in the sharing of oil wealth,” as well as “reallocation of public expenditure toward investment.” With regional turmoil and higher oil prices, Kuwait had increased its crude production to assist in the effort to stabilize the global oil market, the IMF added.

This helped fund the fiscal aid package approved by Kuwait’s ruler earlier this year, which included a grant of about $3,600 to each Kuwaiti and free basic food items from February 2011 to March 2012. The fiscal aid constituted half of the 21.5 percent growth in government expenditure in fiscal 2010-11, the IMF revealed.
Meanwhile, ratings agency Standard and Poors on Tuesday boosted its foreign-currency rating on Kuwait by a notch, citing the nation’s strong economic growth and solid state of fiscal affairs. S&P placed Kuwait’s outlook at stable, saying this reflects the nation’s strong fiscal position, as well as its deadlocked political system and poor transparency regarding government assets. S&P also cited revisions to the agency’s methodology which have placed a heavier weight on the country’s high GDP per capita and strong external and fiscal balance sheets.

The world’s fourth largest oil exporter has seen limited demonstrations but, thanks to a generous welfare system, avoided the mass protests that toppled rulers in Egypt and Tunisia. “We see that economic activity remains weak with a difficult political environment, and limited implementation of the investment programme. “However there has been some improvement with higher government spending,” said Monica Malik, chief economist at EFG-Hermes. On Tuesday, Kuwait’s Central Bank governor said the Opec member needs to increase government spending and support the private sector to overcome imbalances in its economy.