IMF expects improvement in Kuwait’s current account

16 de novembro de 2017

The Gulf country external current account registered a 4.5% of GDP deficit last year, but the International Monetary Fund expects improvement due to the recovery of oil prices and the measures taken.

São Paulo – After facing in 2016 its first external current account deficit in several years, Kuwait should improve its performance this year, as far as oil prices recover. The data is part of a report released by the staff of the International Monetary Fund (IMF) this Wednesday (15).

Oil is the main revenues source for the country, with the commodity and its products accounting for over half of the Gross Domestic Product (GDP) and for near 90% of exports and government’s revenues. Due to the commodity’s lower oil prices, last year the external current account deficit reached 4.5% off Kuwait’s GDP.

According to the IMF’s report, the country faced oil prices from a position of strength due to low debt and a sound financial sector. But is weakened the country’s fiscal and external positions and generated large fiscal needs. The oil-impacted scenario increased the need for a local private sector, one to employ more local citizens, according to the IMF.

The Fund reports that the country implemented a comprehensive reforms strategy and took measures to curtain spending and set up a more appropriate environment to private investments, but there’s still a lot to do. “The key challenge is to build on this strategy to accelerate reforms that underpin fiscal consolidation and ensure that future generations can continue to enjoy a high living standard, while creating incentives for private initiative and investment,” said the Fund.

However, the spending cuts improved the fiscal position since last year and lower oil prices also impacted subsidies to energy, with the decline of funds directed to the sector in the last few years. The banking sector remained highly capitalized, with great profitability and low default numbers, despite the deceleration of credit’s growth and deposits by the private sector.

The IMF supports a broad fiscal reform package with the aim to fight
spending rigidities, such as the “wage bill and subsidies”, diversify revenues, increase spending efficiency, better aligning of the public and private sector, speed up privatizations and public-private partnerships and improve the business scenario.

The IMF expects Kuwait to improve in the next few years the confidence, the growth acceleration of the non-oil sector and a higher output of hydrocarbons. Oil prices should help keep the country’s external current account balanced.

The IMF believes Kuwait will go from oil and gas exports of USD 41.5 billion last year to USD 45.3 billion in 2017, and to USD 56.3 billion in 2022. In 2013, oil and gas exports totaled USD 108.6 billion. The price of the exported oil barrel by Kuwait, which stood over USD 100 the barrel four years ago, ended at a little more than USD 40 last year. IMF forecasts that the barrel will be sold for near USD 52 in 2022.

*Translated by Sérgio Kakitani