IMF Wraps Up 2025 Article IV Talks With Kuwait

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Kuwait. [1]

An incipient recovery is underway, while inflation continues to moderate. Real GDP expanded by 1.7 percent (y-o-y) in 2025Q2, driven by robust non-oil growth of 3.1 percent (y-o-y), following a contraction in 2024. Headline inflation continued to ease in 2025, reaching 2.4 percent (y-o-y) in November. Despite lower oil prices and production, the fiscal position has improved. The current account surplus moderated to an estimated 23.6 percent of GDP in 2025, and external buffers remain large. The financial system remains stable and prudently managed.

Looking ahead, the economy is expected to recover. Real GDP will expand by 3.8 percent in 2026, driven by the unwinding of OPEC+ production cuts and robust non-oil growth, estimated at 3.0 percent of GDP. Headline CPI inflation will moderate to 2.1 percent in 2026 and then stabilize just below 2.0 percent over the medium term. The fiscal deficit of the budgetary central government will increase to 8.7 percent of GDP in FY2025/26 and 9.4 percent of GDP in FY2026/27, given higher spending and lower oil revenue, then will widen over the medium term. The current account surplus will moderate to 19.6 percent of GDP in 2026, primarily reflecting lower oil exports, then will gradually decline over the medium term.

The risks around these projections are broadly balanced. The economy is highly exposed to a variety of global risks through its oil dependence, especially to commodity price volatility, a global growth slowdown or acceleration, and shifts in global financial conditions. The materialization of these risks would be transmitted to Kuwait mainly via their impacts on oil prices and OPEC+ production. The main domestic risk is changes in the speed of structural reforms and associated infrastructure project implementation to diversify the economy.

Executive Board Assessment [2]

In concluding the 2025 Article IV consultation with Kuwait, Executive Directors endorsed staff's appraisal, as follows:

An economic recovery is underway, in spite of lower oil prices. Growth is rebounding, driven by the unwinding of OPEC+ production cuts and robust non-oil growth. Inflation continues to moderate, reflecting lower core and food inflation. Lower oil revenues have weakened the external and fiscal positions, but buffers remain strong. Financial stability has been maintained, with a credit cycle upturn underway. These macrofinancial developments are projected to persist under the baseline, which is subject to broadly balanced risks arising mainly from the heavy dependence of the economy on oil.

Staff welcomes the authorities' Vision 2035 aspirations to implement economic reforms in pursuit of a more diversified economy. To sustainably boost non-oil growth, a comprehensive and well-sequenced package of fiscal and structural reforms is needed. Fiscal reforms should reinforce long-term fiscal sustainability and intergenerational equity while incentivizing Kuwaitis to pursue jobs in the private sector. In parallel, structural reforms should unify the labor market and improve the business environment.

Gradual fiscal consolidation at a pace of about 1 percent of GDP per year would be needed over the next decade to achieve long-term fiscal sustainability. To mobilize non-oil revenue, the 15 percent CIT should be extended to all domestic companies, while the GCC-wide excise tax and 5 percent VAT should be introduced. To rationalize the public sector wage bill, a performance-based public sector wage setting mechanism should be introduced to gradually reduce the large premium over the private sector, and a hiring cap instituted to steadily lower the public sector employment share. To reform energy subsidies, retail fuel, electricity and water prices should be gradually raised towards their GCC-average levels while providing targeted cash transfers to vulnerable groups. Finally, to improve infrastructure, on-budget public investment should be further scaled up, by around 2 percent of GDP over the medium term.

Comprehensive PFM reforms should be implemented to strengthen the conduct of fiscal policy. A priority is to develop a medium-term fiscal framework, including a fiscal rules framework with a ceiling on public debt and a target for the non-oil fiscal balance. In addition, public investment management assessments should be undertaken periodically to ensure best practice in infrastructure governance and track contingent liabilities. Furthermore, the government should publish a medium-term debt management strategy including a bond issuance calendar. Finally, the government should develop a sovereign asset-liability management framework to balance intergenerational fiscal policy tradeoffs while managing risks to the public sector balance sheet.

The exchange rate peg remains an appropriate nominal anchor for monetary policy. It has helped support macroeconomic and financial stability for many years, including relatively low and stable inflation. The external position was substantially weaker than the level implied by medium-term fundamentals and desirable policies in 2025, reflecting an excessive reliance on oil exports and inadequate public and private saving of oil revenue. These public and private saving-investment imbalances are driven by fiscal and structural factors. Fiscal consolidation to reinforce intergenerational equity, together with structural reforms to enhance competitiveness, would help strengthen the external position and support the exchange rate peg.

Systemic risk remains contained and prudently managed. With a credit cycle upturn underway, the CBK should consider reclassifying part of its country-specific capital buffer as a positive neutral countercyclical capital buffer. The forthcoming Real Estate Financing Law will permit banks to offer mortgage loans for the first time, in which context the CBK should continue its practice of regularly reviewing the adequacy of its financial regulatory perimeter and extensive macroprudential policy toolkit. Finally, the CBK should continue its risk-based supervisory approach to assessing banks and effectively addressing any vulnerabilities.

A comprehensive and well-sequenced structural reform package should be implemented to unify the labor market and improve the business environment. The state owns most productive assets, employs nearly all Kuwaitis, and leads all megaprojects. The priorities include reducing the public sector wage premium, scaling up the supply of housing, and deepening the financial markets.

Statistical capacity has weakened further from a low base, hampering surveillance. Major gaps in the national accounts, government finance and external sector statistics should be filled to enable well-informed policymaking.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.