WASHINGTON, Jan 17, (KUNA): Kuwait is “well positioned” to alleviate lower oil prices impact on the economy, the IMF said on Tuesday, as large financial buffers and low debt allow implementation of needed gradual fiscal consolidation.
“The fiscal and external positions have deteriorated significantly and nonhydrocarbon growth has moderated from five percent in 2014 to about 3.25 percent this year as a result of the drop in oil prices,” said the Washington-based International Monetary Fund in a report.
Currently, fiscal and external positions are projected to “improve”, added the IMF, as oil prices recover, while nonoil growth is projected to regain momentum to about four percent over the medium term supported by a continued improvement in project implementation under the five-year Development Plan.”
The IMF went on to highlight what it saw as a “main risk” to this outlook, namely further drops in oil prices, slow project implementation, volatile global financial conditions and spillovers from regional conflicts.
These risks should spur Kuwait on to continue its reform policies, said the IMF, hailing the government’s six-pillar reform strategy as being “rightly focused on reforming public finances and promoting a greater role for the private sector in generating growth and jobs for nationals.”
The IMF also hailed Kuwait’s efforts to curb spending as “steps in the right direction,” including reforms to petrol and utility prices and measures to facilitate business licensing.
The report proposed “gradually” removing energy subsidies, controlling the wage bill, introducing value added and business profit taxes and repricing government services through a “well-designed reform” as means to diversify revenue away from oil.
“These fiscal reforms should be designed and sequenced with a view to striking a balance between generating fiscal savings in line with intergenerational equity levels and mitigating the drawbacks of fiscal consolidation on economic activity,” said the report.
On the banking sector, the IMF welcomed the Central Bank of Kuwait’s initiatives to enhance financial sector surveillance.
It also said that the Kuwaiti currencys peg to an undisclosed basket of currencies is “appropriate” and has “provided an effective nominal anchor.”
The report went on to highlight the importance of reforms of the labor market and the promotion of the private sector role to diversification and job creation for Kuwaiti nationals.
This could be achieved through better utilization of private sector partnerships, stronger legal frameworks and an improved alignment of labor market incentives.
On steps to improve the business environment, it said this should include reforms to ease access to land and finance, including for small to mid-sized enterprises (SMEs), reduce bureaucracy, and encourage competition.